95%, of the 12.8 million individuals in receipt of a private pension payment in 2024 to 2025 are in receipt of a Defined Benefit or an annuity.
They’re the ones who know what they’re getting , the rest just know we’re saving!
A news story that says participation in workplace pension savings schemes is slightly up and participation in public pensions slightly down is hardly likely to make a headline.
If it was the whole story of “adequacy” then we can put our feet up and watch the system work to everyone’s satisfaction and we should recognise that the days of the Retail Distribution Review of personal pensions prior to 2012 were sorry years indeed.
Around 9-in-10 (89%) of eligible employees in Great Britain were saving into a workplace pension in 2024, continuing the trend of previous years, with 21.7 million eligible employees saving. This is an increase of 0.8 million more eligible employees saving and a 1ppt increase in the pension participation rate compared to 2023.
The overall workplace pension participation rate of all employees in Great Britain continued to be around 8-in-10 (82%) in 2024, with 23.3 million employees saving. This is 0.9 million greater number of employees saving compared to 2023.
The increase in the number of employees saving is more substantial than previous years. This can be attributed to an increase in the number of employees brought into AE eligibility, as the earnings trigger (currently £10,000) has remained frozen in recent years and the changes made by ONS to the ASHE data now estimate a greater number of higher earners who are more likely to be saving into a workplace pension.
What we have is a collective effort by British employers to make saving for retirement part of employment and it is working – even without compulsion as happens in Australia. We should not forget that many opt-outs are good news stories for the very rich and the very poor.
And the opt-out rates are higher in some pockets of employment. Since AE was introduced in 2012, participation differences across the population have narrowed and most groups have seen trends in participation stabilise in recent years. There are some groups with a noticeable pension participation gap, for example:
- Only around 59% of eligible employees working for a micro employer (those with less than 5 employees) in the private sector are saving into a workplace pension
- 68% of Pakistani and Bangladeshi eligible employees are saving into a workplace pension (note, ethnicity participation rates are calculated using a 3-year average due to small sample sizes)
I have run a micro employer since 2013 and have had highly entrepreneurial staff who have made personal decisions about finance rather than rely on payroll deductions. The Government should see many micro-employers as groups of “self-employed like” staff.
I work on the edge of the East End of London and can say with some certainty that certain ethnicity issues persist, there is much to do with integration. Participation rates in workplace pensions indicate wider questions about immigration but they are low on the list of integration issues.
The bigger risk is not ethnicity but the high number of employees who aren’t eligible to be enrolled in a workplace pension and do not choose to save (still 6 in 10). Very little has been done to make it easy to auto-enroll them and this remains a self-employment issue to be dealt with DWP/HMRC and perhaps the Pension Commission.
Wages matter
The DWP explain
Workplace pension participation increases with annual earning levels, appearing to stabilise when earnings reach around the mid twenty thousand. There is also a clear upshift in participation either side of the £10,000 trigger; the point at which individuals become eligible for Automatic Enrolment.
The majority of low earning savers are currently not getting any tax incentivisation on their payroll deductions. That’s because they don’t pay tax and aren’t in workplace schemes that grant relief at resource.
From next year they will get money back if they apply for it and it will become a matter for Martin Lewis and others to explain. Right now, low earners can find pensions a very confusing experience, especially if they move from RAS to Net Pay. Where pennies and pounds count . not getting support on savings will be important, getting partial rebates from HMRC next year will mean amounts paid out akin to compensation for being ripped off on car finance. £10,000 is the trigger for AE eligibility but is well below the trigger for paying income tax.
Spending behaviour
It is important that the DWP do these surveys every year. I have simply gone into the participation rates( I am passing over charts on where contributions are coming from Figure 4 and where the opt-outs are happening – by age Figure 5)
There is one chart that I am intrigued by when it comes to saving/spending behaviour.
The DWP tell us
The vast majority, 95%, of the 12.8 million individuals in receipt of a private pension payment in 2024 to 2025 are in receipt of a Defined Benefit or an annuity.
However, this is slowly changing. When assessing private pensions accessed for the first time, the proportion receiving a lump sum or other Defined Contribution product has risen from 37% (280,000) in the 2016 to 2017 financial year to 48% (390,000) in the 2024 to 2025 financial year.
What I suspect is driving the slow increase in demand for pension payment plans (annuity, drawdown etc) is confusion .
There is a much higher numbers of savers getting to a point when they should be getting a pension (estimates 800,000). The shortfall between that and 390,00o doing something will be picked up by default decumulators (we hope into pensions). How many of those 390,000 are properly satisfied will need further details and I am pleased to see that we have more details to follow.
What is taken out of DC pots at present cannot be called a regular retirement income till death, that is likely to change from 2027.
Further details follow
This is the area the Pension Schemes Bill is targeting. The data which will be needed to make more detailed analysis of what is going on is here
