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Occupational Pension Schemes Survey, 2010 - Annual Report This product is designated as National Statistics

Abstract

These pages present the results of the 2010 survey of occupational pension schemes in the UK. A summary for each chapter can be found by clicking on the links to the left with the full report (including a chapter on the survey methodology) available at the link above (see 'Article in pdf'). The Statistical Bulletin which covers this release can be found at http://www.ons.gov.uk/ons/rel/fi/occupational-pension-schemes-survey/2010/index.html

Chapter 1: Introduction

This report presents the results of the 2010 Occupational Pension Schemes Survey (OPSS), carried out by the Office for National Statistics (ONS). It compares the 2010 findings with the findings of earlier surveys carried out by the Government Actuary’s Department (GAD) from 1953 to 2005 and by ONS in 2006 to 2009.

OPSS covers occupational pension schemes registered in the UK. The sample for the 2010 survey was based on the Pension Scheme Register maintained by the Pensions Regulator. The 2010 OPSS covers both public sector and private sector occupational pension schemes. In the public sector, occupational pensions are those which are provided by the employer (central or local government). In the private sector, occupational pensions are provided by employer-sponsored schemes with scheme trustees which are set up under trust law by one or more employers for the benefit of their employees. Occupational pension schemes in the private sector are also known as trust-based workplace pension schemes.

OPSS does not cover other workplace pensions such as group personal pensions (GPPs) or group stakeholder pensions, which are based on individuals entering into a contract with a pension provider; nor does it cover state pensions.

The results presented in this report distinguish between public sector and private sector schemes and include breakdowns by scheme status (open, closed, frozen or winding up), by size, by funding status (funded or unfunded) and by benefit structure (defined benefit and defined contribution). All public sector occupational pension schemes are defined benefit, and all defined contribution schemes are in the private sector; the private sector also includes defined benefit schemes.

Although the report focuses on the results of the 2010 survey, it also presents comparisons with earlier years. Further results from earlier years can be obtained by clicking on the tables and graphs in the online version of this report.

Chapter 2 presents results on numbers of private sector occupational pension schemes. These estimates have been reintroduced following a methodology review. Chapters 3 to 6 present information on pension scheme membership, contributions and benefits. Chapters 7 and 8 present results for separate sub-groups: very small schemes and winding up schemes. Chapter 9 looks at changes to schemes in recent years. Chapter 10 describes the survey methodology.

Chapter 2: Scheme numbers

Chapter 2 presents results on numbers of private sector occupational pension schemes. These estimates have been reintroduced for the first time since the 2007 annual report, following a methodological review. The new methodology is discussed further in Chapter 10.

In 2010, the estimated total number of private sector occupational pension schemes in the UK was  44,380, just over three-quarters of the total in 2007. Of this total, there were estimated to be 21,730 schemes that were open to new members. The majority of private sector occupational pension schemes – 80 per cent – were very small (2 to 11 members). Large schemes, with 5,000 or more members, accounted for only 1 per cent of all schemes in 2010.

In 2010, single section schemes accounted for almost all private sector occupational pension schemes (99 per cent). Most open private sector schemes with only one section in 2010 were defined contribution schemes (93 per cent of the total). The number of open private sector defined benefit schemes with only one section fell to 1,480 in 2010 from 2,180 in 2009.

Only 13 per cent of the single section defined contribution schemes in the private sector with 100 or more members that were open to new members in 2010 had been founded before 1980, whereas over half of single section defined benefit schemes that were open in 2010 had been founded before 1980.

In 2010, 13 per cent of single section private sector schemes were contracted out. However, among larger schemes, contracting out remains common. Over three-quarters of schemes with 5,000 or more members were contracted out in 2010.

Chapter 3: Scheme membership

Chapter 3 presents the results on membership of occupational pension schemes. In 2010, total membership of occupational pension schemes in the UK was estimated to be 27.2 million, compared with 27.7 million in 2009. Of the total in 2010, 12.5 million were in public sector schemes and 14.7 million were in private sector schemes.

Membership in occupational pension schemes can be divided into three types: active members (current employees), pensioner members who are receiving pension payments, and former employees with preserved pension entitlements who are not yet receiving a pension (‘deferred members’). In 2010, there were an estimated 8.3 million active members of occupational pension schemes: 5.3 million in public sector schemes and 3.0 million in private sector schemes. The estimated total number of pensions in payment was 9.0 million and the number of preserved pension entitlements was 9.8 million.

Individuals may have more than one of the above types of membership. For instance, they may be a member of their current employer’s pension scheme as well as having preserved rights in a previous employer’s scheme. Hence, all estimates of membership include an element of double counting and are not counts of individuals.

