A new report from the Office for National Statistics (ONS) has indicated that only a third of British workers are paying into a work related pension scheme. This could leave many people facing poverty during their retirement as they may be left with no extra income to supplement their state retirement pension.
The figures also reveal that workers earning under £300 per week are even less likely to save for their retirement. Only 16% of men and 27% of women on low wages are paying into a pension scheme.
The report showed that the top 10% of UK households had retirement savings that were 8 times greater than the sum total of the retirement savings of the bottom half of UK households, suggesting further inequality in pension incomes.
The report has confirmed that, in the private sector, 39% of men and 27% of women are paying into a private pension scheme. This is a reduction compared to figures in 2002 when 52% of men and 41% of women had private pension schemes.
Experts believe that the reduction may be due to several factors. Many firms are scrapping their final salary pension schemes. Stock market falls are devaluing pension funds and low interest rates are impacting on the value of pension funds. It also suggests that many people are relying on the state to support them during in their retirement years.
The report has indicated that people in the private sector are much less likely to have a work related pension scheme than those who are working in the public sector. Approximately 85% of people who work in the public sector have a work related pension, where at present, only 14% of private sector workers have one. The amount of private sector pension schemes has now the lowest level since the 1950’s.
However, there is a large gap in the typical pension payouts between public and private sector workers. The average public sector pension pays about £7841 per year, approximately £150 per week, where the figures for the average private sector work related pension are £1300 per year, approximately £25 per week. This suggests that people choose not to pay into private sector work related pensions as they yield much less income in the long term.
The government is taking steps to try to ease the pension burden for the future. Proposals to increase the retirement age to 66 by 2020 is hoped to address some of the issues they face, but some experts believe that the age may have to rise further in the future, possibly up to the age of 70. The launch of the National Employment Savings Trust (NEST) is expecting to increase participation in private sector pension schemes.
The government is also is hoping to change the law on pensions to require employers to provide either their own contributory pension scheme or offer the NEST scheme for their employees.
The changes will also require them to automatically enroll any new employee on to the scheme, although, the employee will still have the option to drop out if they choose to do so.
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