Millions could be sleepwalking into a bleak retirement living on less than the minimum wage, pension experts have warned.
New figures from the Office for National Statistics (ONS) have revealed that the active number of occupational pensions rose from 13.5 million in 2016 to 15.1 million in 2017 – a record high.
Auto-enrolment is the driving force behind this increase, with the impact most apparent in the private sector defined contribution schemes, where membership has gone up from 1 million in 2012 to 7.7 million in 2017.
However, while more people are saving, they are putting away less into their pension pots.
The figures show that the average contribution rate in private sector defined contribution (DC) schemes fell from 4.2% in 2016 to 3.4% in 2017.
Alistair McQueen, head of savings and retirement at Aviva, says millions of people are “sleepwalking towards less than minimum wage at retirement”.
He adds: “To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than the minimum wage in retirement.”
Auto-enrolment, which makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme, was introduced in 2012.
While the minimum contribution rate is increasing from 5% (3% from employee, 2% from employer) to 8% (5% from employee, 3% from employer) in 2019, this will still be insufficient for millions of workers, according to Royal London head of business development Clare Moffat.
Ms Moffat says: “The increase in the minimum contribution for auto enrolment will help but as it currently stands these increases will still not be enough to deliver a decent retirement income for the majority of people.”
She adds: “People need to start thinking about the type of retirement they want to have and how much they need to save to achieve it. Small regular increases can have a large impact on the quality of life in retirement.”