Almost nine in ten eligible pension savers across the UK were participating in a workplace schemes last year, with the figures proving a steady increase since 2012 is being maintained.
The Department for Work and Pensions’ (DWP) Workplace pension participation & savings trends report, released today (2 September), gathers statistics from all members of qualifying workplace schemes, including group personal pensions and group stakeholder pensions.
Overall participation of eligible employees was 88% in 2020, representing 19.4 million savers, and similar to levels recorded for 2019.
A total £105bn was saved last year – £58.9bn in the private sector and £47.1bn in the public sector.
Within the total, £36bn was attributable to employer contributions in the private sector, while the figure was slightly lower (£33bn) across the public sector. Employee contributions therefore made up £15.9bn and £10bn respectively.
Most groups tracked by the DWP for its report have seen trends in participation stabilise between 2018 and 2020, with figures also suggesting the gender pensions gap is narrowing.
The DWP noted that many gaps have narrowed since the introduction of auto-enrolment (AE), most particularly in agriculture and fishing and distribution, and hotel and restaurant industries.
Some notable participation gaps remained however, with participation rates below 65% for micro employers (between one and four eligible staff), and Pakistani and Bangladeshi employees.
A fall in contributions generally was recorded in both Q1 and Q2 last year as the pandemic took hold across the UK, but ground was made up in both Q3 and Q4.
The DWP noted that trends in 2020 had faced the influence of Covid, but that findings were still “broadly comparable with trends observed in HM Revenue & Customs data”, showing recent levels are similar to pre-Covid ones.
Reform success
The DWP noted that the general downward trend in workplace pension participation between 2009 and 2012 – once reaching as low as 55% – showed the success of AE and pension reforms when viewed comparatively with 2020 figures.
Aegon head of pensions Kate Smith said there was “some concern last year” that the pandemic might have led to widespread opting-out.
“Today’s figures suggest just the opposite,” she said. “Last year there was a slight dip in the numbers of people actively opting-out of workplace saving and at 0.5% the figures were reassuringly low demonstrating the resilience of AE.”
The DWP also noted the narrowing of the gap between private and public sector employers, with 2020 being the first year the rate has not increased since 2013.
“All employer sizes have seen large increased in eligible employee participation rates since the start of the relevant AE stage date,” the DWP stated. “Higher earners continue to have higher participation rates for both sectors, but that gap has narrowed.”
Those earning between £50,000 and £60,000 per annum show the highest participation levels, at 93%. But the greatest increase has been seen in the £10,000 to £20,000 earningsd band in the public sector – up 14 percentage points in the last nine years.
The 40-to-49-year-old age group retains the highest age-based participation (89%), while those aged between 22 and 29 recorded the lowest participation rate (85%) for 2020.
Mind the gap
While the report showed that the gender pensions gap has narrowed for both full- and part-time employees, Barnett Waddingham partner Paul Leandro said systemic reforms to fix this cannot remain on the government’s backburner.
“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,” he said.
“While more people are paying into a workplace pension, many are falling woefully short of paying enough. AE 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.”
Leandro’s observations echo those made by the Pensions Policy Institute in July, which labelled the current pensions system “outdated and unsuitable” for modern society.
The DWP indicated that there is “only a small gap” in participation rates by gender observed in its 2020 findings across the whole economy, however. Overall participation rates for both male and female eligible employees remained stabled in the public sector, with a one percentage point difference (93% v 94%).
Leandro argued that the introduction of better tools – such as higher default contribution rates and better use of a wide range of investment assets – would iron out existing systemic problems.
“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,” he suggested.
“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.”
Ian Browne, pensions expert at Quilter said: “Automatic Enrolment has been a resounding success since its introduction in 2012. The UK had woeful pension participation rates, as low as 40% in the private sector, which had a material impact on retirement outcomes for workers right across the UK. Since 2012, the private sector participation rate has more than doubled and now stands at 86%, meaning that over 14 million people in the private sector are contributing to a retirement fund.
“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%. A modest reduction, but a reduction nonetheless and one that DWP and the government will need to play close attention to.
“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.”