Lower wage earners face pension shortfall in retirement, according to ONS stats
David Woods, June 22, 2011
Low pension scheme membership by employees in low-income brackets is affecting how they will live when they retire.
The Office for National Statistics (ONS) today released Pension Trends Chapter 7, which shows that membership of employer-sponsored pension schemes is closely related to income.
Employees with high earnings are more likely to be a member of a pension scheme than those lower down on the wages ladder. In 2010, only 16 per cent of male and 27 per cent of female full-time employees earning less than £300 per week belonged to a pension scheme.
Pension Trends Chapter 7 incorporates data from the Annual Survey of Hours and Earnings which also shows that participation in pension schemes in the private sector is falling.
In 2010, 39% of male employees and 28% of female employees belonged to an employer-sponsored pension scheme in the private sector . This compared with 52% and 37% respectively in 1997.
The General Lifestyle Survey shows that 38% of full-time self-employed men in Great Britain belonged to a pension scheme in 2009, down from 64% in 1998/99.
Falling pension scheme membership implies less private pension saving, which will lead to reduced retirement income in future, unless other saving increases.
Pension Trends Chapter 10, published in April 2011, showed private pension saving accounted for nearly three-quarters of saving in the pre-retirement group (households headed by people aged 50 to 64) in Great Britain in 2006/08.
Chapter 10 suggests despite wishing to save for their old age many people may be stretched to meet day-to-day living costs and can't put money aside. It classified people by their attitudes to spending and saving and revealed that 41 per cent of 'savers' had not saved from their incomes in the past 12 months or ever. Low levels of saving were linked to low earnings.
Both Pension Trends chapters point to potential poverty in retirement for people on low incomes who do not build up sufficient private pensions or other savings to supplement the state pension.
Chapter 10 brings together all forms of saving - in pensions, financial assets and property other than the main residence - and focuses on the pre-retirement age group. In Great Britain in 2006/08 the median saving (net) of households headed by people aged 50 to 64 was £151,900. The estimated total saving for this age group was £2.2 trillion (£2,200 billion). But savings were not evenly distributed among households. The top 10 per cent of households in this age group had over eight times as much saving as the bottom 50% put together.
Chapter 7 discusses employee pension participation in both the private sector and the public sector. It shows that while membership of employer-sponsored pension schemes fell in the private sector between 1997 and 2010 (see above), in the public sector it was unchanged for men, at 87%, and it rose for women, from 75% to 82%.
The chapter also shows that there is a wide variation in employee membership of pension schemes by industrial sector, with the highest proportion of men working in:
· Public administration, defence and social security (90%)
· Electricity, gas, steam and air conditioning (84%)
· Financial and insurance activities (78%)
By contrast only 6% of men employed in the accommodation and food service industries were members of an employer-sponsored pension scheme.
For women, the highest proportion in employer-sponsored pension schemes were also in public administration, defence and social security (90%), followed by financial and insurance activities (76%) and education (75%). As with men, the lowest membership was in accommodation and food service industries (6%).
Marc Hommel, pensions partner at PwC, said: "The fact that lower earners are even less likely to belong to pension schemes further supports the case for automatic pension scheme enrolment, which the Government is introducing from next year. However, auto-enrolment will not be fully effective until 2017 and it's likely that many lower paid people, faced with a pay cut to finance their pension saving, will simply choose to opt out.
"There remains the likelihood that millions of Britains will enter their old age without sufficient retirement savings and many people will have to work for longer than they currently anticipate or intend. One of the questions facing employers is whether they can find a way to make workplace retirement savings more accessible and relevant to an increasingly diverse workforce. Also, can they do more to help people to save for their old age in a way that is affordable for both employer and employees."