Latest ONS figures show that just 48% of UK employees belong to an employer-sponsored pension scheme. Membership has fallen particularly heavily in the private sector, to only 37% of male employees and 26% of female employees in 2011, compared with 52% and 37% in 1997.
Private sector pensions decline
The ONS figures show that overall membership of an employer’s pension scheme has fallen significantly in the private sector. This is especially true of defined benefit (DB) pension schemes, where membership has fallen from 34% in 1997 to 9% in 2011.
Most defined benefit schemes in the private sector are now closed to new employees and many are closing to existing members, obliging them to enrol in hybrid or defined contribution (money purchase) schemes.
The majority of private sector employees now belong to defined contribution occupational pension schemes (9%) or employer-sponsored personal (or stakeholder) pension schemes (14%).
Public sector pensions
Pension scheme membership levels remain high in the public sector. Between 1997 and 2011, male employee membership fell slightly but remains at 85%, while female employee membership rose to 82%.
Public sector schemes are normally defined benefit rather than defined contribution, although there has been a suggestion that they may shift from final salary to career average. Other changes recently announced include increased contribution levels, a higher retirement age and indexing linked to CPI rather than RPI.
In an attempt to halt the decline in private pension provision, which risks leaving millions dependent on state pension, the government is introducing ‘auto-enrolment’ from October 2012. Employers will be obliged to enrol their workforce into a pension scheme and to make a minimum contribution towards this. Large firms will be the first to embrace the new system, with medium and small employers joining over the next few years.
Employees will be able to ‘opt out’ but the default will be to sign them up to a pension automatically. A number of pension providers offer eligible schemes for firms that don’t already have one. The main new provider is NEST (National Employment Savings Trust).
Responding to the ONS figures, Graham Vidler, director of communications and engagement at NEST, said: ‘Automatic enrolment will bring around ten million new people into pension saving, more than quadrupling the number of those benefiting from an employer-sponsored scheme. NEST has been designed specifically for these new savers. We are proud to be playing an important part in the transformation of Britain’s pensions landscape and helping put an end to the unrelenting decline in retirement savings of recent decades.’
Company pension schemes – how they work and what they offer
Auto-enrolment and NEST – the new pensions system explained
More final salary pension schemes close – the decline of DB schemes