Wage and job gloom hit DC numbers

Office for National Statistics (ONS) figures reveal active membership of trust-based arrangements has remained static over the past three years, at one million.

Low demand raises the prospect of higher-than-anticipated opt-out rates when auto-enrolment (predominantly to DC schemes) becomes compulsory from next year.

But industry experts have claimed the figures are likely to be linked to low employment, depressed wages and inflation, as much as the overall appeal of DC pensions.

Tony Filbin, managing director of workplace savings at Legal & General, said: “Our research shows active member rates directly correlate to economic cycles, so given we’re in the wake of a recession, the ONS figures come as no surprise.

“Employers have been laying off staff, meaning more people are unemployed and therefore not paying into a pension. But there’s no doubt we need to start saving more into pensions.”

Source Pensions director Clare Mulligan blamed the “macroeconomic environment” and low employment too.

She said the figures also provide an argument for auto-enrolment, which she called “a brave step”.

Hargreaves Lansdown head of pensions Tom McPhail claimed the figures show “the government will have to work hard to avoid high levels of opt-outs”.

“I’m more worried about declining DC contribution rates,” he added. “That doesn’t look good.”

Lee Hollingworth, DC consultant at Hymans Robertson, said the recession definitely has potential to inflate opt-out rates post 2012, warning this would be further exacerbated by a double-dip recession.

The ONS figures also reveal the number of active members in private sector occupational pension schemes has slumped to the lowest level the UK has seen since the 1950s, with numbers falling by 50% since 1991.

There are currently one million active members in DC schemes, 93% of which are in open schemes.

Around 2.1 million active members are enrolled in defined benefit schemes, with the majority in final salary arrangements.