Articles - The ethnicity pensions gap

With 86% of the UK population from a white ethnic background and pension schemes designed to meet the needs of the majority, are we confident 14% of the population from Black and Minority Ethnic groups will save adequately for their retirement? Diversity and Inclusion is certainly getting more attention and higher up on the agenda, but we should be doing more to help ethnic minority groups because their needs matter too.

 By Shabna Islam, Actuary at Hymans Robertson
 The People’s Pension identified that pensioners from ethnic minorities are on average £3,350 a year, or 24.4%, worse off than other pensioners1 – calling this the ‘ethnicity pensions gap’. Furthermore, the Black and Minority Ethnic population is projected to grow by about 50% reaching 21% of the population by 20511 – so this is a growing problem that needs our attention now.
 Why does the gap exist?
 The causes of the ethnicity pensions gap are linked to wider labour market factors. The statistics show that, typically, minority ethnic groups have lower than average earnings, lower employment rates and higher rates of self-employment. These wider factors need to be addressed on an economic scale. Governmental changes to remove the pensions barriers will go some way to help the lower earners, such as removing the earnings trigger for automatic enrolment of £10,000 – but these are yet to be implemented.
 What can Trustees, Employers and Governance Committees do on Diversity and Inclusion to help pension savings?
 You can reflect on the design and setup of your pension arrangement and consider how inclusive this is. Ask yourself:
 Is the communication approach inclusive to all minority groups? For example, is your communications material accessible in different languages?
 Is the Trustee board sufficiently diverse to best deal with the needs of the minority?
 Are suitable investment funds available which align with the beliefs of the minority groups?
 With so many providers in the market, all offering a variety of services, it’s important to partner with a provider that will best support you to meet your Diversity and Inclusion objectives.
 The different minority groups will have a much wider variety of pension needs, and we should actively seek out their views, fully understand them and do our utmost to address them.
 As a Muslim myself I can give some insight into the Muslim minority group. For Muslims there is a need to invest solely in Shariah compliant investment funds. A Shariah compliant fund is one that is structured in accordance with Islamic principles. Under Sharia law, charging interest is not permitted and wealth must be generated through legitimate trade and investment in assets. It’s a form of ethical investing with negative screening, excluding certain investments such as investment in non-halal food production.
 Now I know many pensions schemes offer a small selection of Shariah compliant self-select investment funds - but are we being fair on Muslim colleagues when some colleagues have a wide choice of up to hundreds of funds and Muslims have a limited choice of a few solely equity-focussed funds?
 I can see why only a limited number of Shariah compliant funds are made available, these funds are not as easily accessible. The Shariah compliant investment market is in its infancy relative to other markets, but this shouldn’t deter us from making these funds more widely available, and at a competitive price. You may question if there will be enough demand for these investments to be value for money. I’m confident there will be:
 The Muslim pensions market is worth approximately £47 billion, compared to the whole market worth £2.1 trillion in the UK, so while it’s the minority, it’s still a sizeable market that is growing fast.
 Shariah compliant funds meet Responsible Investing credentials, so many non-Muslims are investing in these funds - therefore the target market is wider than you may expect.
 The different style of investment approach (with different screening criteria) adds an element of diversification to an asset portfolio thus increasing the demand for these specialist funds.
 The action you take to support minority groups very much depends on the needs of your workforce – however, recognising there is a problem and speaking up about how you will aim to resolve this is a huge leap forward.
 For the Muslim group, we’ve been talking to the Options Workplace Pension Trust (a DC Master Trust) and Wahed Investments – who, through their partnership, can offer the UK’s first fully diversified Shariah compliant workplace pension. This includes a wide selection of Shariah compliant funds and lifestyle funds.
 Wahed Investments have a Shariah board: a panel of Shariah scholars that approves proposed new products and reviews the operations of the company to ensure that its activities have been conducted in a Shariah compliant manner.
 What is innovative here is the wider choice of investment funds, leading to a truly diverse Shariah compliant portfolio and investment choices at an appropriate risk level via lifestyling for the Muslim working population – something that’s not been available before.
 Progress for the future
 Let’s get Diversity and Inclusion at the top of every Pension Committee agenda. Let’s do more for minority groups. Let’s plan to make things better - it’s simply the right thing to do.
 Reach out if you wish to discuss how to progress these issues and we’d be keen to hear what you are doing to promote them within your scheme.

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