Occupational pension scheme membership hits new high as automatic enrolment takes hold (Source: ONS)
Defined benefit provision continues to crumble as employers shutter schemes
While DC membership is up, average contribution rates of 4.2% are woefully inadequate – and member contributions are down
Promoting the value of retirement saving must be key priority for Government and industry
Tom Selby, senior analyst at AJ Bell, comments:
“The Government’s automatic enrolment programme was always likely to boost the volume of people saving in pensions, but its success to date should not be underestimated. Total pension scheme membership in the UK is now at the highest level ever recorded as the expansion of the reforms to medium and small employers, combined with relatively low opt-out rates, boosts participation in occupational retirement saving.
“Increasing the number of people saving is only part of the challenge, however. The average total contribution rate in occupation DC – at just 4.2% of pensionable salary – is woefully inadequate. It’s particularly worrying that member contributions dropped from 1.5% in 2015 to 1% in 2016. Even with 40 years of savings on an average UK salary that is going to get you a pension pot of around £125,000, a healthy amount but nowhere near enough to provide a decent income for 30 years of retirement.
“This will edge upwards as minimum contributions are due to rise to 8% by 2019, but even this won’t be enough to provide a good retirement income for most people.
“It is possible that the question of how to raise contributions is coming at just the wrong time. With average prices continuing to outstrip wages and the uncertainty of Brexit hanging over the economy, even a small hike in contribution rates risks causing a surge in members quitting schemes simply to make ends meet.
“Furthermore, large swathes of the economy – including self-employed workers and those earning less than £10,000 – are currently excluded from auto-enrolment.
“Tempting as it may be for policymakers to kick the can down the road on these issues, it’s vital the problem of low contribution rates and potentially expanding auto-enrolment to those currently not involved are tackled head on. As part of this, policymakers should seriously consider ways to boost member engagement, including simplifying the rules around how providers communicate with savers and promoting the value of retirement saving.”