Data released by Office for National Statistics (ONS) show personal pension contributions have dropped 10% since 2007. Contributions dropped by £2.2 billion to £18.7 billion in 2009-10 from £20.9 billion in 2007-08, figures released yesterday (September 7, 2011) by ONS showed.
As recession continued to bite people’s personal budgets, the number of small savers slowly tapered off. The drop in contributions can further complicate recovery as the fall in living standards is already a cause for concern, said the Trades Union Congress (TUC).
“With living standards under such a severe squeeze it is understandable that people cut back on their pensions, but keeping up decent contributions is the only way to deliver even modest living standards in retirement,” added Brendan Barber, general secretary of TUC.
The UK government should be “proactive” to resolve “chronic underfunding of retirement in the UK,” said Kevin LeGrand, president of Society of Pension Consultants, adding that the situation is unlike to improve soon.
“For a significant boost in the membership of private pension schemes we will have to await the introduction of auto-enrolment, starting from the middle of 2012. However, that is unlikely to address fully the chronic underfunding of retirement in the UK especially if the average level of contributions is reduced to the statutory minimum for many of those currently enjoying a higher contribution rate,” said Mr. LeGrand.
The priorities of individuals change during pressing times, said Darren Philp, director of policy at the National Association of Pension Funds (NAPF). Contributions towards pensions however, remain vital, he added.
“The UK’s population is on a collision course with its own retirement. People are not saving enough and millions risk facing poverty in their old age. The auto-enrolment reforms being introduced from next year are likely to result in 5-9 million people starting to save into a pension or save more. This is a key opportunity to get the country saving for its old age,” said Mr. Philp.
Interestingly, the gap between public and private sector workers joining defined benefit schemes continued to widen. While most public sector employees can still join a defined benefit scheme, 56% of active private sector employees were in DB schemes closed to new members.