I watched the live stream of the Resolution Foundation seminar yesterday on their excellent report: A hard day’s night: the labour market experience of low-to-middle income families. This report highlights that employment rates have increased among low income families despite factors which would have been expected to reduce rates. The report notes several important factors:
- In work poverty is increasing (up 10 percentage points between 2000/01 and 2022/23)
- Low to middle income worker’s jobs are more likely to be low-paid, insecure and have unsatisfactory conditions (e.g., poor management and low control over working hours)
More people in work is generally considered to be a good thing for pension saving, but if we are seeing more people working in insecure, low-paid jobs then it follows that they may feel less able to afford contributions?
This led me to wondering whether wage increases are keeping up with inflation. So I headed over to the RF’s Macroeconomic Policy Unit which produces quarterly reports on real wage growth. The Q2 2024 publication surprised me by showing that real wages grew by 2% in the year to February 2024, but that productivity has not kept up with wage growth! Productivity has fallen for several reasons, one being that employers have recently paid higher indirect costs such as contributions into pensions (including plugging gaps in Defined Benefit funding) and NI contributions. Therefore, the output per pound paid by employers is falling. This is worrying because it is likely to have a depressive effect on wage growth.
The report doesn’t specify how wages for low to middle-income families have kept up with inflation, but the hard day’s night report shows that rises to the minimum wage have only had a limited effect on the incomes of the poorest households because many low-to-middle income households are paid above the minimum wage, with low earnings resulting from part time or insecure work.
I know many stakeholders will argue that those on low incomes should not be contributing to private pensions anyway, as they can achieve similar standards of living in retirement to those they had in working life via the State Pension and benefits. This is a strong point. We do also need to consider whether low incomes in working-life are satisfactory to people and whether they are able to meet their needs during working life and/or retirement on minimum incomes.
The Government’s pensions review second stage will be considering pension outcomes and adequacy. I think it is essential that affordability is part of this consideration, and thought about what policies may make it easier for low income workers to save, be they labour market policies or pension policies.
Leave a Reply