Squeezed out or opting out?

Think tank: Social Market Foundation

Author(s): Niamh O Regan; Aveek Bhattacharya; Gideon Salutin; Scott Corfe

February 6, 2023

This report from UK think tank the Social Market Foundation looks at ethnic differences in use of financial products and services.

This report from Social Market Foundation think-tank looks at the reasons behind the ethnic gap in financial products uptake, as well as proposing recommendations on how to reduce the risk of disadvantage faced by ethnic minorities. low take-up of financial products and services by ethnic minorities is well-established, but what causes these gaps is less well understood. Using new survey data and in-depth interviews, the SMF finds that for many ethnic minority consumers a lower take-up of pension and insurance products is more of a matter of choice than capacity: some ethnic minority consumers just think there are better ways to save. That being said, opting out of pensions does come with its own risks. Higher rates of ethnic minority consumers choose to “self-insure” and fund retirement through personal savings or entrepreneurship in later life, potentially making make them more vulnerable to financial shocks or unexpected changes in circumstance. We recommend five actions that policymakers and industry can take to improve uptake of financial products and services, and ensure more people have the products and services appropriate to them:

  • Lowering the pensions auto-enrolment threshold to £0, with employer contributions starting from the first pound earned.
  • A joint government and industry awareness building campaign that improves trust in financial services.
  • The development of peer-led support hubs centered in ethnic minority communities to provide an open and friendly environment to learn more about financial products and services.
  • Targeted support for new migrants to help them integrate into the financial system more quickly
  • Improved data collection to help develop a clearer picture of ethnic minority use of financial services.