The number of people saving into a DC workplace pension is almost level with those holding DB pensions, according to the latest figures from the Office of National Statistics.
According to ONS figures, 76 per cent of employees were members of a workplace pension scheme in 2018, up from 73 per cent the year before. This is a 29 per cent increase compared to 2012, when AE was introduced.
The number of employees with DC workplace pension has also increased dramatically. In 2018, 34 per cent of employees had this type of pension, almost equalling the 36 per cent that have some form of DB pension.
The figures show that membership still remains lower among smaller businesses, with between 1 and 99 employees. This sector has seen the largest growth in workplace pension membership between 2017 and 2018, rising from 51 to 62 per cent. However this proportion is still lower than pension membership among public sector and larger private sector companies.
Not surprisingly the amount of money saved into these DC scheme has risen, as minimum contribution levels have increased. According to ONS figures members contributing between 2 per cent and 3 per cent of their earnings rose to 38 per cent in 2018, up from 6 per cent in 2017. Meanwhile the share contributing less than 2 per cent fell.
The figures show there is still a significant gulf in employer contributions, when looking at DB and DC schemes.
The vast majority (85 per cent) of defined benefit pension members received employer contributions equivalent to 12 per cent or more of their earnings in 2018, while just 8 per cent of defined contribution members received employer contributions of this size.
The ONS says this reflects the legal requirement on employers to ensure defined benefit schemes are funded sufficiently to pay future pensions.
Quilter spokesman and chartered financial planner David Gibb says these figures show how UK workplace pensions have changed over a generation.
“We are inching ever closer to defined contribution schemes becoming more common than defined benefit schemes, with 25.9 per cent of all employees with a workplace pension in a DC scheme and 27.8 per cent in a DB scheme in 2018. This is a massive shift since 1998 when it was just 8.7 per cent were in DC schemes and 45.7 per cent in DB schemes.”
He points out that this ONS analysis shows that it’s not just that security that makes DB schemes so valuable, but the fact most of these schemes have far higher employer contributions.
He says: “As the defined contribution era comes into maturity employers are pushing the onus back onto the employee to contribute to their pension. Figures show that a solid proportion of the population are taking this seriously and went above the minimum contributions last year.”
Standard Life head of customer and workplace proposition Neil Hugh adds: “These latest figures show how auto enrolment is continuing to have a really positive and growing impact, helping more employees to save for their future. But there is still work to be done and we’re supporting employers and employees through the contribution increases that are the next important step.”
However Gibb points out that even with minimum contributions rising again at the start of April, this is still not enough to produce a decent level of income in retirement.
He says: “For instance, a person in their mid-twenties on a current average annual UK salary of £28,700 who remains in a similar role and is auto-enrolled from the ages of 25 to 68, can expect to receive an income of around £5,600 per year in real terms excluding their state pension.
“Government and the pensions industry need to hammer home that foregoing yet more of their salary is not only worth it, it is necessary. Because without investing today the current generation risks poverty in later life.”