A new report by the Office for National Statistics (ONS) has shown that the number of people working for private sector companies who are saving into company pension schemes has halved since 1991.
In 1991 6.3 million people working in the private sector were active members of their employer’s pension scheme; by 2009 the number had fallen by around 50% to 3.2 million.
The figures have been taken from the 2009 Occupational Pension Schemes Survey and would have been worse if it were not for the Post Office and BBC schemes being reclassified and moved into those counting towards the private sector.
The drop in the membership of Occupational Schemes can perhaps be explained by the closure of most Defined Benefit arrangements. Defined Benefit schemes, often referred to as Final Salary pensions, have for the most part disappeared from the private sector, to be replaced by Defined Contribution schemes, which employers believe are less costly but do not provide a guaranteed pension in retirement for the employee.
Defined Contribution v Defined Benefit
The report highlighted the significantly lower contributions that are made to Defined Contribution schemes when compared to those made to Defined Benefit arrangements.
The ONS said: “The 2009 OPSS found that the average total contribution rate (employee plus employer contributions) for private sector DB (Defined Benefit) occupational pension schemes was 21.7%, while for DC (Defined Contribution) schemes it was 9.3%,”
The ONS said the difference was mainly attributable to lower employer contributions, which may explain why so many Defined Benefit schemes have closed.
It continued: “In 2009, the average employer contribution rate for private sector DB occupational pension schemes was 16.5% of salary.”
“This compares with an average contribution rate of 6.4% for DC schemes,” it added
Personal & Stakeholder Pensions
Payments by both employers and employees into Personal Pension Plans and Stakeholder Pensions also fell; the ONS said this was a result of the 2008 recession.
In 2007/08 the ONS said that the total payments into these types of schemes were £20.9 billion, by 2009/10 this had fallen to £18.7 billion.
The fall was mainly due to fewer individuals paying in with employee contributions falling by £2.2 billion.
Darren Philp, of the National Association of Pension Funds (NAPF), said: “These trends reflect the current state of the economy and the impact this is having on UK households.”
From 2012 a program of automatically enrolling employees, who are not already in a scheme, into a pension will start. By 2016 all employees will have been enrolled and must make contributions, employers will also be forced to pay into their employees pensions.
Whilst the plans have been criticised in some quarters others believe this is the first stage in rolling back years of underinvestment in our pensions.
Michelle Mitchell, of Age UK, said: “The roll-out of automatic enrolment into a workplace pension, starting next year will help as most employees will have the right to a pension contribution from their employer.”