Steven Cameron, Pensions Director at Aegon comments: “The latest figures show a continued growth in occupational pension scheme membership with the biggest change being in the private sector where defined contribution (DC) active membership has risen from 7.7 million in 2017 to 9.9 million in 2018*. Auto-enrolment continues to be the driving force behind this increase as workplace pension saving has become the norm.
“After experiencing a fall in 2017, it is encouraging to see that average contribution rates from employers and employees combined into DC schemes has started to rise again to 5% in 2018, up from 3.4% the previous year**. This reflects the start of the increases to the auto-enrolment minimum contribution rates that we saw in April 2018 and we expect average contribution rates to increase further following the additional rise in April of this year. However, no-one should be under any false impression that this level of contribution will deliver a comfortable retirement and where they can, employees should look to contribute more than just the minimum levels or face a shortfall of funds in retirement.
“Although DC schemes have seen a rise in contribution rates over the last year, the data offers a stark reminder of just how low contributions are compared to the average contribution going into a defined benefit (DB) scheme which, at 25.6% in 2018, is more than 5 times the average for DC schemes. With the majority of active members in DB schemes being in the public sector (6.3 m of the total 7.5m) this points to a continuation of the pensions divide between the public and private sector.”
Commenting on the ONS occupational pension figures released today, Michael Ambery, Senior DC Consultant at Hymans Robertson, says: “It is great to see that auto enrolment is continuing to encourage more employers to help more people save for their retirement, but the job is far from done. In reality, with more employers providing AE pensions, many savers will be believing that the pension contributions they are making will provide them with a comfortable income in retirement. Instead, they will be surprised to find at the point of retirement, that they simply haven’t saved enough. Our next challenge must be to ensure and encourage people to increase their savings to meaningful levels that will provide them with an adequate income at retirement. We support the PLSA’s focus for providing clear and simple targets and inspiring people to increase their contributions with knowledge of these targets and their needs in retirement. Our own experience shows that targets and clear communication to be vital if employees are to reach savings levels that will provide them with adequate retirement incomes.
“Even with the recent increases in contribution levels to 8% the truth is that many people will be massively under-saving for a comfortable retirement. The reduction of the AE starting age to 18 and changing the entry threshold to base contributions which are due to be implemented, will help. These moves alone, however, will not achieve enough and other measures, such as pushing out the target retirement date to coincide with their State Pension Age and further increasing contributions to a total of 12%, will be needed to achieve an adequate income in retirement. At 12% we would begin to see a contribution that will have a meaningful impact for employees’ retirement savings. At that level we can see far greater certainty of them reaching a target income that they can live on in retirement.
“Employers, the industry and Government must focus on helping people to save enough for retirement and not presume that the AE default rates mean everything is going to be rosy when they finish working. Collectively we have the tools, we need to use them.”
Mark Pemberthy, Head of DC Wealth at Buck said:“It’s encouraging to see that today’s figures from the ONS show pension saving continues to move in a positive direction. More people than ever are participating in workplace pension schemes and with contribution rates also rising in recent years, it’s clear that auto-enrolment is having a positive impact on the overall DC pension landscape and people’s pension savings. The simple fact that more employees are putting money aside for their retirement shows that we have made positive steps towards addressing the savings shortfall that so many people face in later life.
“However, while auto-enrolment has been a huge success in relation to pension engagement, the data show that automatic enrolment minimum contribution rates continue to drag down overall DC pension contribution rates with the average now exactly in line with the 2018 auto-enrolment minimum of 5% compared to average DC contribution rates before auto-enrolment of 11%. While it is great that more people are saving for their future, most employees are still not saving enough to provide the standard of living they want or expect in retirement and this is storing up future problems for employees and employers alike. Our recent research, DC Pensions – what is the point? found that 44% of employers are concerned about the long-term impact on their business if employees cannot afford to stop working, however they need to go further than the government’s minimum requirements if they want to help employees secure a comfortable retirement.”
Troy Clutterbuck, CEO, NOW: Pensions: “Last year the number of occupational pension schemes increased by 4.5 million to a total of 45.6 million compared to 41.1 million in 2017. This is fantastic news as 9.9 million people are now saving into a private sector pension pot for their futures, but this also poses problems. There has been a significant increase in the number of preserved (deferred)* pensions reaching 13.6 million in 2018, up from 11.6 million the previous year.
“This spike is mainly a result of auto enrolment and changing employment patterns with people moving jobs more often than previous generations. With each new job comes a new pension pot and this pension pot proliferation shows no sign of slowing.
“The government left a gaping hole when it abolished short service refunds in 2015 and then subsequently decided not to give the green light to an automatic ‘pot follows member’ transfers system. This has left the industry with a growing problem which can only be resolved by the government and industry working together to streamline pension savings.”
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