Govt figures show ‘huge progress’ in pension saving but highlight inequalities

The government’s most recent workplace pension saving statistics have shown the “huge progress” auto-enrolment (AE) policy has brought, while also highlighting that inequalities in the UK pension system remain, according to industry experts.

Responding to the government’s publication of Workplace pension participation and saving trends statistics, pension professionals displayed relief that the Covid-19 pandemic had not had the negative impact many feared, although some warned that the full impact may not have been seen yet.

Concerns were raised about the pension inequalities between genders, ethnicities and employment statuses that the figures revealed, as well as the drop in private pension participation.

“AE has been a resounding success since its introduction in 2012,” said Quilter pensions expert, Ian Browne.

“However, for the first time since 2012, growth in private sector pension participation has stalled. The numbers saving into a pension in the private sector has decreased by 1 per cent.
 
“Is this simply a product of the pandemic? Or have we reached the end of the road for AE’s success? If the latter is correct then new policy is required to catch others and to boost the numbers once again.
 
“One cause for concern is the big gap in private sector pension participation between the employees of large companies, and the employees of small and micro businesses.

"There’s also a significant ethnicity pension gap, with only 65 per cent of Pakistani and Bangladeshi employees saving for a pension. These groups should be carefully considered by Department for Work and Pensions (DWP).

“Alarm bells will also be ringing in the government over the continuation of the long-term decline in self-employed pension savings.”

Browne urged the DWP to consider a partial opt-in AE system, whereby a saver would be able to opt out of their own contributions but still receive employer contributions, and to look at new policy measures to help the self-employed.

Aegon head of pensions, Kate Smith, also highlighted that the self-employed were at risk of being “left behind” on pension saving.

She added: “Although the number of eligible employees joining their employer’s workplace pension is steadily increasing, there are still far too many unpensioned employees who don’t meet the AE criteria and therefore don’t automatically benefit from an employer pension contribution.”

Interactive Investor head of pensions and savings, Becky O’Connor, urged the government to not “take the foot off the pensions pedal”.

She continued: “It’s worrying to see declining rates of saving in the private sector, particularly among men working part-time.
 
“There is still huge inequality in contribution rates and retirement outcomes, depending on the type and generosity of workplace schemes someone has during their career. The DWP’s figures show that public sector men on average contributed more than four times the amount women working in the private sector set aside last year, for example.
 
“There remain strong arguments for further reform to ensure that the pots people are diligently building up through workplace saving actually do what they expect them to, which is to pay them a decent income in retirement.”

Barnett Waddingham partner, Paul Leandro, went further, calling for a “drastic overhaul” of the pension system in the UK.

“It is still biased towards men and has not evolved with society, so for people outside the nuclear family especially - with one breadwinner, and no divorce - the system just doesn’t work,” he stated.

“We need to introduce better tools such as higher default contribution rates, and better use of a wide range of investment assets.

“For people taking career breaks, such as women on maternity leave, there needs to be greater use of tools like auto-escalation of contributions when they return to help them plug any gaps in their pension.

“Ultimately, pensions need to viewed as more than just another savings pot – they can be people’s most valuable asset, and the most important safety net.” 

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