UK pension scheme membership has reached record highs but pensioners are not setting enough money aside
Pension scheme membership in the UK has risen to new record highs of 45.6 million, according to the Office for National Statistics (ONS).
This has been largely driven by a pick up in private sector defined contribution pension schemes, the result of the expansion of auto-enrolment since 2012. Auto-enrolment has been gradually expanded since, meaning that all employers are now forced to automatically put staff members in a pension scheme.
According to the ONS, private sector defined contribution (DC) schemes grew by almost 30% to 9.9 million. Meanwhile, private sector defined benefit (DB) membership numbers held flat.
In particular, auto-enrolment has most significantly boosted the number of women in pension schemes, points out Chris Connelly, propositions and solutions director at Equiniti’s pension business.
He notes that in 2012, around 5 million women were contributing to a workplace scheme, amounting to 59% of those who were eligible to do so. The Department for Work and Pensions’ latest survey shows that this figure has now risen to 8.7 million women, with nine in 10 (88%) participating.
However, the figures do show relatively small contributions. Average contributions in defined contribution schemes rose from 3.4% to 5% in 2018, suggesting most employers and employees are paying in the minimum required.
As Tom Selby, senior analyst at AJ Bell, comments, the job is not done. While getting more people to pay into a pension is clearly a big step forward, the amount people contribute needs to increase substantially to avoid a retirement crisis in the coming decades.
Various studies have suggested that millennials need to save 18% of their salary to have a ‘comfortable retirement’, which for the vast majority is completely unrealistic.
With property ownership out of reach, many in the 20s and 30s age bracket spend a large chunk of their earnings on rent. The average millennial, according to the Landbay Rental Index, spends around a third of their monthly salary on rental accommodation.
Therefore, the proportion of money that millennials have left over to set aside for their long-term future is low.