Chart Of The Week: Auto-enrolment Boosts UK Pension Coverage

Data published by the UK’s Office for National Statistics (ONS) this week has revealed that the introduction of auto-enrolment in 2012 has led to the proportion of workers saving in a workplace pension increasing by more than half.

From 6 April this year, minimum contributions for employers into auto-enrolment plans rose to 3% from 2% of salary, while employees must now pay 5%, up from 3%.

In 2012, when the first major UK companies were compelled to enrol full-time employees into a pension scheme, the ONS said 49.8% of the UK private sector workforce had some form of occupational pension savings. By the end of last year, this proportion had risen to 76.2%, according to the statistics bureau.



In 1997, at the start of the ONS’ data series, 55.2% of workers in the private sector had some form of pension savings. The majority were members of a defined benefit (DB) scheme (45.7%), while defined contribution (DC) plans accounted for just 8.7%.

By 2012, DB coverage had fallen to 29.4% of the workforce, but DC was still just 8.4%. In the intervening period, use of group stakeholder and group personal pensions – alternative versions of traditional DC plans – grew their market share to collectively account for 11.6% of private sector workers.

Since the introduction of auto-enrolment, DB membership as a proportion of the private sector workforce has fallen gradually to 27.8%. In contrast, regular DC plans now account for 25.9%, and group personal and group stakeholder arrangements have 20.9%.



Chris Connelly, propositions and solutions director at administration provider Equiniti, highlighted that “perhaps the most transformational element” of auto-enrolment was the increase in coverage for younger workers. People aged at least 22 and earning at least £10,000 (€11,560) are eligible for auto-enrolment.

“Once again it was the youngest who saw the biggest rise in participation with a six percentage point increase in scheme membership for 22-29 year olds – in total, 79% now have a workplace pension,” Connelly said.

“Obviously with minimum contributions starting to rise, hopefully people are now starting to see the long-term value in a pension pot and will not opt out. With great new innovations like the pensions dashboard looming into view, it is heartening that the industry is not standing by and admiring the success of auto-enrolment, but putting a framework in place that will help people value what they have and seek to save more.”

Further reading

Auto-enrolment grows globally

A growing number of countries are planning to reduce the strain placed on public finances of providing pensions to ever more retirees by encouraging individuals to make more adequate provision for their own retirement

Auto-enrolment: A call for clarity

The UK government should set out its long-term policy on auto-enrolment contributions with a view to increasing the overall level, argues Jenny Condron, chair of the Association of Consulting Actuaries

RECENT NEWS

UK Roundup: FTSE350 DB Pensions See Largest Fall In Aggregate Contributions

LGIM centralises global trading onto Charles River IMS Read more

GPIF Suspends Stock Lending On Equity Portfolio

The move is to better ‘fullfill its stewardship responsibility’ Read more

WTWs German Pensionsfonds Vehicle Gets €2.6bn Boost With Innogy

Innogy’s new owner E.On does not have a Pensionsfonds Read more

Netherlands Roundup: Textile Scheme MITT To Temporarily Reduce Accrual To Avoid Cuts

Aegon to switch to IDC plan for its staff Read more

IASB Agrees DB Pensions Disclosures Package

The IASB board decided to take a blank page approach to explore whether new or different information about employee bene... Read more

UK Election: Labour Plans To Freeze Pension Age If Elected

Labour promises to compensate 400,000 women who have been “pushed into poverty” Read more