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Workplace pension participation stalls

John Fitzsimons
Written By:
John Fitzsimons

The number of employees contributing to a workplace pension scheme was unchanged in 2020, the first year in which no progress was made on boosting pension saver numbers since the introduction of the auto enrolment scheme in 2012.

According to new data from the Office for National Statistics, in April 2020 around eight in 10 (78%) employees were paying into a workplace pension. This represents a dramatic improvement from the less than half of workers who were paying into a workplace pension nine years ago when auto enrolment was introduced.

The data showed that the youngest employees ‒ aged 16 to 21 ‒ were far less likely to have a workplace pension, with participation at just 20%. There is a dramatic jump in participation in the next age group, those aged 22 to 29, where a whopping 80% of workers are members of a scheme.

According to the ONS, there is a significant difference in participation between public sector and private sector employees. For example, around 93% of those working in full-time public sector roles earning between £100 and £199 a week have a workplace pension, compared to 41% of those at the same wage level in the private sector.

Who qualifies for the auto enrolment scheme?

The auto enrolment scheme was introduced as a way to push more people into putting some money aside for their retirement. It requires employees to open a pension, and then contribute to it, on behalf of their staff.

There are rules covering who qualifies for the scheme though. Currently, employees who earn over £10,000 a year are automatically enrolled into a pension ‒ though they can opt out if they choose ‒ while those earning more than £6,240 a year can choose to join the workplace pension scheme too, and enjoy contributions from their employer.

Employees are required to contribute a minimum of 5% of their earnings, which is topped up by 3% from the employer and then tax relief from the government on top. Importantly, these are just the minimums ‒ some employers offer more generous schemes, while there’s nothing to stop individual employees from opting to stash away more significant sums in order to boost their chances of a comfortable retirement.

While the scheme has been a success, there are concerns about the number of employees excluded from workplace pensionsa recent study found that 100,000 single mothers have been locked out of the scheme during the pandemic, for example. 

Help needed for the self employed

Ian Browne, pensions expert at Quilter, suggested that the fact that this was the first year in which participation had not improved could be down to people feeling like they need more money in their pockets today, or may represent a ceiling which will not be passed without further government intervention.

Browne also warned that it’s crucial that the authorities think about how to boost pension saving among those in self-employment, who fall outside of the scope of the automatic enrolment scheme.

Previous studies have suggested that around 3.5 million self-employed workers aren’t putting money into a private pension, while there have also been warnings that even those who are may have cut or even paused their contributions as a result of the pandemic.

He continued: “Unfortunately, due to the nature of the last year, many self-employed people have suffered a significant financial shock and therefore are unlikely to be prioritising their pension provision at the moment. A solution to help prompt this group of workers to save for retirement needs to be looked at urgently as their financial needs differ to much of the rest of the working population.”