News Average payments into workplace pensions down by a third since auto-enrolment

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The average amount being paid into workplace pensions has dropped by almost a third since the introduction of auto-enrolment, government figures released today have revealed.

The report from the Department for Work and Pensions showed the amount eligible savers – defined as those saving into a workplace pension – paid into their retirement pots plummeted to £5,110 in April 2017, down 30 per cent from £7,326 in April 2012.

Charles Cotton, senior adviser for performance and reward at the CIPD, said an influx of auto-enrolled savers only paying the minimum contribution rate likely caused the drop.

“It would be great if we could encourage employees to be more engaged with pension saving, but I think that’s going to be a long-term strategy,” he added.

Meanwhile, Tom McPhail, head of policy at Hargreaves Lansdown, told People Management: “The diluting effect of auto-enrolment and its low initial minimum contributions was always expected to lead to a decline in average contributions. This will improve over the next two years [when minimum contribution rates are due to increase further]. However, in the longer term, it will be necessary to engage employees and encourage them to consider the adequacy of their saving rates.”

Steven Cameron, pensions director at Aegon, added: “While some employers will have auto-enrolled employees into existing schemes at the same contribution levels as existing members, many will have done so at lower rates. Other employers setting up schemes for the first time are very likely to have done so at contribution rates substantially lower than previous average levels, with a significant proportion going with the auto-enrolment minimum of 1 per cent for employers and 1 per cent for employees.”

The Department for Work and Pensions statistics showed that the number of eligible employees paying into a workplace pension rose to 84 per cent in 2017, up from 77 per cent in 2016. Eligible savers put away £90.3bn in total in 2017, a £4.3bn increase on 2016.

But the number paying in persistently – defined as saving into their pension in at least three of the last four years – dropped four percentage points to 73 per cent.

The figures also revealed a sharp rise in saving by younger workers. The proportion of private sector employees aged 22 to 29 saving into a workplace pension shot up from 24 per cent in 2012 to 77 per cent in 2017.

“We’ve got them in, so that’s great,” said Cotton of the rising pension participation among younger workers. “The next question is what can we do to increase the contribution amounts that are going in from the employer and employee.”

For the purposes of the Department for Work and Pensions’ report, eligible employees are those who meet the auto-enrolment age and earnings criteria.

Auto-enrolment was rolled out from October 2012, starting with the country’s largest employers. Organisations must auto-enrol those aged over 22 and earning more than £10,000 unless they choose to opt out. Although other workers do not need to be auto-enrolled into a pension scheme, they may be able to opt in.

Before auto-enrolment was introduced, workplace pension saving had been on a downward slide. The proportion of employees saving into a workplace pension fell from 60 per cent in 2007 to 55 per cent in 2012.

In April 2017, minimum contribution rates under auto-enrolment were 2 per cent, with employers needing to pay at least 1 per cent. From April 2018, minimum contribution levels rose to a minimum of 5 per cent overall, with a minimum employer contribution of 2 per cent. Those rates will increase again in April 2019 to an overall contribution minimum of 8 per cent, with a minimum of 3 per cent coming from employers

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