The total amount of money saved into workplace pensions rose by £3.8bn between 2015 and 2016, according to official figures released by the Department for Work and Pensions.
This brings the total amount saved in 2016 to £87bn, the highest sum to date. But commentators have pointed out that despite considerable progress made since the launch of auto enrolment (AE) in 2012, gaps remain in certain sectors.
According to government figures, pension participation in the public sector outweighs the private sector, with more than 92 per cent of workers (almost 5 million people) saving into their workplace pension compared to 73 per cent of private sector employees.
Public sector workers have seen an 8 per cent increase in average workplace pension savings since 2012, with an £8,418 average per eligible saver.
Although private sector figures have risen since the introduction of AE, with 31 per cent more participating in pension saving since the launch of the scheme, low mandatory amounts mean the overall levels saved per individual have fallen.
The average amount saved by private sector workers in 2016 was almost £3,000 less than the 2012 total of £6,627.
Kim Barrett, managing director at Barrett Financial Solutions, said of the figures: “The ultimate test of the success of auto-enrolment is when people can start benefitting from the system. Just £3,000 for an individual isn’t going to last you very long when you decide to give up work. We aren’t even up to 8 per cent for [minimum] contribution rates yet.”
Mr Barrett adds that working towards Australian workplace pension standards – where minimum contributions are set to rise to 12 per cent by 2020 – could help to plug any further gaps.
“Our AE scheme is based loosely on an Australian scheme. Now, suddenly having to put 12 per cent of their income away may frighten the average worker to death, but the point is, you’ve got to educate people. We’re all living longer and the state cannot physically cope with it.”
Contribution rates are due to rise from the 2 per cent minimum to 5 per cent in 2018.
They are then scheduled to rise to 8 per cent in 2019, and the impact of higher contribution rates on employers is expected to vary from business to business.
Aviva’s 2017 ‘Working Lives’ report showed that while 29 per cent of employees contribute more than the minimum level and don’t see it having any impact on their business, 20 per cent believe it will have an impact on employee pay increases, and 17 per cent envisage having to cut costs to accommodate the new levels.