Pension financialization and workplace pension wealth inequality : Evidence from Britain

The growth of Defined Contribution (DC) pensions, in which retirement depends on individual savings and financial market investments, has been a key aspect of household financialization. This article examines the impact of the shift from Defined Benefit to DC pensions on workplace pension wealth inequality in Britain. We propose a conceptual framework to interpret the effect of this shift, highlighting four key channels through which DC pensions can aggravate pension wealth inequality: the greater inequality of pension contributions, lack of redistributive mechanisms within pension schemes, the compounding effects of (missed) contributions over time, and unequal capacity to take on risks. Using data from the UK Wealth and Assets Survey, along with quantile regression and decomposition analysis, we find corroborating evidence that reliance on DC pensions exacerbates workplace pension wealth inequality, supporting the plausibility of our proposed four channels.