Employers’ pension provision: a work in progress
Saving for retirement is something many of us put off. Putting money into a pension can sometimes take a back seat in comparison to other financial priorities in our lives. But quite often many of us are also inclined to delay starting a pension – not least because the decision as to how best to save for the future is not an easy one.
Employers have long had an important role in pension provision. The prevalence of pension provision among private sector employers was becoming less common however, and while in the early 2000s around half of private sector employers offered at least some form of pension provision for their employees, by 2011, this proportion had fallen to around one third.
The workplace pension reforms were introduced to increase pension saving. Introduced following the 2008 Pensions Act (and updated as part of the 2011 and 2014 Pension Acts), the reforms require all employers to automatically enrol all eligible employees into a qualifying workplace pension scheme, although employees can choose to opt out. Automatic enrolment has been rolled out in stages, beginning with the largest employers in October 2012.
Published today, our report on the 2017 Employers’ Pension Provision Survey, carried out by Kantar Public and NIESR for the Department for Work and Pensions, provides up to date evidence on the current landscape of pension provision among private sector employers and insights into the impact of the reforms so far.
The findings show that the extent of pension provision has increased substantially; 47 per cent of private sector employers offered some form of workplace pension scheme in 2017, compared with 19 per cent in 2013. Most small, medium and large employers provided a workplace pension scheme; provision was less common among micro employers. Overall, the vast majority (91 per cent) of all private sector employees worked for an employer who provided a workplace scheme. Membership of workplace pension schemes has also risen considerably; the percentage of private sector employees who were members of a pension scheme increased from 32 per cent in 2013 to 60 per cent in 2017.
Around one in ten employees automatically enrolled into a scheme chose to opt out. And while rates of opt-out are higher, at around one in three, after re-enrolment (employers are required to re-enrol any eligible employees who are not in the pension scheme three years after the date from which they were originally required to comply with the reforms), it is notable that a sizeable proportion of employees who are re-enrolled are choosing to remain in the scheme at this point. In addition, in eight per cent of firms with a scheme used for automatic enrolment, at least some non-eligible workers had been enrolled into the scheme in the last financial year. In some cases this was because employees had actively asked to join the scheme, but some employers indicated that it was their company policy to enrol all their employees.
These findings paint a positive picture of the impact of the reforms to date. This is great news, but there are still further challenges ahead, as acknowledged in the government’s 2017 review of automatic enrolment. While opt-out rates have remained fairly low so far, increases in the minimum levels of contributions required may lead more employees to opt-out or cease saving. It also remains to be seen how employers will respond to the increased contributions they are also required to make. Employers who had experienced a rise in the total pension contributions they had to make following the introduction of automatic enrolment were most likely to say they had absorbed this as part of other overheads, or through a reduction in profits, but it is not yet clear how they will respond to further increases.
So the reforms mean many more of us are saving into a workplace pension. But there are also challenges in ensuring individuals outside of the reach of the reforms are able to save for retirement. This includes not only those workers who are not currently eligible for automatic enrolment, but also those who are self-employed, especially given the growing number of individuals working for themselves.
This blog post is based on findings from the 2017 Employers’ Pension Provision Survey (EPP 2017), commissioned by the Department for Work and Pensions, and carried out by Kantar Public and NIESR. The report is co-authored by Julia Clarke, Emma Coleman and Catherine Grant (Kantar Public) and Lea Samek and Lucy Stokes (NIESR).
EPP 2017 was conducted among a nationally representative sample of 2,859 private sector employers in Great Britain. The 2017 survey was the twelfth in a biennial series that has been measuring the extent and nature of pension provision since the mid-1990s.