Ethnic differences in retirement wealth accumulation in the UK

Private pensions constitute the largest component of household wealth in the UK, and the vast majority of employees are automatically enrolled into workplace pension plans. Drawing on employer-reported pension data matched with the population census, we document that Bangladeshi and Pakistani employees are around twice as likely to opt out of their workplace pension as those from other ethnic backgrounds. Employees opting out do not receive their employer’s contribution to their private pension plan or the tax subsidies given to private pension saving. The financial implications of this can be substantial: we estimate that a typical Pakistani or Bangladeshi employee who consistently opts out of their private pension could have retirement income around 60% higher by saving in that pension. These higher opt-out rates exist within-firm and cannot be explained by economic differences across ethnic groups; instead, we present a set of evidence pointing to the importance of Islamic religious beliefs in driving the higher opt-out rates, consistent with Islamic teachings on savings.