Figures published by the Office for National Statistics today should mark a historical low point for participation in workplace pension schemes, according to Towers Watson. However, the decline of defined benefit pension provision outside the public sector is expected to continue and could be accelerated by the Government’s State Pension reforms.
New estimates from the Office for National Statistics’ (ONS) latest Annual Survey of Hours and Earnings suggest that only 32 per cent of private sector employees were saving through workplace pension schemes in April 2012. This compares with 47 per cent in 2002 (see notes to editors for full historical data). The proportion not saving only rose fractionally between 2011 and 2012 (from 67.6 per cent to 68.3 per cent) but was higher in 2012 than in any year since the ONS started publishing this data in 1997. Even including the public sector, where participation rates are much higher, less than half of all employees (46 per cent) were saving in workplace pensions.
David Robbins, senior consultant at Towers Watson, said: “Pension scheme membership has fallen sharply in recent years, but this was the final snapshot to be taken before any employers were legally required to automatically enrol staff into pensions. From here, the only way is up but the picture will not be transformed overnight: almost half of the non-savers eligible for automatic enrolment work for small employers who have been given an extended period of grace and will only start to be brought on board after the general election in 2015.
“The early indications are that employees placed into pension schemes by default are overwhelmingly staying in. That should not surprise anyone. Opting out involves telling your employer to keep the money it would have paid into your pension pot and consciously deciding not to put anything away for retirement yourself. Even with wages failing to keep pace with the cost of living, most people will hesitate before doing that.
“How few people are saving at all should soon be yesterday’s problem, but automatic enrolment makes it no more likely that people will save enough. It takes the hassle out of joining a pension scheme but places the onus on individuals to understand that the automatic contribution rates are unlikely to produce retirement incomes they would regard as adequate, and to do something about it.”
DB scheme membership falls and will do so again
Only eight per cent of private sector employees were building up new entitlements to DB pensions in 2012, down from nine per cent in 2011 and 34 per cent as recently as 1997.
David Robbins said: “The Government’s State Pension reforms could accelerate the decline of what is left of DB pension provision outside the public sector. From 2017, employers who still provide DB schemes will lose National Insurance rebates that can be worth up to £1,169 per employee in 2013/14. Employers will have to consult their workers about any changes they make to offset these costs. If they have to go through this process anyway, some will think that they may as well do so for a big change as a small change and close the scheme.
“Even without these reforms, final salary pension provision would continue to contract as existing members of schemes that are closed to new entrants retire or get new jobs.“
Different outlook for the public sector
In a sharp contrast with the private sector, 83 per cent of public sector employees belonged to pension schemes in April 2012.
David Robbins said: “The first of three increases in pension contributions for public sector employees was implemented at about this time. There has been speculation that public sector employees struggling to afford higher contributions will leave their schemes. It would be surprising if this has a huge impact, especially as the lowest earners have been exempted from paying more. However, the strength of opposition to this part of the reforms suggests that many in the public sector may prefer worse pensions and higher take-home pay even if this had a lower long-term cost to the taxpayer.”
Stan Russell, retirement expert at Prudential said: "The numbers taking place in workplace retirement saving has hit a 15- year low, with less than half of employees joining their company schemes. The ongoing implementation of auto-enrolment will hopefully be a big step towards bringing this benefit to a much wider audience.
"Pensions are arguably the most efficient way of saving. A low rate taxpayer will immediately receive an extra £1.25 for every pound they save into a company pension scheme, through tax relief and employer contributions. The benefits for high rate taxpayers are higher still, as they will receive an extra £1.67 into their scheme for every pound they save.
"This failure to prepare for retirement doesn't just affect employees. A recent Prudential study found that 46% of self-employed workers have no private pension savings, which must be addressed as the number of self-employed workers continues to rise."
The table above compares this morning’s data for private sector pension scheme participation in 2012 with corresponding data from earlier editions of the Office for National Statistics’ Annual Survey of Hours and Earnings. Figures for 1997-2010 are taken from figure 7.9 of the July 2012 Pension Trends: Pension Scheme Membership publication. For 2011 we have used the revised data published this morning.
|
