Research by the Office for National Statistics (ONS) has revealed that low-wage earners will face significant pension shortfall at retirement.
Despite encouraging employees to become members of pension schemes, people with lower wages were less likely to enroll in a pension scheme than their higher earning peers, says the latest chapter of ONS’ Pension Trends Report.
“The higher the weekly earnings of full-time employees, the more likely they are to belong to employer-sponsored pension schemes”, said the 15 page chapter.
“The lower their earnings, the less likely they are to belong to such schemes. The low levels of pension participation by employees on low earnings have long been of a matter of concern to policymakers. The Pensions Act 2008 and the Pensions Bill 2011 contain measures designed to increase participation. Between October 2012 and September 2016, all eligible employees aged between 22 and state pension age should be automatically enrolled – in stages according to employer size – into a qualifying workplace pension scheme”, the report added.
The proposed National Employment Savings Trust (NEST) has been designed to allow people to join the scheme that do not have access to qualifying schemes, the report said, adding: “If successful, the reforms should raise pension participation rates among low-earners and alter the pattern”.
Only 16 percent of male and 27 percent of female full-time female employees earning less than £300 a week belonged to a pension scheme in 2010, the report revealed.
The private sector participation in pension schemes is also falling, data compiled by the annual survey showed. In the private sector, 39 percent of male employees and 28 percent of female employees belonged to an employee sponsored pension scheme in 2010, compared to 52 percent male and 37 percent female in 1997, the report pointed out.
“What we’re talking about here are people on or near the minimum wage. The demographics of these will include the young, a household’s second earner and, in places such as London, there are a large number of migrant workers. For these people the value of a pension is less clear, and the minimum income guarantee in retirement muddies the water in relation to advice. However, this overlooks the question whether these people will realistically receive any advice”, said Mustaq Jaigirdar, head of Yellowtail Financial Planning.