UK - Coverage of defined contribution (DC) schemes is not growing fast enough to fill the gap left by the continuing closure of defined benefit (DB) schemes, leaving two-thirds of the private sector workforce without a pension, according to data from the Trades Union Congress (TUC).
Between 2005 and 2008, the proportion of the working population in the private sector who were members of a DB scheme fell by 5.1%, from 18.6% to 13.5%, according to the TUC’s analysis of official private sector pensions statistics.
Over the same period, the increase in membership of DC schemes with an employer contribution was just 1.9%, from 19.9% to 21.8%. And between 2007 and 2008, the number of people in a DC scheme with an employer contribution actually fell.
The TUC also warned that even these figures overstate pensions coverage, as the raw data is largely taken from PAYE figures, which means they exclude the very low paid.
The proportion of the UK’s private sector workforce without any employer-funded pension scheme has risen every year since 2000, apart from a small blip in 2002 following the introduction of stakeholder pensions. The “unpensioned” have risen from 54.6% of the private sector workforce in 2000 to 62.6% in 2008.
The TUC highlighted that according to most experts, a decent pension that begins to be comparable to that offered by DB schemes requires combined employer and employee contributions of 15% of salary.
However, the survey shows that less than half of DC schemes have employer contributions greater than 8%, which means there are still more people in private sector pensions building up a decent pension through a DB scheme than through a DC scheme.
Brendan Barber, general secretary, TUC, said: “Many seem to think that the hole left by the closure of private sector salary-related pension schemes is being plugged to some extent by new money-purchase DC schemes, albeit of lower quality. But these figures show that this is not true.”
He added: “The growth of DC coverage is much slower than the sharp fall in DB provision. The most recent figures even show that more people are building up a DB pension than are doing so in a DC scheme with a modest employer contribution.”
But he points out that from 2012, every employer will have to auto-enrol staff in a pension and make a contribution.
“It is good to see an all-[political]party consensus for this. But people should not think that the 2012 contribution levels will build up the kind of pension that most expect,” said Barber.
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