Dormant pension pots hit record high

Dormant pension pots hit record high

The number of dormant pension pots has surged, while the average contribution rate has dropped to below pre-auto-enrolment levels, according to latest data from the Office for National Statistics.

The ONS Occupational Pension Schemes Survey published today (June 20) showed there were 18m dormant pensions in 2018, up from 15.8m in 2017, representing old workplace pensions to which a saver no longer contributes.

The increase occurred mainly in the private sector, where dormant pots increased from 11.6m to 13.6m, with a smaller increase in the public sector (4.3m to 4.4m).

According to analysis from Aviva, the number of dormant pensions has risen by more than 80 per cent since auto-enrolment was introduced in 2012.

The ONS data also showed a record number of 45.6m people were saving into a pension scheme in 2018. However, this figure hides the fact many savers are saving minimal amounts, pension experts have warned.

The total membership of occupational pension schemes increased by 4.5m in one year and the number of active members, those still contributing, more than doubled in six years, from 7.8m in 2012 to 17.3m in 2018.

Alistair McQueen, head of savings and retirement at Aviva, said auto-enrolment has been a force for good, and its delivery of record participation have exceeded all expectation.

But he added: "Today marks the day when we must stop focusing on all that is great about automatic enrolment, and turn our energies to challenging its unintended consequences.

"The ballooning number of ‘small pots’ will make it harder for millions of savers to manage their money.

"The need for the pensions dashboard is clearer today than it has ever been."

But the ONS figures also showed that for private defined contribution scheme members, the average total contribution rate was a mere 5 per cent of pensionable earnings, split between workers (2.7 per cent) and employers (2.4 per cent).

In 2012, the average contribution in a private sector occupational DC scheme was 9.7 per cent, which shows that the average contributions are falling to the auto-enrolment minimum.

According to Mr McQueen, this means that millions of new savers may be set for disappointment when they eventually reach retirement.

He said: "Pension providers and employers must continue to educate their customers and employees about adequate saving, and Aviva is also calling for the minimum contribution rate to be increased to at least 12 per cent over the next decade."

For Helen Morrissey, pension specialist at Royal London, today’s figures showed that almost all of the new savers were people with an average of 5 per cent of pay going into their pension pot.

She said: "This compares with those in old style final salary pensions who are getting 25 per cent in total contributions.

"If this disparity is not addressed, we risk a lost generation of people who missed out on final salary pensions but are simply not putting enough into their new style pension.

"Automatic enrolment was a great start, but this is simply the end of the beginning."