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Auto-enrolment increases pension coverage but private sector, especially women, and self-employed lagging behind

30 October 2014

  • Pension scheme membership increases as auto-enrolment starts to have an impact
  • First increase in pension scheme membership in private sector this century – but public sector workers remain the pensions aristocracy
  • 2013 saw 200,000 extra public sector workers saving in pension compared with 100,000 more in private sector
  • Still need to address low pension coverage for private sector women (only 30% contribute) and the self-employed (only 22%)
  • New pension freedoms may start to increase self-employed interest in pensions again

The latest data for pension scheme membership, just released by the ONS, show some interesting statistics.

1. After years of decline, there was a rise in the numbers of people contributing to pension schemes in 2013. Pension scheme membership reached a record low in 2012, with a massive drop from 8.2million in 2011, to 7.8million in 2012. Last year, the number increased by 300,000 to 8.1million. Of course, this figure is still below the 2011 level, but at least the declining trend has been broken. The table below shows the figures:

Total pension scheme membership
2000 10.1m
2006 9.2m
2007 8.8m
2008 9.0m
2009 8.7m
2010 8.3m
2011 8.2m
2012 7.8m
2013 8.1m

2. Auto-enrolment seems to have reversed the declining trend of membership of private sector schemes. The figures show that, for the first time this century, in 2013 membership of private sector schemes actually increased. In 2011, the number of members of private sector schemes dipped below 3million for the first time, and fell further again in 2012 to just 7.8m, but in 2013 it rose to 8.1m.

Private sector scheme members
2000 5.7m
2006 4.0m
2007 3.6m
2008 3.6m
2009 3.3m
2010 3.0m
2011 2.9m
2012 2.7m
2013 2.8m

3. However, auto-enrolment has had an even greater impact on public sector workers, with a larger increase in the numbers now contributing to pensions. The number of workers in public sector schemes had also dipped in 2012, but the impact of auto-enrolment seems to have increased membership back to the levels of 2011 with 5.3million workers contributing. Membership of public sector schemes still far outstrips that for private sector workers, with nearly 90% of workers covered, compared with much less than half of those working in the private sector. There is a long way to go before pension coverage for private sector workers reaches that of the public sector.

Public sector scheme members
2000 4.4m
2006 5.1m
2007 5.2m
2008 5.4m
2009 5.4m
2010 5.3m
2011 5.3m
2012 5.1m
2013 5.3m

4. Pension coverage in private sector still far too low – around 40% of men and only 30% of women contributing:  Between 80% and 90% of those working in the public sector – both men and women – are paying into a pension scheme, whereas in the private sector, even though membership increased in 2013, less than 40% of men and only 30% of women were in pensions. Clearly, the public sector workforce remain the pensions aristocracy.

5. The increased pension coverage did not extend to the self-employed, who continued to turn their backs on pensions in 2013, as numbers contributing to pensions declined once again. The figures are only given as percentages and only for men, but they show the proportion contributing to pensions fell to just 22% in 2013, down from 24% (a previous record low) in 2012 and way below the 62% level of 1996/97. Clearly, pensions are not of much interest to the self-employed. What could explain this? I suspect that the inflexibility of pensions is partly responsible for the lack of contributions. Many self-employed people have chosen to invest in ISAs rather than pensions, since if they need their money they can use it whenever they want. If their business needs some funding, but the money was locked into a pension, they would not be able to use it, whereas with ISAs they can. In addition, the self-employed have no contribution coming from another source. With auto-enrolment, workers receive ‘free money’ from their employer which adds to their pension and that money is only available to them if they contribute to their employer’s pension scheme. This does not apply to the self-employed of course.

Self-employed men, numbers contributing to pension
Tax year end: % of self-employed men  contributing
2006 37
2010 25
2011 25
2012 24
2013 22

6. New pension rules will make pensions more attractive in future:  The 2014 pension reforms could well herald a significant increase in pension participation by the self-employed. By removing the inflexibility of pensions, it is likely that the self-employed will look more seriously at contributing again, rather than using ISAs. Indeed, they may decide to switch some of the ISAs into pensions, due to the tax advantages. Many of those who are self-employed are perhaps also relying on selling their business to fund their retirement, however having a pension in place may be a useful diversification of their risks. The state pension reforms will give the self-employed better pension rights in future, but they will still need more than this for a decent standard of living in later life. It will be interesting to see how the trends in pension membership develop as the pension reform programme progresses. Watch this space!

1 comment

1 dearieme { 11.01.14 at 11:17 am }

It’s a logical error to fret about lack of pensions: if you must worry, worry about a lack of savings for old age. For anyone who pays income tax at the basic rate, and who expects to do the same in retirement, there’s no tax avoidance in contributing to a pension, only tax deferral. And they might be deferring into an era when the basic rate may exceed 20%. The only exception is the tax free lump sum, and you are gambling on that surviving the attention of Mr Balls or whomever. For anyone who won’t get an employer’s contribution, no wonder ISAs appeal.

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