Government figures show drop in persistency of saving

Statistics from the Department for Work and Pensions, published on Tuesday, show workplace pension participation and savings trends of eligible employees from 2007 to 2017.

A surge in pension participation...

Overall, 84 per cent of eligible employees were participating in a workplace pension in 2017, up from 77 per cent in 2016, according to the statistics.

The thing that struck me about this is that persistency of saving has actually fallen, which I would say is slightly worrying

Mark Futcher, Barnett Waddingham

The report shows that the annual total amount saved in 2017 by eligible savers was £90.3bn, which is an increase of £4.3bn on the total amount saved in 2016.

Auto-enrolment has had a significant role in boosting numbers – harnessing people's inertia to get more individuals saving for retirement.

Between 2007 and 2012 there was a general downward trend in workplace pension participation. But since the introduction of auto-enrolment in 2012 there has been a significant increase of 6.9m to 17.7m eligible employees participating in a workplace pension in 2017.

...but persistency in saving drops

While figures have soared since 2012, there is still some way to go. A gap between public and private sector pensions saving remains, with pension participation in the public sector at 92 per cent in 2017, compared with 81 per cent of private sector eligible employees participating in 2017.

Moreover, there was a drop in the persistency of saving last year. In 2017, 73 per cent of eligible employees had saved into a workplace pension in at least three of the last four years, a fall of 4 percentage points on this measure since 2016.

“The thing that struck me about this [data] is that persistency of saving has actually fallen, which I would say is slightly worrying,” said Mark Futcher, head of workplace wealth at consultancy Barnett Waddingham.

“In my eyes this is people saying, ‘I can give myself a pay rise by opting out', and they’re not worried about missing out on the employer contributions, they need every pound in their pocket to live here and now”, he added.

He pointed out that the statistics capture the initial lower auto-enrolment figures. In April, phased increases of auto-enrolment minimum contributions began – and contributions are set to rise again in 2019.

Futcher said it will be interesting to see the statistics when the figures have been updated with 2018 and 2019 data, to see whether the amount saved has fallen, and “whether the number of eligible employees drops off as well”.

Tom Selby, senior analyst at AJ Bell, expressed similar concerns. “It is unclear at the moment why there has been a drop in the persistency of savings levels, so it is vital policymakers keep a close eye to make sure those who start saving for retirement continue to do so,” he said.

Selby said it is possible this is just a minor blip, but if it continued or accelerated then radical interventions – including possibly compulsion –  may need to be considered.

“Given the small size of the drop and the fact the government’s own data is by no means clear-cut, there is no need for alarm at this stage,” Selby added.

Segmented solutions for the self-employed

The government data show there has been a decline in the self-employed group, from 30 per cent in 2007-08 to 14 per cent in 2016-17.

There are now about 5m self-employed workers in the UK according to the Office for National Statistics.

But the self-employed are not an homogeneous group. Some, for example, may work on a freelance basis for an employer that offers auto-enrolment to their workforce. Others may be small business owners, or gig economy workers.

Steven Cameron, pensions director at provider Aegon, said he doubted whether there is a “single solution which could work for all types of self-employed individual”.

He said: “The key will be to segment that population and to look for solutions that work for particular segments.”

The DWP set out in its auto-enrolment review a series of “targeted interventions”, aimed at influencing self-employed behaviour at the point of contact with institutions such as banks and firms that contract labour.

Selby said: "I certainly think better-targeted communication about the benefits of retirement saving – particularly in relation to the pension tax relief bonus – could be effective."

He said he would also like to see the DWP "engage in a mass-marketing campaign specifically targeting the self-employed, in the same way it has done with auto-enrolment... possibly minus ‘Workie’, the hairy pensions monster nobody understood".