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Chapter 1: Introduction - OPSS Annual Report, 2011 This product is designated as National Statistics

Released: 19 September 2012 Download PDF

Abstract

'Chapter 1: Introduction' of the Occupational Pension Schemes Survey (OPSS) annual report 2011 gives an overview of the survey and explains what information is contained in each chapter of the annual report.

Background

Since 1953, there has been a series of surveys of occupational pension schemes in the UK, providing a detailed view of the nature of occupational pension provision. Until 2000, the surveys were conducted every four to five years. The surveys have been annual since 2004.

Responsibility for running the Occupational Pension Schemes Survey (OPSS) was transferred from the Government Actuary’s Department (GAD) to the Office for National Statistics (ONS) in 2005, following the Government’s acceptance in March 2005 of a recommendation by the Morris Review. The 2006 survey was the first to be run after ONS took over responsibility for the survey. This report presents the results of the sixth OPSS to be run by ONS, in 2011.

What this report covers

The annual report of the 2011 survey presents results that relate to a reference date of 6 April 2011. Chapter 2 presents results on numbers of occupational pension schemes. Occupational pension scheme membership results are presented in Chapter 3. Findings on the contributions made to schemes by members and sponsoring employers are presented in Chapter 4, while information on scheme benefits is presented in Chapter 5 and Chapter 6. Additional information on very small schemes, those with between 2 and 11 members, is provided in Chapter 7, while Chapter 8 looks at those schemes which are in the process of winding up. Chapter 9 looks at changes to schemes since 2009, including those as a result of policy changes.

Chapter 10 describes the methodology employed by the survey. The methodology of the 2011 survey, including the approach to sampling and the treatment of responses, was similar to that of previous years. However, the following changes since ONS took over responsibility for the OPSS should be noted: 

  • The methodology for weighting the membership results was changed in 2007 and has been applied to all results from 2006 onwards.

  • The method used for weighting the data on scheme numbers was changed in 2010 as a result of a methodology review, and the new method has been applied to results presented in this report.

  • Improvements to the questionnaire mean that some comparisons between years from 2008 onwards and earlier years should be treated with caution.

  • Questions on contributions and accrual rates were improved in 2010 so, for these topics, comparisons with earlier years should be treated with caution.

In addition, where comparisons between years are affected by methodology changes or improvements to the questionnaire, this is clearly indicated in the tables presented in this report. Chapter 10 gives details of the response rates achieved. A major benefit of the transfer of the survey to ONS was that it enabled the data to be collected under the Statistics of Trade Act 1947. This made the survey mandatory and is the main reason why response rates since 2006 have been significantly higher than in previous years.

Scope of the survey

The Occupational Pension Schemes Survey, with the exception of 2005, covers both private sector and public sector occupational pension schemes. Hereafter, we refer to occupational pension schemes simply as schemes. As with the previous surveys, the scope of the 2011 survey was restricted to schemes registered in the UK. In the public sector, occupational pensions are those which are provided by the employer (central or local government – see Public and private sectors).

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.

The survey does not cover state pension provision, where entitlements to the basic and additional state pensions are built up through payment of National Insurance contributions.

The OPSS does not cover personal pensions. This exclusion extends to workplace personal pensions such as group personal pensions (GPPs). The possibility of incorporating personal pensions, including GPPs and stakeholder pensions, was considered in a major review of the survey carried out in 2003. However, that review confirmed the decision to exclude them from the survey. The reasons included difficulties in defining a suitable sampling frame, and the extent to which contract-based arrangements would differ for different members in terms of contributions paid and benefits.

In 2011, ONS ran a consultation on the future of OPSS which again raised this issue in view of the fact that workplace personal pensions now comprise an important part of workplace pension provision. The consultation concluded that the findings from 2003 are still valid, although there was a suggestion that if suitable sampling frames are developed in future, some key information on GPPs and other workplace personal pensions (such as membership estimates) might be collected through OPSS.

Figure 1.1 shows how the concepts of occupational and personal pensions interact with workplace pensions sponsored by an employer. A personal pension (whether sponsored by an employer or not) has the legal form of a contract between an individual and a pension provider, usually an insurance company. Like occupational pensions, personal (contract-based) pensions may also be workplace pensions. However, this survey is concerned only with occupational provision: the two left hand columns in the diagram.

Figure 1.1 further shows that occupational schemes can be distinguished by the basis on which benefits at retirement are given: that is, whether benefits are related to the member’s earnings and length of service, defined benefit (DB), or are based on the accumulation of contributions paid and investment returns on these contributions – defined contribution (DC). All public sector occupational pension schemes are DB, and all DC occupational pension schemes are in the private sector; the private sector also includes defined benefit schemes (see Benefit Structure).

