Low-paid workers are far less likely to have a workplace pension, and those that do have far lower employer contribution rates, according to a new TUC report published today (31 October) that assesses the health of UK pension provision.
The TUC Pensions Scorecard report examines the membership, contribution rates and governance of workplace pensions across the UK, as well as the retirement incomes they generate, identifying trends and areas where improvement is most needed. It focuses on the defined contribution (DC) schemes into which most workers will automatically be enrolled over the next few years.
The report shows that public sector workers are more than twice as likely as private sector workers to be contributing to a workplace pension scheme, while those earning over £300 a week are twice as likely to be paying into a pension as those earning less. This shows the importance of good quality schemes in securing high staff opt-in rates, says the TUC.
Low-paid workers who are saving into a workplace pension are also likely to have lower combined employer and employee contribution rates than better-off staff. Nearly half (48 per cent) of those earning less than £200 a week have total contribution rates of less than eight per cent, compared to less than a quarter (23 per cent) of those earning more than £500 a week.
Auto-enrolment into workplace pensions should vastly improve take-up amongst low-paid workers in the private sector, says the TUC. It should also help raise the bar on contribution rates, even though the statutory minimum contribution rates are too low to provide a decent income in retirement, says the report.
The TUC is concerned that 1.9 million employees earning between £5,720 and £9,205 (£9,205 is the proposed earnings trigger for people to be auto-enrolled into pensions from next April) will miss out on pension saving altogether.
A further 2.1 million people earn less than £5,720 and have no legal right to access a workplace pension. The vast majority of those missing out are women and part-time workers, who are amongst the least likely to have a pension and should therefore be a top priority for auto-enrolment, says the TUC.
The report also highlights concerns about the growth of contract-based schemes over trust-based schemes, a trend that looks set to continue as auto-enrolment kicks in.
The TUC is concerned that contract-based schemes are often of a lesser quality, have lower contribution rates and have poor governance structures. There are also likely to be potential conflicts of interest between pension scheme members and the shareholders of the pension providers, who ultimately own the companies.
The TUC wants the government to end restrictions on contributions into the National Employment Savings Trust (NEST) so that more people can save into a high quality, trust-based scheme. The Pensions Regulator should also be given greater powers to police the governance of contract-based schemes - this currently falls under the remit of the Financial Services Authority (FSA) - says the TUC.
The report concludes by saying that while auto-enrolment will help to improve pension provision, and could help to drive up contribution rates and membership of trust-based schemes, it alone cannot deliver the level of pension savings needed to guarantee a decent income in retirement.
Further reforms are needed to transform DC pension provision so that it can provide the level of income people need when they retire, says the TUC.
TUC General Secretary Brendan Barber said: "It is shocking that fewer than one in four people earning less than £300 a week are saving into a workplace pension scheme.
"Even those low-paid workers who are saving are more likely to have low employer and employee contribution rates that make it far harder to build an adequate pension pot when they retire.
"Auto-enrolment will help reverse some of these worrying trends by getting more people to save. But we shouldn't be under any illusion that it alone can deliver the level of income that most people expect when they retire."
He concluded, "There are still too many low quality and poorly-governed schemes around which need to be policed more effectively. Further reforms are needed if we are to make more DC schemes fit to provide a decent income in retirement."