Biggest test of workplace pension savings drive yet to come, say experts

The coronavirus pandemic has not derailed the drive to encourage people to save into workplace pensions, experts have said.

But they warned the “biggest test is yet to come”, with the cost-of-living crisis potentially increasing the risk that more pension savers could opt out.

Nearly nine in 10 (88%) eligible employees, or around 20 million, were participating in a workplace pension in 2021, according to Department for Work and Pensions (DWP) figures released on Tuesday.

Overall trends in participation have increased since 2012, the year that automatic enrolment into workplace pensions started.

This has been driven by the private sector, while public sector participation has remained high, the DWP said.

Covid didn't derail auto-enrolment, but the biggest test is yet to come with the all-consuming cost-of-living crisis

Kate Smith, Aegon

The highest levels of both private and public sector pension participation in 2021 were seen among larger employers.

Participation rates among employees of smaller firms in the private sector have increased since 2012 but there is a persistent gap in participation rates compared with other sized employers, the DWP said.

Across the whole economy, participation rates for eligible employees in 2021 were highest among people aged 40 to 49 (90%) and lowest for people aged 22 to 29 (86%).

There had been a general downward trend in workplace pension participation among eligible employees between 2009 and 2012, from 58% (11.4 million eligible employees) to 55% (10.7 million eligible employees).

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The pandemic has brought financial turmoil for many people, with concerns we could see people forced to stop their pension contributions as they struggle to make ends meet.

So far, we've seen no dramatic spike in the number of people making an active decision to stop their pension contributions

Helen Morrissey, Hargreaves Lansdown

“So far, we’ve seen no dramatic spike in the number of people making an active decision to stop their pension contributions in 2021/22, with only 0.6% of eligible employees opting to do so – the same level as the previous year and slightly below pre-pandemic levels.

“However, while we may have weathered one storm, the challenges continue, and whether people can commit to keeping their pension contributions going as we face the biggest cost-of-living crisis in living memory remains to be seen.”

Kate Smith, head of pensions at Aegon, said: “Covid didn’t derail auto-enrolment, but the biggest test is yet to come with the all-consuming cost-of-living crisis.

“There’s a real risk that employees could be tempted to stop their pension contributions, as they make stressed financial decisions to make ends meet.

“This is likely to lead to employer contributions also stopping, so should be a last resort.”

(We) would always encourage individuals to make such financial decisions based on their personal circumstances

Phil Brown, B&CE

Phil Brown, director of policy at B&CE, provider of the People’s Pension, said: “Throughout the pandemic, workplace pension opt-out and cessation rates stayed relatively stable and we expect that to remain the case during the current cost-of-living crisis.

“While we champion the very many benefits of workplace pensions, they won’t always be an option for everybody, so would always encourage individuals to make such financial decisions based on their personal circumstances.”

Minister for pensions Guy Opperman said: “It’s encouraging to see that, despite the considerable challenges of the last few years, overall participation in workplace pensions among eligible employees has remained stable and total contributions have increased in real terms.

“Thanks to the success of automatic enrolment, a record number of Brits are now saving for retirement and our ambition for the future of AE (automatic enrolment) will enable even more people to save more and to start saving earlier.”