Figure 1.1: Types of private pension provision

Figure 1.1: Types of private pension provision

Notes:

  1. Adapted from ‘Pensions: Challenges and Choices, the First Report of the Pensions Commission’, Pensions Commission, October 2004

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A final distinction is based on funding status. All private sector schemes in the survey are funded, while the public sector is made up of both funded and unfunded schemes (see Funding status).

The results presented throughout this report are mainly for the reference date of 6 April as, for many schemes, this is the turn of their scheme year. Some results relate to the date of the last report sent to the scheme’s trustees, given this will be the most complete set of information available.

The sample for the survey was based on the Pension Scheme Register which is maintained by the Pensions Regulator. This forms a register of all occupational pension schemes in the UK.

The 2011 survey report makes comparisons with the results of previous surveys. Further results from earlier years can be obtained by clicking on the download files (see Caveats).

Public and private sectors

When considering occupational pension schemes, it is useful to distinguish between those in the public sector and those in the private sector. On the Pension Scheme Register, the public sector comprises the centrally-administered unfunded public service pension schemes (of which the largest schemes are those for the civil service, Armed Forces, teachers, National Health Service (NHS) staff, police officers and firefighters), together with the funded Local Government Pension Scheme for local authority employees and some smaller public sector schemes. Since 2000, all other schemes have been classified in the private sector.

Private sector schemes include those which cover employment in some public sector areas where the schemes are managed in a similar way to the private sector, such as the Bank of England, the BBC, Transport for London, universities and the Post Office, as well as schemes where there is an element of a government guarantee, such as the frozen schemes for the pre-privatisation coal industry. The pension schemes of the Lloyds Banking Group, the Royal Bank of Scotland Group and HBOS plc are also classified as belonging to the private sector.

All public sector employers offer pension provision, and all occupational pension provision in the public sector is through defined benefit schemes. Alternatives such as stakeholder pensions may also be offered, an example is the civil service Partnership account, but these are beyond the scope of the OPSS as they are not occupational schemes. The policy, regulatory and financial framework for public sector schemes differs in some respects from that for private sector schemes and has been subject to fewer changes.

The Independent Public Service Pensions Commission (IPSPC) chaired by Lord Hutton of Furness, which reported in March 2011, argued for changes to public sector pension schemes. The Government accepted Lord Hutton's recommendations and consulted with public sector workers, unions and others. The timing and extent of implementation are specific to each scheme but did not affect schemes in 2011, the reference period for this report.

Scheme status

Another important feature of a scheme is its status. Survey respondents were asked whether the scheme (or section of the scheme – see Schemes and sections) was open, closed, frozen or winding up.

  • An open scheme admits new members.

  • A closed scheme does not admit new members but may continue to receive contributions from or on behalf of existing members who continue to accrue pension rights.

  • In a frozen (or ‘paid up’) scheme, benefits continue to be payable to existing members but no new members are admitted, and no further benefits accrue to existing members. Members can make no more contributions but further employer contributions may be made, and may have to be made, for example to correct a deficit.

  • A scheme that is winding up is in the process of termination, either by buying annuities for the beneficiaries or by transferring assets and liabilities to another scheme or to the Pension Protection Fund.

Although a record of scheme status is held on the Pension Scheme Register, schemes selected for the survey were asked to confirm their status before questionnaires were sent out. This allowed schemes which were winding up to be sent a special questionnaire tailored to their situation. The analysis presented in this report uses the status as reported by schemes themselves. At the stage of asking schemes to confirm their status, a number of schemes were found to be ineligible for inclusion in the survey (see Chapter 10).

Benefit structure

A further important feature of a scheme is its benefit structure. Benefits at retirement may be based on members’ earnings and length of service. Schemes which provide such benefits are referred to as ‘defined benefit’ schemes. Alternatively, the benefits offered may be based on contributions by and on behalf of members plus any investment return earned (less charges). Such schemes are referred to as ‘defined contribution’ schemes.

  • Defined benefit schemes are those in which the rules specify the rate of benefits to be paid. Most defined benefit schemes are ‘final salary’ schemes, where benefits are based on final salary, or the best year’s earnings of the last few years of employment, or the average of the last or best of last years’ earnings. However, ‘career average’ schemes, which use average earnings over the whole career rather than final earnings, are becoming more common.

  • A defined contribution scheme is one in which the benefits are determined by the contributions paid into the scheme, the investment return on those contributions (less charges), and the type of annuity purchased (if any). Defined contribution schemes are also known as money purchase schemes.

Schemes and sections

Some schemes have more than one section, offering benefits on different bases to different groups of members. For example, one group of members might be offered benefits on a defined benefit basis, while a second group might be offered benefits on a defined contribution basis. Alternatively, schemes might have different sections in order to offer different levels of the same type of benefit to different members, or simply to account for the benefits and contributions of different groups of members separately.

