Pensions  

Workplace pension saving on the rise

Workplace pension saving on the rise

Auto-enrolment is proving to be a continuing success as a record number of employed workers saved into a workplace pension last year, but there are concerns about the self-employed.

Data released by the Department for Work and Pensions (DWP) today (June 18), showed a record 88 per cent of eligible employees saved into a workplace pension in 2019, up from 87 per cent in 2018.

This means 19.2m people were paying into a workplace scheme last year, an increase of 2.6 per cent from 18.7m individuals in 2018.

The data also showed the total amount saved in workplace pensions in 2019 was £98.4bn, up 5.7 per cent from the £93.1bn saved in 2018.

Worryingly, self-employed workers have seen a decline in participation rates from 21 per cent in 2009/10 to 14 per cent in 2018/19, however.

Laura Stewart-Smith, workplace savings manager at Aviva, said while the numbers showed participation in workplace schemes was growing in popularity it was important providers and the government continued to encourage people to save.

Ms Stewart-Smith said: “Auto-enrolment has helped to create a savings culture but for many there is still a long way to go. 

“The UK's economic outlook is challenging but it is important that people don’t lose sight of savings goals. A workplace pension scheme can provide greater certainty as it ensures individuals are continuously investing in their future, with the added benefit of tax relief and an employer contribution. 

“Over time, this may build up a sizeable pension pot which could help support people in achieving the lifestyle they aspire to in retirement.”

According to the DWP, those earning between £50,000 and £60,000 showed the highest participation levels, with 93 per cent of eligible employees within this earnings band paying into a workplace pension last year.

Those aged 40 to 49 were most likely to save into a scheme whereas those aged 22 to 29 were most likely to opt out.

Minimum contribution rates under automatic enrolment started at 2 per cent of qualifying earners with at least 1 per cent from employers but current minimum levels are 8 per cent overall with at least 3 per cent from the employer. 

Overall in 2019, contributions from employees accounted for 27 per cent of saving, with employer contributions accounting for 64 per cent, and income tax relief on the employee contribution the remaining 10 per cent.

But Ms Stewart-Smith warned people needed to contribute more than the minimum rate set by government if they want to be able to retire comfortably.

She said: “It’s important that people don’t assume minimum contributions can fund their future, as it is often insufficient to provide the level of retirement income they want. 

“Aviva believes that the minimum contribution should be increased from 8 per cent to 12 per cent of earnings by 2028, but in the meantime, individuals can use online forecasting tools to better understand what type of lifestyle they will be able to afford based on their current contributions, and the impact of making any changes.”

Nathan Long, interim head of policy at Hargreaves Lansdown, said: “This latest data makes the pension story look really rosy, with participation and savings levels nudging to ever higher levels thanks to automatic enrolment into workplace pensions.