UK Workplace Pension Membership Hits New High

According to the UK’s Office for National Statistics’ annual Occupational Pension Schemes Survey, total membership of occupational pensions in the UK rose to an estimated 41.1 million in 2017, from 39.2 million in 2016. to its highest level ever recorded by the survey. Total membership of UK public sector pension plans was 15.5 million in 2017, up from 14.8 million the previous year.

Active membership of occupational pension schemes was 15.1 million in 2017, 8.8 million of which was from the private sector, with the remaining 6.3 million from the public sector. And active membership of private sector defined contribution plans was 7.7 million in 2017, compared with 6.4 million in 2016.

The survey covered UK-registered private and public sector occupational pension plans, and collected information about plan membership, benefits, and contributions from a sample of occupational trust-based pension plans consisting of two or more members. It also included plans that are winding up. The survey does not cover state pensions or personal pensions.

According to the survey, active membership has increased in five consecutive years, and grew to 15.1 million in 2017 from 13.5 million in 2016. The ONS attributed the increase to the impact of automatic enrollment. Automatic enrollment is a UK government initiative that makes it mandatory for employers to automatically enroll their eligible workers in a pension plan, and pay contributions toward it. Deliberately failing to enroll eligible workers in a pension is a criminal offense, and can result in prosecution, according to UK pensions watchdog The Pensions Regulator.

For more stories like this, sign up for the CIO Alert newsletter. 

Active membership in the private sector increased to 8.8 million from 7.7 million between 2016 and 2017, said the ONS. It also said the increase in active membership of public sector plans to 6.3 million from 5.7 million can be attributed in part to reforms made to the Teachers’ Pension Scheme, introduced in 2015.

Workplace pensions consist of occupational and group personal pensions with membership of occupational plans accounting for approximately 70% of workplace pension membership in 2017.

The survey also found that since the introduction of workplace pension reforms in 2012, the most significant movement was seen in private sector defined contribution pension plans, whose membership has increased nearly eight-fold to 7.7 million in 2017 from 1 million in 2012.

The ONS attributed the increase in membership of DC plans to the workplace pension reforms, and the fact that they are more attractive to employers because the members bear the investment risk, unlike defined benefit plans where the employer takes on the investment risk, and must pay out pensions at an agreed rate.

As a result, active membership of private sector defined benefit plans fell to 1.1 million in 2017, from 1.3 million in 2016. The report said the decline in active membership of defined benefit plans in recent years is linked to the rising costs of providing the pensions.

Tags: Defined benefit (db) pension plans, Office for National Statistics, Pension, UK

UK public defined contribution workplace pension fund NEST is inviting managers of private credit funds to suggest “innovative” ideas to get its members invested in off-market debt.

“With volatility on the rise, we must find cost-effective ways to access alternative sources of return, and diversify risk for our members,” NEST CIO Mark Fawcett said in a release. “We see long-term potential in private markets and alternative asset classes. We’ve recently added commodities, and are now looking to add private credit to our toolbox.”

The fund said its research showed that although private credit has generally been considered too expensive and illiquid for defined contribution pensions, its members should, with some ingenuity, be able to benefit from the higher returns available.

“‘We’re looking to work with innovative fund managers who see the future potential in this market,” said Fawcett.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

A private credit fund targets the ownership of higher-yielding corporate, financial, or physical, but non-real estate assets held within a private fund partnership structure. It can include so-called capital preservation strategies, such as mezzanine and senior debt funds in a bid for predictable returns while protecting against losses, as well as “return-maximizing strategies,” such as distressed corporate credit funds and funds that focus on capital appreciation. According to investment firm Cambridge Associates, these type of funds offer the possibility of larger gains.

NEST said the traditional model of small, closed-ended funds are unlikely to meet its needs, so it is seeking managers who can operate “evergreen,” scalable funds that focus on unlisted infrastructure debt, real estate debt, and corporate loans.

“NEST is welcoming innovative ideas about how to access these markets either independently or in a multi-asset solution,” said the fund in a release.

The fund also said it will have enough assets under management to look into direct and co-investment opportunities and wants to work with experienced managers to help develop NEST’s in-house expertise in the private credit area.

“We don’t buy the argument that private credit is out of reach for DC schemes,” said Fawcett. “Our members should have access to the same opportunities as pension savers in large, sophisticated DB schemes.”

NEST was established by UK legislation to run the NEST pension, and reports to Parliament through the secretary of state for the Department of Work and Pensions.

Tags: Mark Fawcett, National Employment Savings Trust (NEST), Pension, Private Credit