Young employee participation in workplace pensions has reached its highest level in a decade, according to new figures from ONS.
Figures reveal that 70 percent of eligible employees (13.9m) paid into workplace pension schemes in 2014, a 15 point increase in the last two years.
Young people in the private sector in particular have more than doubled their contributions, with 54 percent of 22-29 year olds making regular contributions in 2014 (compared with 24% in 2012).
Bar staff, sales staff and workers in lower paid jobs are all benefitting as well, with ever increasing numbers paying in. This is further indication that the automatic enrolment pension reform is turning around the long-term decline in people who are saving for the future.
Minister for pensions, Baroness Ros Altmann says:
“There has been a dramatic increase in pension saving across the board, which is great news.
“Automatic enrolment is key to a pension’s revolution which is breathing new life into workplace pension saving, to help give people the security and independence to start planning for their future.”
The number of people participating are set to rise as automatic enrolment extends its reach to small and micro firms between now and 2018, with nine million workers set to be enrolled by this time.
The government will also be increasing the minimum contributions that must be paid in to automatic enrolment to eight percent in 2018. This is to help people to further accumulate a bigger retirement pot.
Elliott Silk, head of employee benefits at Sanlam comments:
“The impact of Automatic Enrolment is beginning to turn heads and employers are finally engaging with employees to help them save for their futures. Across the board, it is positive that contributions from smaller private sector businesses rose following the changes implemented earlier this year, enhancing the relationship between employer and employee.
“These businesses now need to ensure that their employees are given access to the right information and support to ensure they are making the most of their contributions. It is also important that employers specifically target younger workers who will be working longer, and building up a greater pension pot. Employers need to continue engaging with their employees to encourage further participation in workplace pension schemes.”
Barnett Waddingham senior consultant Malcolm McLean says:
“There are two clear messages that are emerging from the results of auto-enrolment thus far.
“The first is, as we might have expected, that the overall effect of automatically enrolling millions of new savers into a workplace pension scheme would be to increase the numbers contributing but, on the basis of minimum contribution levels, reduce the median amounts being saved. This will inevitably increase as the minimum levels increase when the “phasing-in” process is complete, although for most savers they will still be inadequate to give them the levels of pension saving they might need. This problem needs to be addressed by the use of some system of auto-escalation of contributions or other means as soon as possible.
“The second message to me from the figures is the need for the Government to tread carefully with any major changes to tax reliefs that they may be considering. If it were to be decided to go the whole hog and reverse the arrangements for giving tax relief on contributions to one where instead the proceeds were allowed tax-free instead many years hence this would reduce still further the amounts being paid in under auto-enrolment and aggravate the current situation even more. It could also put off many younger people from saving into a pension which is the exact opposite of what auto-enrolment was designed to achieve.”
Amie Filcher is an editorial assistant at HRreview.