Employers ‘must do more’ as figures show almost half of staff contribute bare minimum to pension

9 May 2018 By Maggie Baska

ONS data reveals record number of people now saving – but 45 per cent are paying in less than 1 per cent of earnings

Experts have urged employers to step in to help staff with their pensions, after data from the Office for National Statistics (ONS) revealed that almost half of employees contribute only the bare minimum to their schemes.

Analysis from the ONS, released yesterday, found that almost three quarters (73 per cent) of UK employees now contribute to a workplace pension, up from less than 47 per cent in 2012, before the introduction of auto-enrolment. 

However, while there was a sizeable increase in the number of people participating in workplace pensions, many in the private sector with defined contribution schemes were paying in at low levels. In 2017, 45 per cent of employees contributed less than 1 per cent of their pensionable earnings, while just one in three paid in 3 per cent or more. 

“It is great news that nearly 10 million extra workers are now saving in a pension because of automatic enrolment, and particularly encouraging that the youngest workers have seen the sharpest rise,” said Steve Webb, director of policy at Royal London and former pensions minister. “But these figures show that the champagne needs to be put on ice.”

Under auto-enrolment, the minimum overall contribution rate to pensions used to be 2 per cent of an employee’s qualifying earnings, which includes a minimum contribution from employers of 1 per cent. In April 2018, this rose to a combined contribution of 5 per cent, with a minimum contribution from employers of 2 per cent. In April 2019, the rates will rise further to a combined total of 8 per cent, with at least 3 per cent coming from the employer.

Nathan Long, senior pension analyst at Hargreaves Lansdown, told People Management that employers needed to make sure their staff are supported. “Pay packets are already stretched, and it is important that people don’t leave pensions entirely,” he said. “They need to stick with it and pay in.”

Long added that HR departments shouldn’t sit idle and hope employees remain auto-enrolled within workplace schemes but should explain why the schemes are beneficial. 

"I think it is better for employers to turn pensions into something positive and to reinforce why they are a good thing,” he said. “What we find is effective is coupling an online presence, like an email explaining what the scheme is and why employees should save into it, with face-to-face time with experts."

However, Webb warned that even the higher 8 per cent contribution level would not be enough to see most people through their golden years. 

“The hard work of automatic enrolment will be in supporting workers and firms to get these contributions to more realistic levels,” he said. “The single most important thing that the government could do would be to ensure that when people get a pay rise they automatically increase their contribution rate unless they actively opt out.”

Charles Cotton, performance and reward adviser at the CIPD, added: “There are still some challenges to overcome, such as how to respond to a potential rise in the levels of employees opting out as they have to pay more to the scheme, or how best to increase the 8 per cent minimum contribution rate if that is seen as insufficient.

“However, just as auto-enrolment was based on insights from behavioural science, any changes to government policy to address these challenges should be based on evidence.” 

Meanwhile, a survey by online pension manager PensionBee has revealed that pension pots for workers in the north of England are lagging behind those in the south. In particular, the average pension pot of an individual in the north east is just £14,513, compared with £28,183 for someone in the south east.

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