A young person disabled before entering the workforce could retire with a pension pot more than £245,327 smaller than their non-disabled peers - a gap driven by a lifetime of constrained earnings, low pension participation and higher later-life costs, according to a new report by PensionBee, a leading online retirement savings provider.
The findings also land as the newly published Second Pensions Commission interim report warns that disabled people are among the groups facing persistent structural barriers to pension saving and future retirement adequacy and that over half of disabled people at age 46 have no pension wealth at all. The Commission found that almost half of working-age people are not saving into a pension in a typical month and cautioned that current automatic enrolment arrangements leave around 4 million employees outside pension saving altogether.
Key findings:
A person disabled in childhood and then working part-time faces a final pension pot of £109,886 - compared to £355,213 for a non-disabled full-time worker: a gap of £245,327.
• 91% of disabled people worry about their future financial security; 54% worry 'a lot'.
• 48% of disabled people have no pension provision beyond the State Pension.
• 52% of those with any pension savings have less than £10,000.
• 84% say disability has negatively impacted their ability to save.
• 46% became disabled before age 30 - nearly half faced financial barriers before their careers began.
• One in four people in the UK are now disabled, up from one in five a decade ago.
PensionBee, a leading online retirement savings provider, today publishes Sick, Tired and Never Retired?, a research report examining the long-term financial consequences of disability and chronic illness in the UK. The report combines original survey data from more than 900 disabled people across the UK with pension modelling based on earnings data from the Office for National Statistics (ONS) Disability Pay Gap data.
The publishing of this report coincides with the ongoing Timms Review, the Government's research mission into the lived experience of disabled people and how disability affects their ability to learn, work and earn, led by Sir Stephen Timms, Minister for Social Security and Disability.
PensionBee modelled three scenarios using median earnings assumptions derived from ONS Disability Pay Gap data for full-time and part-time workers, examining the impact of disability onset in childhood, age 30 and age 50.
The results show a stark gradient: the earlier disability occurs, the greater the long-term financial penalty. Illustrative modelling scenarios include when an individual is:
- Disabled from childhood and working part-time throughout life: faces a final pension pot of £109,886, compared to £355,213 for a non-disabled full-time worker, generating a disability pension gap of £245,327.
- Disabled from age 30 and moving to part-time work: faces a final pension pot of £207,328, generating a disability pension gap of £147,885.
- Disabled from age 50 and moving to part-time work: faces a final pension pot of £313,766, generating a disability pension gap of £41,447.
Those who are disabled in childhood and limited to part-time work face a pension gap several times larger than those who become disabled later in working life. These estimates are also likely to be conservative because the modelling assumes continuous employment throughout working life and does not account for periods of unemployment or inability to work.
Becky O’Connor, Head of Pensions at PensionBee, said: “The impact of disability on long-term finances is profound. Disabled people face a ‘quadruple whammy’ affecting their retirement prospects and needs: constrained earnings and reduced labour market participation; the need to work longer despite health limitations; likely higher care costs later in life; and a greater likelihood of renting rather than owning in retirement.
“9 in 10 disabled people worry about their financial future. Sadly, that anxiety is rational, and demands a policy response that goes beyond short-term benefit reform.
“The Timms Review is an opportunity to recognise the ramifications of pension policy as well as welfare provision for disabled people, and to offer structural support that can ultimately reduce poverty and hardship for the long term for this financially vulnerable group.
“The Second Pensions Commission has also confirmed that disabled people remain among the groups most at risk of inadequate retirement outcomes. Its findings underline that the disability pension gap is not simply an individual problem, but a structural weakness in the UK pensions system that requires long-term policy action.”
PensionBee is calling on the Timms Review to consider removing the £10,000 automatic enrolment threshold, introducing a disability pension credit, and requiring that any reform to disability benefits be assessed for its long-term impact on retirement income.
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