Experts warn millions of workers sleepwalking towards poverty in retirement despite record numbers paying into a pension
Millions of workers are sleepwalking towards poverty in retirement despite record numbers paying into a pension, experts warn.
The Office for National Statistics said there were 41.1m occupational pension scheme members in 2017, compared to 39.2m in 2016.
The number of active members – those who are still making a contribution – rose from 13.5m to 15.1m as more and more join pension schemes through auto-enrolment.
Shrinking pension pot: Auto-enrolment was introduced in 2012 and it makes it compulsory for employers to place all eligible workers on a pension scheme
Auto-enrolment was introduced in 2012. It makes it compulsory for employers to place all eligible workers on a pension scheme, to ensure retirees had enough money to support them in old age.
But Alistair McQueen, head of savings and retirement at Aviva, warned that many still face a post-work income lower than the minimum wage, which is currently £7.83 an hour for those over 25.
He said: ‘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 the ONS data, they’re in for a shock.
‘Many are currently on the road to living on less than the minimum wage in retirement.’
The report showed that the vast majority of public sector workers have an occupational pension, with 6.3m active members of public sector workplace pension schemes compared to 8.8m private ones.
This is despite there being five times more people working in the private sector – suggesting that only a minority in the private sector are actively saving for a pension.
ONS data has previously revealed that public sector workers typically have a pension pot of £80,600, compared to £15,300 kept by private sector employees.
While more private sector workers are saving, contribution rates are falling to minimum auto-enrolment levels. From a high of 9.7 per cent of salary in 2012, the average fell by more than half to just 3.4 per cent in 2017 – with 1.2 per cent from the employee and 2.1 per cent from the employer.
This drop can be attributed to the low minimum of auto-enrolment contributions dragging down the average.
Since the introduction of auto-enrolment in 2012, up to April this year, the minimum contribution was 2 per cent – or 1 per cent each from the employee and employer. It has now risen to a total contribution of 5 per cent.