Pension gap concerns remain despite participation rising to 22.6m employees

Industry experts have raised concerns around the limitations of auto-enrolment (AE) policy, despite figures from the Office for National Statics (ONS) revealing that around 22.6 million employees are now saving into workplace pensions.

The data showed that participation in workplace pensions had increased to 79 per cent in April 2021, up from 78 per cent in April 2020, partly as a result of the increased public sector employment driven by the government’s response to the Covid-19 pandemic.

The impact of the pandemic was also seen in increased employment in the public sector, as the NHS and Civil Service responding to the Covid-19 pandemic also impacted trends.

As a result of this, whilst occupational defined benefit (DB) schemes have seen a decline over the past decade, in the year to April 2021 participation grew by 1 percentage point to 28 per cent.

The figures from the ONS also showed that the gap in employee workplace pension participation rates between the public and private sectors was among its lowest levels in April 2021, at 91 per cent compared to 75 per cent respectively.

However, disparities remained amid differences in pension type by sector, as the figures showed that while employee participation in the private sector in DB pensions fell to 7 per cent from 8 per cent in April 2020, in the public sector 82 per cent of employees contributed to DB pensions, up 2 percentage points from April 2020.

Employees with a workplace pension in the public sector recorded an average value of £65,400, compared with £10,300 in the private sector.

Disparities were also found as a result of auto-enrolment eligibility criteria, particularly around the age criteria, which requires savers to be aged between 22 and state pension age.

According to the ONS, around 8 in 10 eligible employees had a pension, compared to 2 in 10 employees aged between 16 and 21 years, and 4 in 10 aged state pension age and over.

In addition to this, the figures revealed that only 43 per cent of the lowest earning full-time private sector employees earning £100 to £199 per week were participating in a pension, around half the rate of equivalent earners in the public sector, with many in this bracket not eligible for AE, which has an earnings trigger of £10,000, equivalent to £192 per week.

Commenting on the figures, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, argued that whilst AE has been "a triumph", there is still much more to be done to avoid savers missing out on a workplace pension.

She continued: "The government pledged in its 2017 Auto-enrolment Review that it would look to widen out auto-enrolment by lowering the minimum age to 18 and allowing people to contribute from the first pound of their earnings.

"It is clear these actions would considerably boost participation among these underserved groups and give them the opportunity to save more for longer and build a more resilient retirement as a result.

"Anyone who feels they can’t afford it is able to opt-out, but the data overwhelmingly shows that the vast majority of people remain in their pension once they’ve been enrolled.

"However, it has so far been evasive as to the timeline for these potential changes. The review initially gave a mid-2020s timeframe but when pressed on the issue recently the pension minister would only say the reforms would be brought about 'in the fullness of time'.

"These are important next steps in the evolution of auto-enrolment, and they must not be kicked into the long grass.”

This was echoed by AJ Bell head of retirement policy, Tom Selby, who warned that AE reforms "remain half-baked, with millions of people ineligible and minimum contributions too low to deliver a decent income in retirement".

In addition to this, Selby warned that even those covered by auto-enrolment are at serious risk of retirement disappointment, noting that a 30-year-old contributing at the minimum until state pension age who spends their 25 per cent tax-free cash might only be able to enjoy a drawdown income of around £10,000 a year until their mid-90s.

“Someone earning £30,000 a year who is first auto-enrolled on their 40th birthday on the same terms faces an even bleaker retirement, with their fund potentially delivering an income of just £5,500 a year until their mid-90s," he continued.

“What’s more, millions of self-employed workers remain entirely excluded from auto-enrolment, with many saving little or nothing for retirement. This is the section of the labour market most at risk of retirement penury, with no specific plans currently in place to help them.

“To put it bluntly, as things stand self-employed workers are like the Titanic, unwittingly on a collision course with a giant retirement iceberg. Without urgent action, this will become the next pensions disaster in the UK.”

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