Participation levels in the public sector were far
higher, at 83%, but the data
from the Office for National Statistics showed that the total proportion of the
workforce signed up to a workplace pension scheme last year was 48%. This is
the first time it has dropped below 50% since records began in 1997.
Data also included in the 2011 edition of the ONS Annual
Survey of Hours and Earnings reveals the percentage of the private sector
workforce in defined benefit schemes has now dropped to just 9% - down from 34%
More than twice as many private sector employees are now
contributing to an occupational defined contribution pension as are building up
new DB pension entitlements
John Ball, head of UK Pensions at Towers Watson, said: ‘Pension
participation has been getting worse for some time, but we should now be
approaching the nadir.’
The introduction of auto-enrolment later this year would
be a ‘game-changer’ , he said, but its slow rollout means that for almost half
of the people due to be auto-enrolled, nothing will happen for at least three
enrolment sounds like a simple solution but the rules, which have only just
been finalised, are far from straightforward. The largest employers have
just a few months to finish overhauling their payroll and pension processes so
they can comply.
‘These employers typically offer valuable pension contributions already. An
important question for them will be whether the employees they sign up
automatically will value the pension as much as employees who actually opted
in. Companies will want to avoid spending money on benefits that
employees do not value.’
Towers Watson contrasted the low level of participation
in DB schemes in the private sector with the situation in the public sector,
where 79% of employees were active members of DB schemes in 2011.
Mr Ball said:
‘The number of private sector employees in defined benefit schemes has been in
freefall and will drop further before it levels off. Most companies'
defined benefit schemes are closed to new entrants, so the number of employees
with this sort of pension will gradually decline as existing staff move on.
‘Many schemes are also about to embark on new valuations
which may show bigger shortfalls. This could be a trigger for companies
to stop existing members from accruing further benefits so that more of their
limited pensions budget can go towards plugging the deficit.’
Mr Ball noted the government had said DB pensions in the public sector would
continue for at least 25 years, but he said the situation for the majority of
private sector employees would be a ‘very different story’.
‘As the spread of defined contribution provision puts
pension risks firmly on individuals' shoulders, employees must be encouraged to
take responsibility for their retirement planning and consider upping their
contributions if blown off course,’ he said.
‘If everything is left on autopilot until
retirement, the only things that can adjust are when you can retire and how
much you have to live on when you stop working.’