News – Workplace pension saving at a ten-year high

Nick Elvin

Workplace pension participation has risen to its highest level in a decade, according to new figures from the Office for National Statistics (ONS).

The data reveals that 70% of eligible employees – 13.9 million people – paid into a workplace pension in 2014, a 15 percentage point increase in two years.

The rise in participation is largely due to the introduction in 2012 of automatic enrolment, which means individuals are now enrolled automatically by their employer provided they are at least 22 years old and under state pension age, and earn more than £10,000 a year. If they don’t want to belong they now have to actively opt out.

The enrolment process has been completed by large and medium-sized employers, and is now rolling out to small and micro firms. All employers have to offer their eligible staff access to a pension scheme, regardless of how many people they employ. So far nearly 5.3 million people have been enrolled by more than 50,000 employers.

The Government will be increasing the minimum contributions that must be paid into automatic enrolment to 8% in 2018.

Commenting on the figures, Malcolm McLean, senior consultant at pension advisory firm Barnett Waddingham, said employees who have recently started to make contributions, following the introduction of automatic enrolment, are likely to be making the current minimum contributions specified under the rules, which would have the effect of decreasing overall median contribution rates. However, this lower percentage contribution rate picture is expected to change as automatic enrolment proceeds and the minimum level of contributions required increases.

“There are two clear messages that are emerging from the results of auto-enrolment thus far,” he said. “The first is, as we might have expected, that the overall effect of automatically enrolling millions of new savers into a workplace pension scheme would be to increase the numbers contributing but, on the basis of minimum contribution levels, reduce the median amounts being saved.

“This will inevitably increase as the minimum levels increase when the ‘phasing-in’ process is complete, although for most savers they will still be inadequate to give them the levels of pension saving they might need. This problem needs to be addressed by the use of some system of auto-escalation of contributions or other means as soon as possible.

“The second message to me from the figures is the need for the Government to tread carefully with any major changes to tax reliefs that they may be considering. If it were to be decided to go the whole hog and reverse the arrangements for giving tax relief on contributions to one where instead the proceeds were allowed tax-free instead, many years hence this would reduce still further the amounts being paid in under auto-enrolment and aggravate the current situation even more.

“It could also put off many younger people from saving into a pension which is the exact opposite of what auto-enrolment was designed to achieve.”