Occupational pension scheme membership hit yet another record high in 2016, with more than 39.2 million saving through their workplace, latest Office for National Statistics (ONS) data reveal.
The membership is up 17.1% from 2015, when it was 33.5 million. This growth is even starker in terms of active defined contribution (DC) membership, which saw a 62.5% jump over the year. At the end of 2016, 6.4 million people were active members of a DC fund, compared to 3.9 million people at the end of 2015.
Yet, private sector defined benefit (DB) active membership has fallen again, with just 1.3 million continuing to save into final salary or career average schemes, compared to 1.6 million in 2016. Within these, just 500,000 people were in schemes open to new members, down from 600,000 in 2015.
The surge in DC membership also means active private sector savers have overtaken those in the public sector, with 7.7 million and 5.7 million members respectively, compared to 5.5 million and 5.6 million in 2015.
Another 11.2 million private sector savers have deferred entitlements, compared to 4.2 million in the public sector.
The figures come as auto-enrolment (AE) prepares to celebrate its fifth anniversary on 1 October. From that date, all new firms will be required to offer a workplace pension as soon as they employ their first member of staff; just a handful of small and micro employers have staging dates.
Pensions and financial inclusion minister Guy Opperman welcomed the figures but said more work is needed to consolidate the success of auto-enrolment (AE).
“Saving through your workplace pension is one of the easiest and most accessible ways to put money aside for retirement,” he said. “It is really encouraging news that this form of saving is now at a record high.
“Behind each of these figures is a person or a family who can now look forward to a better retirement. But our work here is far from done and we’re currently reviewing automatic enrolment so we can continue to build upon its success and encourage as many people as possible to save into a workplace pension.”
Prudential retirement expert Vince Smith Hughes said the figures showed AE was a clear success, and pointed to the insurer’s research, published earlier this week, which showed the number of retirees without a pension had fallen nine percentage points since 2008.
“The increase in the number of people joining company pension schemes shows the success of AE and also how people increasingly recognise the need to provide for their own retirement,” he said.
“Prudential research shows AE is encouraging people to make better plans for retirement with nearly three out of ten people admitting that they could save an additional £100 a month. That’s good news because over the past 10 years responsibility for providing a retirement income has shifted away from government to individuals and the best approach is to save as much as you can as early as you can.”
Contributions
Yet, the low contribution rates of AE – 1% from the employer and 1% from the employee – are continuing to hold down average contribution rates. For private DC schemes, the average contribution rate was 4.2% of pensionable pay, made up of 1% from members and 3.2% from employers.
AE rates are set to rise to a total 5% next April, and 8% in 2018, meaning the survey should record contribution rate increases in its September 2019 release.
Employees at firms offering DC schemes – with between 1,000 and 4,999 members – recorded the highest average contribution level of 9.6%, with 6.8% employer and 2.8% employee contributions. Conversely, firms with DC schemes between 12 and 99 staff had the poorest contribution rate of 0.4% total, significantly under the AE statutory level.
This may be because members in these schemes may not yet have been auto-enrolled, may not meet the AE criteria where earnings must be in excess of £10,000 and savers must be over the age of 22, or may have opted out of the AE rates but continued saving.
For private DB schemes, the figures were 22.7%, comprising 5.8% from members and 16.9% from employers. Members of DB schemes at firms with between 12 and 99 members enjoyed the highest contribution rates, totalling 47.1%, including 45.4% from the employer.
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