Low-paid workers are far less likely to have a workplace pension and those that do have far lower employer contribution rates, according to the Trades Union Congress.
31 OCT 2012 | THE ACTUARY NEWSDESK: NICK MANN
In its Pensions scorecard report, published today, the TUC found that workers earning over £300 a week were twice as likely to be paying into a workplace pension as those earning less than that amount.
Just 14% of men and 24% of women earning under £300 a week were members of a pension scheme last year, compared to 32% and 49% respectively among those earning between £300-400 a week. This rises to 74% for men and 82% for women among those earning over £600 a week.
Those low-paid workers who do save into a workplace pension are also likely to have lower combined employer and employee contribution rates than better-paid workers. Nearly half (48%) of those earning under £200 a week have a monthly contribution rate of less than 8% for their defined contribution scheme, compared to just 23% of those earning over £500 a week.
TUC general secretary Brendan Barber said: 'It is shocking that fewer than one in four people earning less than £300 a week are saving into a workplace pension scheme.
'Even those low-paid workers who are saving are more likely to have low employer and employee contribution rates that make it far harder to build an adequate pension pot when they retire.'
The TUC expects auto-enrolment to improve the take-up of workplace pensions among low-paid private sector workers, as well as improving contribution rates.
But it said more should be done to address the 2.1 million people who will have no legal right to access a workplace pension. As of next year, it estimates a further 1.9 million people could have to actively opt into a workplace pension rather than be auto-enrolled. The majority of these people are women and part-time workers, who the TUC said should be the focus of auto-enrolment.
It also raised concerns over the quality of contract-based pension schemes, which are increasingly being used ahead of trust-based schemes - a trend the TUC expects to continue as auto-enrolment kicks in.
According to the TUC, these schemes have poor governance structures because they are established by contracts between individuals and providers - usually insurance companies - rather than being run by boards of trustees. They also largely fall outside the remit of The Pension Regulator.
It also has concerns over contributions to contract-based schemes being lower than for other type of workplace pension schemes, and the potential for conflicts of interests between scheme members and the shareholders of pension providers.
Barber added: 'There are still too many low quality and poorly governed schemes around which need to be policed more effectively. Further reforms are needed if we are to make more DC schemes fit to provide a decent income in retirement.'
In particular, the TUC advocated the abolition of the cap on contributions to the National Employment Savings Trust - the trust-based pension scheme that has been set up by the government for employers to use for auto-enrolment. The Pensions Regulator should also be given more power to police the governance of contract-based schemes, it said.