Membership of occupational pension schemes 'at lowest level since the 1950s'

In its Occupational Pension Scheme Survey for 2010 (11-page / 65KB PDF), the Office for National Statistics (ONS) said there were 8.3 million active employee members of occupational pension schemes in 2010, compared to 8.7m the previous year. This was the lowest level of pension scheme membership since the 1950s, it said.

Of that active membership, 5.2m were in public sector schemes while 3m were in private sector schemes, the ONS said.

An occupational pension scheme is a pension scheme arranged by an employer to provide benefits for employees on retirement or for their dependents on their death. The ONS defines 'active' pension scheme members as current employees who would normally contribute to a pension fund, or who would normally have contributions made on their behalf.

The ONS said the decline was due to the fall in membership of private sector defined benefit schemes. Defined benefit schemes are schemes that promise a set level of pension once an employee reaches retirement age no matter what happens to the stock market or the value of the pension investment.

Pensions law expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that the fall in defined benefit pension scheme membership was unsurprising as employers were increasingly closing schemes in an effort to save costs. Membership of defined contribution schemes, in which the final value depends on the performance of the scheme member's individual contributions, remained steady at 1m.

"Many of the employers who have, until recently, defied the trend to close their schemes now find it impossible to maintain this position in the challenging economic environment," Saunders said.

The percentage of an employee's salary which is paid into a pension scheme by both the employee and the employer is generally higher for defined benefit schemes than defined contribution schemes. In 2010 the average contribution rate amongst employers in the private sector for defined benefit pension schemes in 2010 was 15.8%, according to the ONS' figures. For defined contribution schemes, it was only 6.2%.

Contribution rates for employees were 5.1% for defined benefit schemes and 2.7% for defined contribution schemes.

Saunders said this statistic was "concerning", particularly in light of forthcoming reforms which will see workers automatically enrolled into an occupational pension scheme from next year.

"This does not bode well for auto-enrolment. Contributions of this type of level will not be sufficient to provide adequate pensions. Auto-enrolment will fail to achieve its aim of tackling our pensions crisis unless employees are able and willing to prioritise saving for their future over living for the day," she said.

Between October 2012 and September 2016 employers will have to start auto-enrolling their workers into a pension scheme which meets minimum requirements. Employers will be required to automatically enrol "eligible jobholders" aged between 22 and the State Pension age who are earning more than £7,475 a year.

Overall membership of occupational pension schemes, including those members already in retirement, also decreased, falling to 27.2m from 27.7m the previous year.

The annual survey, which is based on a random sample of occupational schemes registered in the UK in both the public and private sectors, provides a summary of pension scheme membership and contributions paid.