Active membership of private sector defined benefit schemes fell from 3.0 million in 2006 to 2.1 million in 2010, while active membership of private sector defined contribution schemes remained stable at around one million. In 2010, 64 per cent of active members in public sector defined benefit schemes were in schemes that were open to new members, compared with only 46 per cent of active members of private sector defined benefit schemes. Most active members of private sector defined contribution schemes (93 per cent) were in open schemes.

In 2010, 84 per cent of active members of occupational pension schemes belonged to schemes with 10,000 or more members, while 1 per cent belonged to very small schemes (2 to 11 members).

Of the 3.0 million active members of private sector schemes in 2010, two-thirds were contracted out of the State Second Pension (S2P). Most of these were in defined benefit schemes.

In 2010, 56 per cent of active members of open private sector schemes belonged to schemes that automatically enrolled all new employees, compared with 43 per cent in 1995.

Chapter 4: Contributions to schemes

Chapter 4 presents the results on contributions to schemes with 12 or more members. In 2010, for defined benefit schemes in the private sector, the average contribution rate was 5.1 per cent for members and 15.8 per cent for employers. For private sector defined contribution schemes, the average contribution rate was only 2.7 per cent for members and 6.2 per cent for employers.

In price indexed ‘career average’ schemes (see below: Chapter 5), average employer contribution rates were lower than for defined benefit schemes as a whole (11.8 per cent), but average employee contribution rates were slightly higher (5.4 per cent).

In 2010, 87 per cent of active members of private sector defined benefit schemes and 75 per cent of active members of defined contribution schemes belonged to schemes where members made contributions. Most employers contributed in 2010, but 58 per cent of the active members receiving employer contributions in defined contribution schemes had employer contribution rates of less than 8 per cent, compared with only 8 per cent in private sector defined benefit schemes.

In 2010, 92 per cent of active contributing members of private sector defined benefit schemes were in schemes that were contracted out of the State Second Pension (S2P), while 78 per cent of active members of private sector defined contribution schemes who contributed in 2010 were in schemes that were not contracted out.

In 2010, two-thirds of active members of defined contribution schemes belonged to schemes which offered ‘salary sacrifice’ arrangements. It should be noted that these results do not indicate how many active members opted for salary sacrifice.

In 2010, 94 per cent of the active members of defined benefit schemes and 88 per cent of the active members of defined contribution schemes were in schemes offering additional voluntary contributions (AVCs). In general the only type of additional benefits purchasable with AVCs in defined contribution schemes are money purchase benefits. The type of benefit most commonly offered in private sector defined benefit schemes in 2010 was also money purchase benefits.

For 94 per cent of active members of private sector defined benefit schemes, earnings between the lower earnings limit and the earnings cap qualified for pension contributions to be paid in 2010. Earnings below the lower earnings limit qualified for 78 per cent of active members. Nearly all active members of private sector defined benefit schemes were in schemes which used basic salary as the basis for paying contributions.

In 2010, 97 per cent of active members of defined contribution schemes were offered an investment choice, and almost all of these were able to split their investment between more than one fund, with 46 per cent able to choose 10 or more funds. Most active members of defined contribution schemes could switch funds without charge, and 63 per cent of these members were allowed unlimited switching. It should be noted that the results do not indicate how many active members exercised their rights to switch funds in this way or to split their investments across funds.

Chapter 5: Benefits in defined benefit schemes

Chapter 5 presents results on benefits provided by defined benefit schemes with 12 or more members. Most defined benefit pensions are based on a fraction of final pensionable earnings which is a multiple of an ‘accrual rate’. In unfunded public sector schemes, 72 per cent of active members accrued benefits at 80ths plus a 3/80ths lump sum in 2010. The most common accrual rate for funded public sector schemes was 60ths. In the private sector in 2010, two-thirds of those accruing benefits at 60ths – the most common accrual rate – were in sections of schemes that were closed to new entrants.

Commutation rates in the public sector were less generous than in the private sector in 2010. In public sector schemes with a normal pension age of 65, almost all members had commutation rates of between 12 and 14 (i.e. for every £1 of annual pension given up by members, they would receive a lump sum of between £12 and £14). In private sector schemes with a normal pension age of 65, male commutation rates of 14 or more were available in schemes representing 34 per cent of members in 2010, while female commutation rates of 14 or more were available in schemes representing 40 per cent of members.

Most private sector defined benefit schemes use final pensionable earnings – final salary or a similar approach – to calculate benefits in retirement. However in 2010, 0.5 million active members (26 per cent) were in schemes where, for at least some of the members, average earnings over the whole career revalued in line with prices were used to calculate benefits. In 2010, 0.3 million active members were in schemes where all members’ benefits were calculated on a ‘career average’ basis, of which 0.2 million were in career average schemes where pension entitlements were price indexed.

