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Pension crisis confirmed by latest figures

Less than half save into a workplace pension

New figures from the Office of National Statistics (ONS) show 83% of public sector workers belong to a workplace pension scheme compared with just 32% in the private sector.   

Most private sector schemes are defined contribution (DC), where your money is invested and you get an amount on retirement to buy a pension income. 

91% in the public sector are defined benefit (DB) schemes. These are more attractive as the amount of pension you receive is based on your final salary.

Pension scheme membership falls

Pension scheme membership has been declining for some time, as employees are either not offered a scheme or decline to join the one their employer offers. 

The current overall membership of 46% and the private sector figure of 32% is a stark reminder of how many people could be reliant on the state pension when they come to retire. Although an increase is planned when the system is overhauled in 2017, the basic state pension payment is currently just £107.45 a week.

Commenting on the latest statistics, Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: ‘Workplace pensions cannot be left to fade away. This is a real low point for pension saving and it underlines the importance of new rules to automatically put all workers into a pension.’

Income squeeze deters pension saving

The ONS report reveals a wide disparity in pension scheme membership between earnings bands. In the private sector, full-time employees with earnings of £600 a week and over are more than five times as likely to be members of a workplace pension scheme as those earning £200 to £300 a week.

The impact of budget pressures was revealed earlier this week by the latest Which? Quarterly Consumer Report. A third of those surveyed increased their total debt last month and almost 6m households dipped into their savings to cover household spending on items like food and utility bills. 

Pension auto-enrolment starts

The government has responded to the decline in workplace pensions in the private sector by introducing auto-enrolment, which began for large-scale employers last year. 

During 2013 the scheme will be rolled out more widely to medium-sized businesses and then gradually to smaller and smaller ones until 2017. All employees will be automatically enrolled into a workplace pension scheme, paying a minimum contribution that is boosted by their employer and HMRC in the form of tax relief. 

Workers will be able to opt out of the scheme if they don’t want to carry on saving for retirement but the hope is that most will carry on paying into a pension. 

For employers without a suitable provider, the government has encouraged the establishment of NEST (National Employment Savings Trust), which has low charges and a range of investment options. 

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