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Private pension membership at lowest level since 1950s

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16/07/2013
Membership of private pensions has hit a new low, according to the Office for National Statistics.
Private pension membership at lowest level since 1950s

Just 35% of men and 32% of women aged between 16 and 64 were active members of a private pension in 2011/12.

There were 8.2 million active members of occupational pension schemes in 2011, the lowest level since the 1950s.

Membership of Defined Benefit pensions has declined from 46% of employees in 1997 to just 28% in 2012, almost exclusively now in the public sector.

Participation rates of employees vary dramatically between public and private sectors, with 85% of men and 81% of women in the public sector, compared to 36% and 26% respectively in the private sector.

The government is hoping to encourage more people to save into a pension under new auto enrolment laws currently being rolled out.

By 2017, every employer must automatically enrol workers into a workplace pension scheme. Employees have the choice to opt out but the government is hoping 70% will stay enrolled.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “These figures illustrate dramatically how important it is that auto-enrolment succeeds over the next five years. It is vital that nothing is done to jeopardise this project and that everything possible is done to encourage people to stay enrolled in their workplace pensions. Recent calls for reform of pension taxation or for small businesses to be exempt from auto-enrolment should be postponed or ignored until the foundations of a savings culture have been properly laid.”

The ONS also reported that the average contribution rates as 19.2% of payroll for Defined Benefits schemes and just 9.4% for Defined Contribution arrangements.

McPhail added: “The inevitable consequence of this level of pension funding is that millions of people will have to work on into their 70s because they won’t be able to afford to retire earlier. All defined contribution members should be shown what their contributions are likely to buy for them in the way of a retirement income, this pension projection should be updated regularly and members should be encouraged to engage with their retirement planning. 9.4% as an average is simply not enough. Investors should aim to be contributing at least 12% of their income towards their retirement.”

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