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Substantial drop in membership of private pension schemes

Released: 17 July 2012 Download PDF

The Office for National Statistics has recorded a significant downwards trend in employee membership of private sector defined benefit (DB) schemes – down from 34 per cent in 1997 to 9 per cent in 2011.


DB schemes are those which specify the rate of benefits to be paid with the most common being one in which the benefits are based on the number of years of pensionable service, the accrual rate and final salary. This is revealed today in Pension Trends Chapter 7: Private pension scheme membership which also discloses that 48 per cent of UK employees were members of an employer-sponsored pension scheme in 2011, falling below 50 per cent for the first time since the series began in 1997.


Pension Trends Chapter 8: Pension contributions states that in 2010 the average employer contribution rate for private sector DB occupational pension schemes was 15.8 per cent, compared with 6.2 per cent for DC occupational schemes. Starting in October 2012, employers will have a duty to automatically enrol all eligible employees into a qualifying workplace pension and contribute on their behalf. 

 
Pension Trends Chapter 6: Private Pensions reports that the number of people contributing to personal pensions continued to fall, from 6.4 million in 2008/9 to 6 million in 2009/10. Pension schemes are designed to provide ‘replacement income’ for those no longer earning an income through employment and are normally made up of a state and a non-state component.


Additionally, a fall occurred in the number of self-employed men working full-time in Great Britain belonging to a private pension scheme, falling to 37 per cent in 2010 from 64 per cent recorded in 1998/9.
Pension Trends Chapter 7 points to a difference in society when it comes to retirement,  as the higher the weekly earnings of full-time employees, the more likely they are to belong to an employer-sponsored pension, and the lower their earnings, the less likely are they to belong.


With a lower total pension provision than many other OECD countries, a pensions gap has been created. The gross replacement rates of mandatory pension schemes for average earners include highs of over 95 per cent in Iceland and Greece  but is 32 per cent in the UK. This does not take into account the changes made in the Pensions Act 2011, moving the indexing of state pensions from the Retail Price Index (RPI) to the Consumer Prices Index (CPI).


All three Chapters of Pensions Trends can be found at http://www.ons.gov.uk/ons/about-ons/our-statistics/publications/pension-trends/index.html

 

Background notes

  1. Private (non-state) pensions comprise occupational pension schemes for private sector and public sector employees as well as personal pensions, which include stakeholder pensions.  

  2. Until recently, personal (including stakeholder) pensions were the only form of pension provision for the self-employed. From the end of 2011, the National Employment Saving Trust (NEST) provided another option for the self-employed who wish to contribute to a private pension. Employees can contribute to occupational pension schemes, group personal pensions (GPPs) and group stakeholder pensions (depending on what type of pension their employer offers); they can also take out individual personal pensions.
  3. Figures are for the UK unless otherwise stated.
  4. Defined benefit (DB) pension schemes are those in which the rules specify the rate of benefits to be paid. The most common DB scheme is a ‘final salary’ scheme, but Career Average Revalued Earnings (CARE) schemes are becoming more common. A defined contribution (DC) pension is one in which the benefits are determined by the contributions paid into the scheme, the investment return on those contributions (less charges), and any annuity that is purchased. DC pensions are also known as ‘money purchase’ pensions.
  5. If a private pension scheme is ‘contracted out’ of the additional state pension, members obtain rights in that scheme in place of rights to an additional state pension
  6. The workplace pension reforms are the reforms to private pensions starting in October 2012, with gradual roll-out to all employers. They involve the automatic enrolment of all eligible employees into a qualifying workplace pension scheme
  7. Further details on private pensions can be found in Pension Trends Chapter 6 at www.ons.gov.uk/ons/rel/pensions/pension-trends/chapter-6--private-pensions--2012-edition-/index.html

  8. Further details on  private pension scheme membership can be found in Pension Trends Chapter 7 at www.ons.gov.uk/ons/rel/pensions/pension-trends/chapter-7--private-pensions--2012-edition-/index.html
  9. Further details on pension contributions can be found in Pension Trends Chapter 8 at www.ons.gov.uk/ons/rel/pensions/pension-trends/chapter-8--pension-contributions--2012-edition-/index.html
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