Richard White works for Portal Financial a Rochester based IFA who are producing some really interesting stuff on pensions. This is Richard’s first blog for us and I hope we’ll be able to feature more!
Research highlighted in our blog post “What will encourage young people to plan for their retirement income?”, shows that many people in the UK are not saving enough for their retirement. The government’s auto-enrolment initiative aims to rectify this problem by increasing the number of savers and the amount of money that is being put aside for later life. The process of implementing this revolutionary change began in 2012; although it will not be complete until February 2018, we can see what impact it has had so far.
A report from the Department for Work and Pensions (DWP), Official Statistic on workplace pension participation and saving trends of eligible employees: 2004-2014, shows that the initiative has had a positive impact on pension savings in the UK. Overall figures show that from 2004 to 2012 the number of eligible people in a workplace pension scheme fell from 11.9 million to 10.7 million, down to just 55% participation. However, from 2012 to 2014 the number of people enrolled soared to 13.9 million – 70% of those eligible for a workplace scheme.
The percentage of qualifying employees enrolled into a private sector workplace pension scheme fell from 53% to 42% from 2004 to 2012, but since the staged implementation of auto-enrolment began, participation has increased to 63% with 9.2 million people now enrolled, as shown below:
The largest employers have seen the biggest increase in the number of employees in workplace pensions. This coincides with the staged implementation of auto-enrolment beginning with the largest firms.
However, there is a large gap in participation levels between professional occupations and skilled trades: 83% of professionals are enrolled versus just 51% of skilled workers. In contrast, statistics analysed by gender show that the gap between the number of male and female employees in a workplace pension is closing:
In the private sector, 63% of eligible men and women are enrolled in a company pension and in the public sector the gender gap is now just 1%.
Trends in pension saving
In 2014 the total amount saved by employees was £80.3 billion. Although this is an increase of £2.6 billion from 2013, the amount saved per eligible saver has declined. This is probably a result of the increased number of savers in the private sector who are likely to be making the minimum contribution.
The research conducted by the DWP clearly indicates that auto-enrolment has been a success so far, although it still excludes the most vulnerable. The number of eligible savers that are now enrolled in a workplace pension scheme has rocketed along with the amount of money that the UK is saving. If this continues the landscape of UK pensions and retirement should be much more promising.