Workplace pensions savings fall to all-time low
Rachel Muller-Heyndyk, June 06, 2018
The average amount being put into a workplace pension has fallen to an all-time low, despite an increase in the number of people saving for retirement
The latest figures from the Department for Work and Pensions (DWP) revealed that the annual amount being put aside by eligible savers has fallen by 30%, from £7,326 in April 2012 to £5,110 in April 2017.
However, despite a significant drop in the average pension saving amount, the number of eligible employees paying into a workplace pension rose from 77% in 2016 to 84% in 2017, with employees saving £90.3 billion in total.
This figure excludes the self-employed, where the number paying into a pension has fallen from 30% 10 years ago to 14% today.
Experts have partially blamed auto-enrolment for the decrease in savings, with many employees paying the minimum amount into their pots.
The Pensions and Lifetime Saving Association (PLSA) highlighted that an important factor was that many of those who have started saving through auto-enrolment in the last year are paid the minimum wage, bringing the average contribution rate down but representing a positive picture of increased saving overall.
It added, however, that minimum contributions must be increased for people to live comfortably in retirement. "With people living longer than ever before, and property ownership falling, this is extremely positive news for people’s future retirement prospects," a PLSA spokesperson said. “However, unfortunately people are still not saving enough. While the government’s phased increases will see minimum contributions rise to 8% by 2019, there is still a risk that this will not be enough to allow savers to live comfortably in retirement.
"We believe the minimum level needs to increase to 12% of salary over the course of the 2020s if retirees are to be financially secure."
Nathan Long, senior pension analyst at Hargreaves Lansdown, said that auto-enrolment could mean that people are saving less. But he said the figures could improve as minimum savings levels rise.
"The number of people saving for retirement continues to soar, although the amounts being put aside are plunging. The government’s auto-enrolment regime is responsible, as it throws first-time savers into a pension although it currently insists on only very low saving levels,” he said.
Long added that young people are likely to gain the most from auto-enrolment, with the gap between young and older people's savings narrowing. Ten years ago 31% of 22- to 29-year-olds paid into a workplace pension, compared to 56% aged 50 to state pension age. Now 77% of younger workers pay in, compared to 82% of older workers.
"Young people are the biggest winners from the [auto-enrolment minimum savings] rules as their money works harder for them from a much younger age. The first increase in the minimum saving levels happened in April and will rise again in April next year; by then the picture should be looking far rosier," he said.
Additionally, while the DWP figures showed that workers are putting less aside overall, separate research from Aegon has revealed that most UK workers are willing to save more in future.
The research found that UK workers support paying up to 7% of their annual salary into a pension every year, more than double the current auto-enrolment default rate (3%) and above the level coming into force in 2019 (5%). Younger workers (aged between 22 and 29) would support an even higher contribution level of 8%.
In comparison to other countries the UK was found to place greater emphasis on workplace pension schemes.
While globally people expect workplace retirement plans to fund only 24% of their overall retirement income, people in the UK people expect more than a third (34%) of their retirement income to come from workplace pensions, second only to the Netherlands (37%).
Respondents strongly felt that employers should contribute into a workplace pension, with 82% of UK workers saying they should do so.
Kate Smith, head of pensions at Aegon, said that the findings are positive in showing employees’ willingness to save more for retirement.
“There’s some concern that increasing auto-enrolment contributions for employees would result in some people stopping their contributions," she said. "However, our research is a strong endorsement that not only will people take the increases in their stride, they’re realistic to appreciate that a comfortable retirement requires saving at higher rates and are prepared to pay more.
"While young people face many financial pressures it’s encouraging that many are willing to save more, and regular saving from a young age will set them up well in the long run."
Smith added that pension saving must be accessible to all groups within and outside of the workforce, as the research showed a shift away from reliance on the state pension.
“Across the globe people are expected to take on greater individual responsibility to save for retirement," she said. "As the reliance on governments shifts we need to ensure that access to saving is universal, allowing employed workers to save for retirement as well as alternative arrangements for the self-employed and those not in the workforce.”
14,400 workers and 1,600 retired people were surveyed by Aegon across 15 countries for its Retirement Readiness Survey 2018.