While pension membership has hit a record high, the average contribution rate in defined contribution (DC) schemes remains very low, new data from the Office for National Statistics (ONS) reveals.
The average combined contribution of the employee and employer was only 4% in 2015. This figure is broadly comparable with 2014.
Total membership of occupational pension schemes in the UK was 33.5 million in 2015, which is the highest level recorded by the survey. It represents an increase of 10% compared with 2014 (30.4 million). These estimates exclude participation in other workplace (group personal) pensions.
Commenting on the data, former pension minister Steve Webb, who is now director of policy at Royal London, says: “The record levels of workplace pension membership in 2015 are hugely encouraging, and the continuation of automatic enrolment since then means that the numbers will continue to surge.”
Shocking contribution rate
But he points out that the sting in the tail is the very low rates of contribution into many of these pension plans. He says the average contribution of 4% into a private sector occupational DC pension scheme is “a shocking figure”.
Webb continues: “A combined contribution rate of three or four times this size is likely to be needed for most workers to be able to secure an adequate income for a comfortable retirement.
“It is quite clear that mass membership of pension schemes through automatic enrolment is just the start of a very long journey.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “The good news is that overall pension membership is on the rise thanks to auto-enrolment.
“But there are two big problems here: firstly, many millions, in particular the growing legions of self-employed, are still not in a pension and are being left behind; and secondly, contribution rates are a long way short of adequate.”
Previous studies have shown that 44% of people are not doing enough to save for the kind of retirement they envisage having.
This story was originally written for our sister magazine, Money Observer.