Automatic enrolment goes to work

By Charles Cotton, Policy Adviser - Performance and Reward, @CharlesMCotton

The proportion of employees saving through a workplace pension scheme has increased from 46.5% in 2012 to 49.8%, according to recent analysis of data from the 2013 Annual Survey of Hours and Earnings by the Office of National Statistics - the first increase since 2006.

 

This shows that the policy of automatically enrolling eligible employees into a pension scheme into which they and their employer must contribute is, so far, working. It must be remembered that automatic enrolment only started from October 2012 and is being phased in according to employer size. Between October 2012 and April 2013 (when the 2013 ASHE was carried out) only a small proportion of employers covered by auto-enrolment would have gone through the process. Also, some of these organisations may have postponed enrolment for up to three months for some or all of their eligible employees. So, it will not be until this time next year until the ASHE figures begin to show a fuller picture of the impact of automatic enrolment. Nonetheless, the proportion of employees within large employers (5,000+ employees) who are members of a workplace pension has jumped from 36% in 2012 to 51% in 2013.

 

The survey also shows that membership of all pension schemes (defined benefit, trust-based DC and contract-based DC) have all increased, though looking ahead it is likely that growth in the future will come from DC membership.

 

By age, the proportion of 22-29 year-olds in a workplace pension scheme has increased from 31% in 2012 to 37% in 2013. According to the ONS, this six percentage point increase is larger than for any other age band and was driven by a rise in membership of occupational defined contribution, group personal and group stakeholder schemes.

 

By earnings, the increase in pension membership is most evident among lower paid employees. the proportion of full-time employees in the private sector earning £100 to £200 per week and who are members of a workplace plan has increased from 8% to 12%, while in the public sector pension take up among the same group of individuals has risen from 59% to 75%.

 

On the contributions front, the proportion of private sector workers receiving employer pension contributions between 0 and under 4% has increased from 16% in 2012 to 21% in 2013, while the proportion of private sector workers receiving employer pension contributions over 8% has fallen from 50% in 2012 to 45% in 2013.

 

So while it is good news that more of the workforce is now in a workplace pension, the future challenge will be to ensure that pension contributions start to rise. As I said in previous public policy blog, if employee contributions are to rise then we will need to see real earnings increase, and for employers to be able to increase salaries they will need to see productivity rise. We also need employees recognising the importance of saving for their retirement as well as employers waking up to the importance of pension plans in how they manage an increasingly age diverse workforce.

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