Official data published today reveals how much people saved in workplace pension schemes during 2018.
You can read the full release here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/806513/workplace-pension-participation-and-saving-trends-2008-2018.pdf
Key points:
• £90.4billion was saved in workplace pensions during 2018, up £7billion from 2017
• The persistency of saving (the number of people who have saved in a pension in at least three of the last four years) declined marginally to 72%
• Average contributions increase for the first time in 6 years but the vast majority of private sector employees are still paying 4% or less into their workplace scheme (Source: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/workplacepensions/datasets/summaryofpensionresultsannualsurveyofhoursandearnings)
• Male and female participation rates roughly equal but women still face an uphill struggle saving for retirement
Tom Selby, senior analyst at AJ Bell, comments:
“The impact of automatic enrolment on pension saving has been truly staggering, with over £90billion saved via workplace schemes last year.
“This figure is likely to increase still further in 2019 as the rise in minimum contributions from 5% to 8% of relevant earnings kicks in.
“The decline in persistency of pension saving from 2017 to 2018 may reflect a small number of savers opting out as a result of the first contribution hike and will need to be carefully monitored by the DWP.”
Most still not saving enough
“All is not rosy in the pensions garden, however. While the amount people are paying into retirement pots has increased for the first time in six years, average workplace contributions outside the public sector remain too low, with most people setting aside 4% or less of their salary (with the first 3% now matched by their employer).
“When you consider auto-enrolment minimum contributions are based on a band of earnings rather than your total salary packet, millions risk being short of cash in their later years unless they take action today.
“A 25 year-old earning £30,000 paying in the minimum 8% total contribution could expect to have a fund worth less than £200,000* in today’s prices when they reach retirement. That would convert into an inflation-adjusted annuity income of about £7,000 a year** – far below most people’s retirement expectations.
“The choices facing people today are simple: pay more in now, retire later or have less money to spend when you stop working.”
Self-employed excluded
“Not everyone is covered by auto-enrolment, with around 5 million self-employed workers excluded from the reforms. Those who can afford to should consider taking the bull by the horns and setting up their own pension, benefitting from the boost of pension tax relief as well as the long-term power of compound growth.
“Employed people earning less than £10,000 are also not eligible to be auto-enrolled, although they can actively opt-in to their workplace scheme.
“If they do and they are in a scheme which deducts contributions from their net pay, they risk missing out on the pension tax relief they are owed. This is also the case for anyone earning below the £12,500 personal allowance.
“Addressing this net pay anomaly, which is more likely to hit female savers, should be a priority for the Government.”
Gender divide
“While it is good news that male and female employees are equally likely to be saving in a workplace pension scheme, women face a more difficult task than men in building up a decent retirement pot.
“This is primarily driven by differences in average wages and the fact women are more likely to take career breaks.”
*Minimum contributions based on total £30,000 salary; assumes inflation-adjusted investment growth of 3%
**Quote from Money Advice Service calculator; assumes individual is healthy and entire £200,000 is used to buy an inflation-linked, single-life annuity at age 65
