Individuals with disabilities face notable disadvantages in building their retirement savings when it comes to pension planning.
A significant proportion of UK adults (22%) currently live with a disability. However, individuals with disabilities possess experience significant difficulties when it comes to pension saving, resulting in a pension just 36% of the UK average pot side.
Put another way, people with disabilities approaching retirement age (age 60-64) have an average pot size of £47,980, whilst those without disabilities retire with an average pot of £130,928.
These troubling figures indicate that people with disabilities are more likely to face financial challenges in retirement, and at higher risk of pension poverty.
Evidently, financial barriers need to be broken down. And understanding these challenges is a vital step to improving inclusivity within the retirement sector and ensuring all savers are able to develop a pension plan with suits their unique needs and circumstances.
The unique challenges people living with disabilities face in their pension planning
Saving for retirement can be a difficult task for many people. However, for those with disabilities, many experience added layers of complexity.
While more than half (53%) of disabled people are working – marking more than ever before – this figure is still significantly lower than non-disabled people (82%), leading to potential financial instability and making it more difficult to save enough money for retirement.
A significant factor in this is that may be difficult for people with disabilities to find employment or develop in their career due to workplace discrimination and limited opportunities due to accessibility and bias.
Fewer accessible job opportunities have led to the disability pay gap. This pay gap is a key reason that it is more challenging for people with disabilities to save sufficiently for retirement, as disabled workers earn 13.8% less on average than non-disabled people. Ultimately, this results in lower pension contributions and in turn low overall pension wealth among the disabled community.
Moreover, the impact of the pay gap is exacerbated due to the prevalence of part-time work among disabled employees, triggered by a combination of limited working opportunities and workers asking for accommodations like reduced hours to make their role more accessible. This can lead to lower auto-enrolment in workplace pensions, meaning that a significant number of workers with disabilities are unable to access workplace pensions altogether.
Primarily, this is because many part-time workers do not meet the minimum earnings threshold of £10,000 in a single job, which qualifies them for automatic enrolment into pension schemes. As a result, these individuals are excluded from the benefits and opportunities that come with employer contributions and tax relief.
Auto-enrolment plays a significant role in boosting pension engagement amongst all savers, therefore, being excluded puts disabled people at a considerable disadvantage, making it even more challenging for them to accumulate sufficient retirement savings.
Boosting inclusivity
The disability pension gap is a complex issue, requiring a multi-faceted approach that addresses systemic factors.
Ensuring the constant improvement of inclusive hiring practices that consider impairments to employment and addressing discrimination and bias is vital. Likewise, welfare reforms introduced earlier this year that aim to help people to work without fear of losing their benefits are a welcome move in the right direction.
Further, it is crucial for the government to also facilitate affordable, accessible independent financial advice for all. Individuals with disabilities often face unique financial challenges and require tailored guidance to navigate pension planning effectively. Accessible and comprehensive financial advice can empower them to make informed decisions, optimise their retirement savings, and bridge the gap in pension wealth.
Addressing the pensions gap among people with disabilities is crucial for creating a more inclusive pensions sector. The statistics clearly highlight the disparity in pension wealth between individuals with disabilities and those without. Overcoming these challenges will require tackling systematic issues such as workplace barriers, while increased efforts to facilitate, accessible, affordable independent financial advice will further bridge the gap, ensuring disability does not determine one’s financial well-being in retirement.