22nd September 2016
Pension scheme membership is at record levels, but Hargreaves Lansdown has warned that defined contribution savings levels are nowhere near high enough.
Defined benefit pensions, the vast majority of which are in the public sector, has rates averaging more than 5 times the level of DC at well over 20% of earnings.
Total membership of occupational pension schemes in the UK was 33.5 million in 2015, the highest level recorded by the survey, representing an increase of 10% compared with 2014 (30.4 million) according to the Office for National Statistics. There are 11.1 million active (employee) members, 10.6 million pensions in payment and 11.8 million preserved pension entitlements.
Active membership of occupational pension schemes was 11.1 million in 2015, split between the private (5.5 million) and public sector (5.6 million).
For private sector defined contribution schemes, the average total (member plus employer) contribution rate was 4.0% in 2015, broadly comparable with 2014.
Estimates for contribution rates were broadly comparable with 2014. As in previous years, private sector DB schemes had higher contribution rates than defined contribution (DC) schemes in 2015.
Tom McPhail, Hargreaves Lansdown head of retirement policy says: “The UK’s retirement savings arrangements are going through fundamental structural changes which will affect just about everyone in the country. Final salary pension provision continues to collapse; the good news is that overall pension membership is on the rise thanks to auto-enrolment, but there are two big problems here.
“Firstly, many millions, in particular the growing legions of self-employed are still not in a pension and are being left behind and secondly contribution rates are a long way short of adequate. There is a great deal more work for the government, employers, individuals and the pensions industry to do before the problem is anywhere near fixed.”
“The shift away from defined benefit pensions in the private sector, as well as many millions now being auto-enrolled on minimum contributions has exacerbated the widening gulf between public and private sector provision. The best answer for all will be to drag up the levels of private sector DC scheme contributions, to the point where they provide comparable benefits to the very generous public sector schemes. However this will inevitably cause financial pressures on both employers and employees at a time when they are trying to contend with spending constraints, and the uncertainty of Brexit.”