Pension participation stable amid Covid-19; adequacy concerns persist

The number of eligible employees participating in a workplace pension remained stable year-on-year in 2020 at 88 per cent, equal to around 19.4 million savers, the latest government figures have shown.

Additionally, the data revealed that the total annual savings for eligible savers had risen to £105.9bn in 2020, an increase of £5.5bn from 2019.

The public sector saw a £5.7bn increase in the amount saved to £47.1bn, while the private sector recording a £0.2bn fall to £58.9bn.

Employee pension contribution rates in RTI remained relatively stable throughout the 2020/21 financial year, despite the impact of the Covid-19 pandemic.

In addition to this, automatic enrolment scheme participation increased from 49 per cent in 2012/13 to 75 per cent of employees in the 2019/20 financial year.

The figures also showed that, since 2012, a number of participation gaps have narrowed, with the largest increases seen in agriculture, fishing and distribution, hotel and restaurant industries, and small employers.

All industries in the private sector recorded participation rates of 79 per cent or above.

In addition to this, the "persistent" gap in participation between age groups has narrowed from a 26 percentage point gap in 2012 to a 4 percentage point gap in 2020, as participation amongst the 22 to 29 age group increased from 24 per cent to 84 per cent over the same period.

Commenting on the figures, AJ Bell head of retirement policy, Tom Selby, said: “There was a fear that the financial pressures caused by the pandemic and subsequent lockdown would blow a hole in people’s retirement plans.

“Despite the uncertainty facing millions of savers in 2020/21 the majority have stuck with their workplace pension, benefitting from both upfront tax relief and matched employer contributions in the process.

“Although overall many are still saving too little to enjoy a comfortable retirement, the fact automatic enrolment held firm during the most turbulent 12-month period in living memory is hugely encouraging.

“The challenge is not over, however. The UK economy has been held together by hundreds of billions of pounds of state support, primarily provided through the furlough scheme. As this support is withdrawn, policymakers will need to keep an eagle eye on both the unemployment rate and any knock-on impacts on retirement saving.

“It’s also worth remembering there are millions of people, including the low paid and self-employed, who are not part of auto-enrolment, with many saving little or nothing for their financial future."

Indeed, the figures showed that whilst non-eligible employee participation had increased to 34 per cent since 2012, participation for the self-employed declined to 16 per cent, compared to 21 per cent in 2009.

Furthermore, some key participation gaps remain, as the government recorded relatively low participation of 63 per cent for Pakistani and Bangladeshi employees, representing a 20 percentage point gap compared to White employees.

Despite this, the figures showed that there has been progress, recording large increases among all ethnic groups over the past decade, with Pakistani and Bangladeshi ethnic groups recording the largest increase from 36 per cent to 63 per cent.

A “small but persistent gap” was also identified between disabled and non-disabled eligible employees, with disabled eligible employees having higher participation rates than non-disabled at 88 per cent compared to 82 per cent.

However, both the disabled and non-disabled groups again saw large increases between 2012 and 2020, rising 35 and 26 percentage points respectively.

Furthermore, whilst male and female participation rates in the private sector have nearly equalised for full-time employees, at 88 per cent for male compared to 90 per cent for female employees, gaps remain between full-time and part-time employees, and male and female part-time employees.

In particular, 86 per cent of female part-time employees are participating compared to only 73 per cent of male part-time employees.

Additionally, the figures showed that there are “persistent gaps” in the average amounts saved for male and female eligible savers, prompting concerns that whilst the number of employees participating in a scheme has increased, many are not paying enough.

Barnett Waddingham partner, Paul Leandro, commented: “While more people are paying into a workplace pension, many are falling woefully short of paying enough.

“Auto-enrolment has played on inertia to get employees automatically saving into a workplace pension scheme, which has been pivotal in getting people saving earlier, for longer.

“However, minimum auto-enrolment contribution levels are too low, and if people don’t proactively change from their default contribution rates they could see a big shortfall at retirement and an inability to fund their desired lifestyles.

“In short, the pension system needs a drastic overhaul. 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.

“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.”

The government also confirmed that it will be publishing a user consultation on the long-term future of the workplace pension participation publication in autumn to winter 2021.

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