United Kingdom

Low pay preventing staff from saving for retirement, research finds

November 2017


A significant majority of UK staff are failing to pay into pension schemes despite auto-enrolment which has been in force since 2012, the TUC have found.

Under current auto-enrolment rules, employers are legally obliged to enrol staff who are aged over 22 and who earn more than £10,000 a year. But for those earning less than £10,000, there is no legal obligation for employers to enrol staff.

The TUC have put the figure of those not saving for retirement at nearly nine million, with particularly low levels of pension contributions coming from the agriculture, forestry, fishing and hospitality sectors as well as hairdressing, construction and the entertainment industries.

According to the TUC’s latest report, in typically low-paying sectors such as retail, 2nine out of ten of those who did save received employer contributions which were less than 8 per cent of their salary. Yet in higher-paying sectors like financial services, savers received much more.

TUC general secretary Frances O’Grady said: “Auto-enrolment has been a great success. But it’s not a case of ‘job done’. We urgently need the government to help more low-paid workers join schemes. And ministers must set out a plan for increasing contributions from employers.”

But Sarah Hamilton, senior DC consultant at Aon Employee Benefits said the contribution inequality across the sectors was not unusual as it was common in high-paying sectors for pension contributions to form part of the overall reward package to attract and retain employees.

She predicted the inequality would “fall away” to a certain extent once the minimum contribution rates increase in 2018 and 2019 across the sectors.

Steve Webb, director of policy at insurer Royal London and former pensions minister, insisted it was higher-paid workers without a workplace pension who stood to lose out the most.

Auto enrolment minimum contribution rates are set to rise again next year from 2 per cent in total minimum contributions to 5 per cent between April 2018 and April 2019, followed by 8 per cent in total minimum contributions from April 2019 onwards.

“There is a fine balance between setting the minimum contribution rates at such a level to provide meaningful savings at retirement and not setting the levels at such a rate that lower paid employees can no longer afford to participate,” Hamilton added.



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