Private sector defined contribution rates have fallen year on year from 3.1 per cent in 2012 to 2.9 per cent in 2013 for employers and 6.6 per cent in 2012 to 6.1 per cent in 2013 for employers, according to the latest figures from the Office for National Statistics.
The occupational pension schemes survey for 2013 revealed that total average contributions were now 9.1 per cent, compared to 9.7 per cent the previous year.
Contribution rates to defined benefit schemes, excluding deficit reduction payments, remained higher than for defined contribution schemes.
The advent of auto-enrolment did mean that the numbers contributing, or having contributions paid into a scheme, rose slightly from 7.8m in 2012 to 8.1m in 2013, for both the private and public sector.
Total membership of occupational pension schemes was estimated to be 27.9m in 2013, an increase of 300,000 compared with 2012, excluding participation in other group personal pensions.
The ONS report noted that minimum levels for employer and employee contributions will be phased in over the period to 2018, with variations depending upon the individual schemes’ definition of pensionable pay.
In the case of a scheme where pensionable pay is equal to qualifying earnings, the minimum level of DC contributions between October 2012 and September 2017 are at least 2 per cent, with at least 1 per cent coming from the employer.
Between October 2017 to September 2018 the minimum contribution will be 5 per cent, with at least 2 per cent coming from the employer, and from October 2018 it will be 8 per cent, with at least 3 per cent coming from the employer.
Graham Vidler, director of external affairs for the National Association of Pension Funds, told FTAdviser: “The large increase in the number of people enrolled into workplace schemes is great news. Getting people saving for the first time inevitably means a decline in the overall average contribution rate but the important thing is that millions of people have seen their contribution rate go up from nothing to something.
“We will see average contributions rise in future as automatic enrolment becomes fully established and minimum contribution rates start to climb to 8 per cent in total in 2018.”
Jamie Jenkins, head of workplace strategy at Standard Life, said that there is a significant disparity in the rate of contributions being paid into DC, compared with the funding rates under DB.
“This isn’t anything new, but the problem is made more acute by the low level of minimum auto-enrolment contributions at this stage. We can anticipate that trend to continue as we work our way through the roll-out with small firms, but we should see that improve after 2017 when minimum rates start to increase.
“However, the wider issue still remains; contributions to DC are likely to be inadequate for many, and we need to consider how we can change this. While the obvious option will be to increase the minimum amounts through legislation, it may be more beneficial to deploy nudge methodology, e.g. voluntary auto escalation. This will be a key pensions challenge for the next government.”
