73% of employees have active workplace pensions due to auto-enrolment

active workplace pensions

In 2012, less than half (47%) of UK employees had active workplace pensions. By 2017, that number rose to almost three-quarters (73%), according to the Office for National Statistics (ONS).

The ONS attributes this increase to the introduction by the government of auto-enrolment in October 2012. To be eligible for auto-enrolment, employees must be between 22 years old and state pension age, and earning a salary of at least £10,000 per year.

Since 2012, more than 9.5 million workers have been enrolled through the scheme.

Approximately 43% of all UK employees paid into a defined contribution (DC) pension scheme in 2017, compared with 17% in 2012.

While the increase in participation in active workplace pensions has risen dramatically, however, the contributions tend to cluster at relatively low levels. In 2017, almost half of all private sector employers with DC schemes contributed less than 2% of pensionable earnings, down from 6% in 2012. Around 45% of private sector employees contributed less than 1% of pensionable earnings to their DC schemes in 2017.

This is likely due to the fact that auto-enrolment has led to an influx of new savers at low rates. This reflects that auto-enrolment has raised participation among groups that previously were not provided with pension schemes.

Demonstrating this is the fact that nearly 63% of private sector workers aged 22 to 29 years old paid into DC pensions in 2017, compared with 16% in 2012.

The ONS reports that around 90% of employees have remained in their workplace pension after being enrolled. However, with higher minimum contribution rates having come in last month, raising the overall minimum contribution rate from 2% to 5%, and the minimum employer contribution rate from 1% to 2%, employees may be seeing a difference in their take-home pay.

This will be affected again when the total contribution rate rises again in April 2019 to 8%, with a minimum of 3% being paid by employers.

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Andy Tarrant, head of policy at The People’s Pension, commented: “While today’s figures from the ONS confirm continued progress in the auto-enrolment project, average contribution levels remain low. Notwithstanding the April increases to minimum contribution rates for both employers and employees, which marked a critical next-step for UK workplace pensions saving, the decline in average contribution rates since 2012 should be cause for concern. Driving home key messages around the importance of long-term savings, the power of compound interest and personal accountability must remain a priority for both the pensions industry and employers.”

Kate Smith, head of pensions at Aegon said: “Today’s ONS figures paint a positive picture overall. The numbers point to the fact that auto-enrolment is working. From the outset the aim of auto-enrolment was to target those who may previously not have invested in a pension and those on low income. In this respect it’s good news. More lower income and younger individuals than ever before now have an active workplace pension. While progress is good, too many people, and employers, are paying too little. There is some way to go to encourage increased contributions across the board.”