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UK workers face retirement regrets due to low pension scheme contributions, official figures reveal UK workers face retirement regrets due to low pension scheme contributions, official figures reveal
(about 3 hours later)
The number of UK employees participating in workplace pensions has reached a record high, according to official figures, but experts have warned savers face a shock if contributions stay at minimum levels. The number of UK employees participating in workplace pensions has reached a record high, according to official figures, but experts have warned savers face a shock if their contributions stay at minimum levels.
Data from the Office for National Statistics shows the proportion of employees who contribute to a workplace pension has increased by almost a quarter since the introduction of automatic enrolment in 2012. Around 73 per cent of UK employees had an active workplace pension scheme in 2017, up from fewer than 47 per cent five years previously, representing almost 10 million people joining schemes. Data from the Office for National Statistics (ONS) shows the proportion of employees who contribute to a workplace pension has increased by almost a quarter since the introduction of automatic enrolment in 2012. Around 73 per cent of UK employees had an active workplace pension scheme in 2017, up from fewer than 47 per cent five years previously, representing almost 10 million people joining schemes.
The ONS said auto-enrolment led specifically to a rise in participation in defined contribution pensions, with around 43 per cent of all UK employees paying into a DC pension last year, compared with 17 per cent in 2012. The ONS said auto-enrolment led specifically to a rise in participation in defined contribution (DC) pensions, with around 43 per cent of all UK employees paying into a DC pension last year, compared with 17 per cent in 2012.
However, contributions have stayed close to the minimum levels required.However, contributions have stayed close to the minimum levels required.
In April, the minimum overall contribution rate to an automatically enrolled pension rose from 2 per cent to 5 per cent of an employee's qualifying earnings. This will rise against next April to 8 per cent. In April, the minimum overall contribution rate to an automatically enrolled pension rose from 2 per cent to 5 per cent of an employee’s qualifying earnings. This will rise again next April to 8 per cent.
The ONS found that employee contributions were concentrated at low levels in 2017: around 45 per cent of private sector employees with defined contribution pension schemes were contributing less than 1 per cent of pensionable earnings, and only around one in three employees were contributing 3 per cent or more, a reduction on average contribution rates since 2012. The ONS found that employee contributions were concentrated at low levels in 2017: around 45 per cent of private sector employees with defined contribution pension schemes were contributing less than 1 per cent of pensionable earnings, and only around one in three employees were contributing 3 per cent or more; a reduction on average contribution rates since 2012.
This could leave savers facing a tougher retirement than they envisage.This could leave savers facing a tougher retirement than they envisage.
“The minimum levels are designed to generate an income in retirement equivalent to about 40% of our working income. Most will want more than this,” said Alistair McQueen, head of savings and retirement at Aviva. “The minimum levels are designed to generate an income in retirement equivalent to about 40 per cent of our working income. Most will want more than this,” said Alistair McQueen, head of savings and retirement at Aviva.
“It's great that people are saving for retirement, but the next challenge is to encourage more people to save more. In 2019, minimum auto-enrolment contributions will rise to 8 per cent of earnings. Aviva advocates that many should aim for nearer 12 per cent. “It’s great that people are saving for retirement, but the next challenge is to encourage more people to save more. In 2019, minimum auto-enrolment contributions will rise to 8 per cent of earnings. Aviva advocates that many should aim for nearer 12 per cent.
“We must ensure that millions of new savers are not being auto-enrolled towards regret and resentment in later life.”“We must ensure that millions of new savers are not being auto-enrolled towards regret and resentment in later life.”
Scottish Widows retirement expert Robert Cochran warned that auto-enrolment “may well be providing a false sense of security”, and said the company had conducted research that revealed only 56 per cent of people are saving enough for a comfortable retirement. “More needs to be done to encourage greater levels of saving,” he added.Scottish Widows retirement expert Robert Cochran warned that auto-enrolment “may well be providing a false sense of security”, and said the company had conducted research that revealed only 56 per cent of people are saving enough for a comfortable retirement. “More needs to be done to encourage greater levels of saving,” he added.