In 2010, almost all defined benefit schemes offered benefits on ill-health retirement. A pension on early retirement was available for 98 per cent of active members of private sector defined benefit schemes, but most would receive a reduced pension if they retired early.

In 2010, as part of ‘death in service’ benefits in private sector defined benefit schemes, a pension would be offered to a surviving spouse as of right for over 80 per cent of active members, and to surviving children as of right for two-thirds of active members.

Pensions in payment are normally increased on an annual basis, but in 2010 some 45 per cent of pensions in payment were either not increased or increased by less than 2 per cent.

Chapter 6: Benefits in defined contribution schemes

Chapter 6 presents results on benefits provided by defined contribution schemes with 12 or more members. In defined contribution occupational pension schemes – all of which are in the private sector – the level of pension is determined not by scheme rules but by investment performance and annuity market outcomes. In 2010, in addition to a pension, almost all schemes offered a lump sum at normal pension age. Only 7 per cent of active members were in a scheme which offered income withdrawal in 2010.

In 2010, most active members of defined contribution schemes were in schemes which had a range of benefits provided by annuities or pensions in retirement, and these were generally provided at member’s choice.

Most defined contribution schemes offer benefits on ill-health retirement. In 2010, 0.5 million active members who qualified to receive these benefits were eligible for benefits based on the value of their money purchase accounts only.

In 2010, where death in service benefits were paid as a lump sum, the most common way of calculating them was as a multiple of four times salary or greater. When a pension was paid, the most common ways of calculating it were as a percentage of the member’s salary at the date of death and as the pension that could be bought with the member’s money purchase account.

Since 2004, there has been a reduction in the proportion of ‘deferred members’ with benefits as of right on death before normal pension age. However, between 2009 and 2010, the proportion entitled to a refund of the money purchase fund as of right rose from 54 per cent to 57 per cent.

Chapter 7: Very small schemes

Occupational pension schemes which have between 2 and 11 members are referred to in this report as very small schemes; schemes with fewer than 2 members are not included in the survey. In 2010, very small schemes accounted for only 1 per cent of the active membership of occupational pension schemes.

Around half of the members of very small schemes in 2010 were active members. Nearly 90 per cent of active members in very small schemes were in schemes with 2 to 4 active members in 2010; and over 90 per cent of active members belonged to defined contribution schemes.

Over half of active members of very small schemes in 2010 were in schemes where contributions were being made either by the member or the employer or both. Over half of active members in these schemes were not making any contributions themselves; contributions were solely from the employer.

In 2010, 75 per cent of active members of very small schemes were in schemes which provided benefits to dependents on death after retirement, while 31 per cent were in schemes which provided ‘death in service’ benefits and 23 per cent were in schemes which provided benefits on early retirement due to ill health.

Chapter 8: Winding up schemes

Chapter 8 presents information on schemes in the process of winding up. In 2010, there were an estimated 408,100 members of private sector occupational pension schemes winding up in the UK. This figure comprised 146,800 members receiving pension payments and 261,400 deferred members. Schemes which are winding up have no active members.

In 2010, over 80 per cent of members in private sector winding up schemes were in defined benefit schemes. Some 57 per cent of the members of defined benefit schemes which were winding up were deferred members, compared with 95 per cent in defined contribution schemes.

In 2010, 56 per cent of members of winding up schemes with one sponsoring employer belonged to schemes where the employer was insolvent.

Chapter 9: Changes to pension schemes

Chapter 9 presents results on the main changes which have taken place in the last four years including changes which have taken place as a result of ‘Age Discrimination Legislation’. It also analyses the experience of scheme members who continue to work beyond normal pension age.

The most common change for private sector defined benefit schemes in 2010 was increases in member or employer contribution rates. This affected 56 per cent of members in 2010, compared with 36 per cent in 2009. For defined contribution schemes, the most common changes in 2010 were an increase in the range of funds offered and increases in member or employer contribution rates, each affecting 34 per cent of active members.

In 2010, 54 per cent of active members of private sector defined benefit schemes and 33 per cent of active members of defined contribution schemes were in schemes which had made changes since 2006 as a result of ‘Age Discrimination Legislation’.

In 2010, 67 per cent of active members of private sector defined benefit schemes and 78 per cent of active members of defined contribution schemes were able to continue working beyond normal pension age and draw a pension at the same time.

For 89 per cent of active members of private sector defined benefit schemes and 85 per cent of active members of defined contribution schemes in 2010, the employer would continue to contribute to the member’s pension if the member continued to work beyond normal pension age.

Background notes

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    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

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