Out-Law News 2 min. read
02 Mar 2015, 4:52 pm
The Office for National Statistics (ONS) reported this week that 59% of the UK workforce is now an active member of a workplace pension scheme, with scheme membership in 2014 rising across every age group and earnings band compared to the previous year. The overall figure represents the highest level of pension saving since records began in 1997, according to the ONS.
In a press release, the government's Department for Work and Pensions (DWP) said that the figures underlined the success of the automatic enrolment programme, through which more than five million workers to date have been brought into a pension scheme or begun saving more. Pensions expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that the increase in scheme membership was "not unexpected", although encouraging.
"The challenge is to ensure that these scheme members have good pension outcomes - and that is about so much more than just getting people into schemes," she said. "It falls to the next government to decide on whether to raise the auto-enrolment contribution rates. It is generally accepted that the current minimum rates are insufficient to provide good outcomes, but just increasing those will not be enough to make a real difference."
"Improving employee engagement and understanding is the holy grail, and it seems that it is employers who will end up doing much of the heavy lifting in this area - but that is not without its problems. There is a fine line between giving knowledge and giving advice, and many employers are unwilling to risk falling the wrong side of the line," she said.
Automatic enrolment began for the largest employers in October 2012, and will ultimately result in up to 10 million people saving more towards their retirement or saving for the first time. Under the programme, more than 1.3 million employers will have to automatically enrol workers into a pension scheme which meets certain minimum requirements, and will be legally obliged to make contributions towards the pensions of workers that do not opt out of the scheme once enrolled.
In August 2014, the government said that it would undertake "further work" on pension contribution rates after research showed that as many as 11.9 million working age adults in the UK were not saving enough to provide them with an adequate income in retirement. Although it did not rule out increasing statutory minimum contribution rates, it said that careful balancing would be needed to ensure that lower earners did not end up paying so much that they would be encouraged to opt out of pension saving altogether. Currently, employers and employees must contribute a combined minimum of 2% of earnings to a pension used for automatic enrolment, rising to 8% of which a minimum of 3% must come from the employer by 2018.
According to ONS figures, 59% of all workers were active members of a pension scheme at the end of 2014, up from 50% in 2013. This was primarily due to increases in membership of occupational defined contribution schemes, as well as group personal and group stakeholder schemes. Occupational defined benefit schemes accounted for less than half of total workplace pension membership in 2014, for the first time since records began.
In the private sector, 49% of employees were now active members of a pension scheme, up from 32% in 2012. However, the proportion of private sector workers receiving employee contributions at a rate below 4% of salary almost doubled between 2013 and 2014, from 22% to 43%.
