The number of workers in the private sector auto-enrolled into a pension scheme has decreased for the first time since the introduction of the policy, despite participation remaining stable during lockdown.
Figures published today (September 2) by the Department for Work and Pensions showed 14.3m private sector eligible employees were contributing to a workplace pension scheme in 2020, compared with 14.4m in the previous year.
This equates to a participation rate in the private sector of 86 per cent in 2020 – which remains unchanged when compared with 2019, but is below the 94 per cent figure registered in the public sector.
Overall, annual savings from eligible individuals reached £105.9bn in 2020, an increase of £5.5bn when compared with the previous year.
However, this hike was driven by public sector employees, who saw their savings increase by £5.7bn, while there was a drop in contributions of around £200m in the private sector.
Ian Browne, pensions expert at Quilter, noted despite the “resounding success” of auto-enrolment, last year marked the first time since 2012 that growth in private sector pension participation had stalled.
He said despite the modest fall, it was “a reduction nonetheless and one that DWP and the government will need to play close attention to”.
He said: “Is this simply a product of the pandemic? Or have we reached the end of the road for auto-enrolment’s success?
“If the latter is correct then new policy is required to catch others and to boost the numbers once again.”
Pandemic fears
Despite fears that the impact of Covid-19 would lead to individuals opting out of their pension schemes, figures from HM Revenue & Customs' real time information system showed that participation remained stable during that time.
From April 2014 to March 2021, pension contributions were stopped in 2.7 per cent of employments on average each month, due to either an active decision being made, the employment becoming non-eligible or the employment ending.
Across this period, end of employments accounted for 64 per cent, with active decisions representing 25 per cent, and becoming non-eligible accounting for 11 per cent, the DWP stated.
The active decision stopping saving rate (the proportion of savers who make an active decision to stop saving within each period) has fallen slightly from 0.75 per cent in 2019-20 to 0.63 per cent in 2020-21, but has remained largely consistent with previous tax years, DWP added.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “While people were tempted to decrease, or even stop pension contributions in the early days of the pandemic, it is positive to see this has not led to long term damage with employee contributions recovering towards the end of the year.
“There is always a concern that once contributions are reduced, or stopped, they are not taken up again which can damage people’s financial resilience in retirement – it is good to see contribution levels have remained resilient in the face of Covid."
Self-employed
However, gaps in auto-enrolment coverage remain, with Browne noting that alarm bells will “be ringing in the government over the continuation of the long-term decline in self-employed pension savings”.
The DWP figures showed a long-term decline in participation from these individuals from 21 per cent in 2009-10 to 16 per cent in 2019-20.
He added: “Due to the nature of the pandemic, many self-employed workers will have suffered a severe financial shock and will be reticent to save into a pension at the moment.
“But clearly, this trend extends way beyond Covid, so the government needs to look at new policy measures urgently to help prompt this group of workers to save for retirement.”
Maria Espadinha is the editor of FTAdviser's sister publication Pensions Expert
maria.espadinha@ft.com
