UK – The highest proportion of employees with a workplace pension on record

Workplace pension reforms

The Pensions Act 2008 put in place a framework for workplace pension reform designed to increase private pension saving in the UK. This framework was amended slightly by the Pensions Acts 2011 and 2014. One of the key reforms was that, from October 2012, all eligible employees are to be automatically enrolled into a qualifying workplace pension scheme.

Automatic enrolment was introduced for all employees, aged between 22 and the state pension age, who earn more than £8,105 per year (£10,000 from April 2014) and are not participating in a workplace pension scheme.

Automatic enrolment is being introduced in stages, based on the size of the employers’ PAYE scheme on 1 April 2012. Automatic enrolment started in October 2012 for employers with over 120,000 employees, with staged roll-out to all employers by 2018.2

Under automatic enrolment employers select a pension scheme for their employees. Employers have a duty to enrol all eligible employees into a pension scheme meeting the qualifying requirements set out within the Pensions Acts 2008 and 2011 and to make contributions to this scheme on their employees’ behalf. Workers are able to opt out of their employer’s scheme if they wish but, if they are still eligible, they will be re-enrolled after a three year period.

In order to be considered a qualifying pension scheme, schemes will eventually have to make minimum contributions of 8% of an employee’s qualifying earnings, of which at least 3% must come from the employer. However, there is a phasing in period, during which lower contributions are allowed. From October 2012 to September 2017 the minimum contribution is 2% of an employee’s qualifying earnings of which at least 1% must come from the employer.

The Pensions Act 2008 created the National Employment Savings Trust (NEST), a new, trust- based Defined Contribution (DC) pension scheme, to assist employers with pension provision. Other separate trust-based arrangements, known as master trusts (see Glossary (198.9 Kb Pdf)), have also been set up to facilitate automatic enrolment. Examples of these include NOW: Pensions and The People’s Pension.

The Pensions Act 2011 introduced: an annual review of the automatic enrolment earnings trigger; an annual review of the upper or lower limits of the qualifying earnings band; and an optional waiting period of up to three months before an employee must be automatically enrolled into a workplace pension.

Workplace pension scheme membership

Figure 1 shows pension membership by pension type between 1997 and 2014. In 2014, the proportion of employees who belonged to a workplace pension was 59%, the highest since 1997 when the series began. In 1997, 55% of employees belonged to a workplace pension scheme. In 2012, prior to the implementation of workplace pension reforms, 47% of employees belonged to a workplace pension scheme.

Although membership was 59% overall in 2014, there were differences between sectors:

• 87% of public sector employees were members of a workplace pension scheme, up from 85% in 2013; and
• 49% of private sector employees were members of a workplace pension scheme, up from 36% in 2013.The overall increase in workplace pension membership between 2013 and 2014 is driven byincreases in occupational Defined Contribution (DC) pension schemes and group personal and group stakeholder pension schemes. Membership of occupational Defined Benefit (DB) pension schemes remained constant at 29% between 2013 and 2014. Membership of occupational DC pension schemes increased from 8% in 2013, to 14% of all employees in 2014. Membership of group personal and stakeholder pensions schemes2 was 16% in 2014, compared with 12% in 2013.

Chosen excerpts by Job Market Monitor. Read the whole story at 2014 Annual Survey of Hours and Earnings: Summary of Pensions Results – ONS