Record numbers of pensions savers (on track for disappointment in retirement?)
The DWP has today published its latest annual workplace pension participation numbers (1). The great news is that a new record level of participation has been achieved – with 87% of eligible members participating in a workplace pension. In 2012 it was just 55%.
Huge credit to the “millennials”
Beneath this headline figure, particular credit is due to the under-30s (aged 22 to 29). This age group – often chastised for being the “live for today generation” – has demonstrated the biggest growth in pension participation since automatic enrolment was introduced in 2012 – rising an incredible 50%, from 35% in 2012 to 85% in today’s figures. Today, the level of pension participation is virtually the same across all ages. Back in 2012, pension participation among the under 30s (35%) was not far of half of that demonstrated by the over-50s (62%).
Worrying fall in average saving
A worrying trend is the decline in average contribution per eligible saver. In 2012 this was £6,869 per eligible saver. Today it is down 30% to £4,822. (The small uptick from 2017 to 2018 (of £107 per eligible saver) is likely to be a reflection of the increase in minimum saving requirements in 2018, from 2% of pensionable earnings to 5% of pensionable earnings.)
Saving in workplace pensions appears to be trending towards the automatic enrolment minimums – now at 8% of pensionable earnings. The DWP will publish its latest contribution figures on 20 June (2). All will watch with interest, and concern, to see if this trend is continuing. The recent trend is shown in the chart below.
At minimum levels of saving, millions of new savers may be set for disappointment at retirement.
Common guidance suggests we should be targeting an income in retirement equivalent to 60%-or-more of our working income. Automatic enrolment minimums have been set to deliver an equivalent of about only 40% of working income in retirement, for the average earner.
Aviva advocates minimum contributions be boosted to at least 12% over the next ten years.
Commenting, Alistair McQueen, Head of Savings & Retirement at Aviva said:
“Huge credit is due to the millions of savers who have been automatically enrolled into workplace pensions since 2012. Millions were asked to save, and millions have chosen to rise to the challenge. Particular applause must be given to the under-30s. They are often chastised as the “live for today” generation, but their increase in participation has outpaced all other age groups.
“Millions however may be set for disappointment in retirement. There appears to be a worrying trend towards saving at minimum levels. Saving just 8% of pensionable earnings will be inadequate to give many people the income in retirement to which they aspire. Aviva advocates that this minimum savings level be increased to at least 12% over the coming decade.
“Failing to take this small step today could result in big anger among millions of savers tomorrow.
“We must not let our celebration of pension participation blind us to the urgent need to boost pension contribution.
- https://www.gov.uk/government/statistics/workplace-pension-participation-and-saving-trends-2008-to-2018
- https://www.ons.gov.uk/releases/occupationalpensionschemessurveyuk2018
Helping employers get value from employee benefits and improve wellbeing for their people.
6yCertainly working in the AE market with SMEs since 2012, I've helped 200 or so clients, there's been a clear cut off of those on a pre AE (usually voluntary or management) rate and those on a post AE rate. I'd reckon around half of the companies that had existing schemes in place took this approach, primarily from concerns over cost. A minority worryingly also went down the route of changing to Qualifying earnings for those 'new' members to the scheme. Unfortunately I don't believe this is an area stats were taken for. It did create employee communication problems, so I know some have regretted that approach. Interestingly as we've reached peak AE, I had a few conversations around ways to rebalance those on higher contributions down to the AE minimums. I've decided now I run my own business not to have these sort of conversations going forward. The risk of damage to our society is too high and we need to engage in longer term thinking. This is a key reason why I believe we should remove the provison of vital old age provision from employers altogether.
Helping employers get value from employee benefits and improve wellbeing for their people.
6yAlistair you're absolutely right to raise the concern over contributions and the very real danger of employee disappointment. I think this will come sooner than the millennial generation. My fear is those in Generation X, who didn't have access to final salary pensions, and suffered the false dawn of stakeholders, will be the first over the top. Auto enrolment I believe has been sold subconsciously as a silver bullet to get engagement without enough education over its limitations, particularly to those in the later stages of their careers. Those that are only in it for 10 or so years by retirement age, are probably in for a shock. The consequences of which could be very bad for the project as a whole. The other issue is of course is the fall in average contributions. This is unfortunately another consequence of AE, which saw some employers take the minimum contribution levels as an excuse to lower what they had offered before.