ONS figures on workplace pensions prompt calls for action on AE policy

New statistics from the Office for National Statistics (ONS) on workplace pensions have prompted calls for further action on minimum contribution levels and widening auto-enrolment (AE).

The ONS revealed that 86.4 per cent of people in full-time work are enrolled in a pension scheme, compared to 57.8 per cent of those in part-time work.

Hargreaves Lansdown personal finance analyst, Sarah Coles, said that although pension policy makers had “harnessed the incredible strength of inertia”, which has led to record workplace pension membership, “inertia can only get us so far”.

“To go the rest of the distance, we need to take action,” she continued. “Putting people into workplace pensions automatically has been an incredible success, but there are still enormous numbers of people who fall through the cracks.

“Far fewer part-time workers are in their pension scheme, partly because more of them earn below the minimum threshold. Then there are those who are too young to qualify, and self-employed people who fall out of the system entirely.”

Royal London director of policy and external affairs, Jamie Jenkins, agreed, saying that there was “still much work to be done”.

He stated: “While we see high levels of participation for full-time staff more needs to be done to boost the numbers of part-time workers in workplace pensions.”

The figures from the ONS also showed that the most common employee contribution rate in an occupational defined contribution (DC) scheme is 4-5 per cent, whereas in a defined benefit (DB) scheme it is 7 per cent or higher.

Furthermore, in DC schemes, the most common employer contribution was between 2 and 4 per cent, compared to 20 per cent or higher in DB schemes.

“There’s a risk that those who’ve joined their schemes aren’t paying in anywhere near enough,” Coles added.

“The statutory minimums on these pensions mean overall 8 per cent has to go into the pension, with employers paying at least 3 per cent. Typically, employers are paying 2-4 per cent and employees 4-5 per cent, so plenty of employees will be getting combined contributions way below the level they need for a comfortable income in retirement.

“Compare that to DB schemes where typically the employee pays in 7 per cent or more and the employer 20 per cent or more.”

Jenkins noted: “If we want to see people retiring well with their DC pensions then we need to see further action to boost minimum contribution rates. A good starting point is to make plans for implementing the recommendations in the 2017 review of AE.”

The figures also revealed that 89.1 per cent of people in DB schemes worked in the public sector, with 55-54 year olds most likely to be in a DB scheme (34.8 per cent) and those aged under 22 the least likely (6.4 per cent).

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