UK Workplace Pension Participation Surges to Record High

Workplace pension participation in the UK has surged over the past five years to 73% of all employees in 2017, from less than 47% in 2012, according to the Office for National Statistics (ONS).

The ONS attributed the increase in pension participation to the introduction of automatic pension enrollment in 2012 by the UK government. Since then, more than 9.5 million people have been automatically enrolled through the program.

Automatic enrollment is a government initiative that is intended to help more people save for retirement through a pension plan at work. It 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 The Pensions Regulator.

The auto-enrollment program has had the biggest impact on participation in workplace defined contribution pensions, as 43% of all UK employees paid into a defined contribution pension in 2017, compared with only 17% in 2012.

“In the past, many workers missed out on valuable pension benefits because their employer didn’t offer them a pension, or they didn’t apply to join their company’s pension scheme,” said the ONS. “Automatic enrollment changes this.”

However, while there has been a significant rise in the number of people participating in workplace pensions, contribution levels have remained relatively low. An employer may choose to pay all the total minimum, but if it contributes the minimum rate, the employee must make up the difference. The required total minimum contributions increased to 2% for employers and 3% for workers in April, from 1% for each. In April 2019, it rises to 5% for workers and 3% for employers.

In 2017, almost half of private sector employers with defined contribution pensions contributed less than 2% of pensionable earnings, compared with approximately 6% in 2012.

“It’s not necessarily that employers had reduced their contributions since 2012,” said the ONS, “rather that automatic enrolment has led to an influx of new savers at low rates, changing the distribution of employer contribution rates.”

Employee contributions were also concentrated at relatively low levels in 2017, as approximately 45% of private sector workers with defined contribution pensions were contributing less than 1% of pensionable earnings, and only around one in three were contributing 3% or more.

According to ONS data, auto-enrollment has also had a big impact on pension participation among low-paid younger employees, who often weren’t provided with pensions prior to its introduction. Nearly 63% of private sector workers aged 22 to 29 paid into a defined contribution pension in 2017, a nearly four-fold increase from just 16% in 2012.

While auto-enrollment is mandatory for employers, employees can opt out if they choose, and so far, pension retention has been high, with approximately 90% of employees remaining in their workplace pension after being enrolled. But as required contributions rise, this percentage may decline, suggested the ONS, which said that with new higher minimum contributions kicking in last month, “some workers may have already seen an impact on their take-home pay.”