These schemes are referred to in this report as sectionalised schemes or multi-section schemes. Where a scheme had more than one section, each section in the scheme was classified separately as either defined benefit or defined contribution, according to the benefits it offered. Results such as those for the number of active employee members accruing benefits on a defined benefit basis are the combination of results for defined benefit schemes and defined benefit sections of sectionalised schemes.

Funding status

Funding status of a scheme is also used in the presentation of results from this survey. Although all private sector schemes in the survey are funded, the public sector contains unfunded schemes as well as funded schemes.

  • A funded scheme is a scheme in which benefits are met from a fund built up in advance from contributions and investment income. Funded schemes in OPSS consist of private sector occupational pension schemes, the Local Government Pension Scheme for local authority employees and some smaller public sector schemes.

  • An unfunded scheme is a defined benefit scheme, usually in the public sector, in which liabilities are not underpinned by a fund. The main unfunded pension schemes are for the civil service, Armed Forces, NHS, teachers, police and firefighters. The benefits are financed from general taxation and employee contributions.

Scheme size

A final key feature of a scheme is the number of members it has. This is referred to throughout this report as scheme size. In this survey, the size of a scheme is defined as its total membership, as used by the Pensions Regulator for the purpose of assessing the levy that the scheme must pay. This information is held on the Regulator’s Pension Scheme Register.

Total membership comprises active (employee) members, pensioners with pensions in payment and members with preserved pension entitlements (‘deferred’ or ‘preserved’ members). Where results are broken down into groups of schemes of different sizes, total membership size is used to classify them.

For the purpose of selecting the sample of schemes (see Chapter 10), the allocation of a scheme to a particular size group was by the total number of members as held on the Pension Scheme Register. However, the membership numbers presented in this report are those reported in schemes’ responses to the survey.

The total membership of the scheme in this case is the sum of active, deferred and pensioner members. This may not be the same as the total membership recorded on the Pension Scheme Register due to delays in reporting changes. This is because, in general1, while schemes are able to amend their data at any time, they are only required by the Regulator to review and amend their registered data annually, when receiving their scheme return notification, or triennially for defined contribution schemes with 2 to 11 members.

Notes for Scheme size

  1. If entering or completing the wind up stage, schemes are required to inform the Regulator immediately.

Caveats

There are several important caveats that should be taken into account when analysing the data from the Occupational Pension Schemes Survey.

  • A recent review of the methodology for estimating scheme numbers has made some improvements,  but the problem of sampling variability remains. The only way to resolve this would be to increase the sample size, particularly for the very small schemes (see Chapter 2).

  • Hybrid schemes (or sections of schemes) are treated as defined benefit – schemes are provided with a defined benefit questionnaire type (see Chapter 10 for the questionnaire types) if they inform us that benefits are provided on a hybrid basis (see Pension Trends Glossary (198.9 Kb Pdf) ).

  • The survey does not cover schemes with only one member.

  • Estimates of membership numbers throughout do not necessarily represent numbers of people. It is possible for one person to be in multiple pension schemes,  for example, contributing to (and therefore an active member) of their current employer’s occupational scheme but also a deferred member of a previous employer's scheme.

  • There are three time series breaks in the data on membership – explained in the Introduction section of Chapter 3.

  • The questionnaire changed in 2010 in order to improve collection of contribution and accrual rates – explained in the Introduction section of Chapter 4.

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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

Supporting information

Further information

Executive Summary: OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. The Executive Summary gives the key findings from each chapter.
Chapter 2: Scheme Numbers - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 2 provides estimates of the number of occupational pension schemes.
Chapter 4: Contributions - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 4 provides estimates of contribution rates to occupational pension schemes.
Chapter 3: Scheme Membership - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 3 provides estimates occupational pension scheme membership.
Chapter 5: Benefits in Defined Benefit Schemes - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 5 provides estimates on benefits provided to those in defined benefit occupational pension schemes.
Chapter 6: Benefits in Defined Contribution Schemes - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 6 provides estimates on benefits provided to those in defined contribution occupational pension schemes.
Chapter 7: Very Small Schemes - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 7 provides estimates relating to occupational pension schemes with 2 to 11 members.
Chapter 8: Winding Up Schemes - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 8 provides estimates on schemes in the process of winding up.
Chapter 9: Changes to Schemes - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 9 provides estimates on changes to occupational pension scheme rules.
Chapter 10: Methodology - OPSS Annual Report, 2011 - The annual report of the Occupational Pension Schemes Survey presents results including membership, contribution rates and benefits relating to occupational pension schemes. Chapter 10 provides information on the survey methodology.
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