Personal pension contributions fall by £2billion in recession
Thursday, 08 September 2011 09:56
Personal pension savings have fallen dramatically since the recession, according to new research carried out by the Office for National Statistics (ONS).
In just two years, the amount of pension savings fell by more than £2 billion as the pressure of a tightened cash flow for many individuals since the credit crunch has forced them to save less for their retirement.
In the 2007/08 tax year, £20.9 billion was contributed by individuals to personal and stakeholder pensions. This fell to £18.7 billion for the 2009/10 tax year. The amount of people saving nothing at all also increased.
However, the ONS said that there was an increase in contributions to private pensions between 2008 and 2009. In 2008, £83.2 billion was contributed but this rose to £85.6 billion by 2009, largely due to a recovery in employer contributions to funded occupational pension schemes after the recession.
In just one year the number of contributors fell by more than 1 million. In 2007/08 there were 7.6 million paying into a personal pension, but this figure dropped to just 6.4 million in 2008/09.
The research also showed that the number of Defined Benefit (DB) schemes open to new employees fell. In total there are 7.7 million active members of DB schemes and 7.4 million active members of Defined Contribution (DC) schemes. However, 56 per cent of private DB schemes were closed to new members. Most new public sector workers can still join a DB scheme.
The research also reveals how wealthy employees can still accrue a large pension pot, in part due to the changes to the tax code, introduced in 2006, that allowed higher tax-free contributions. This has contributed to a higher amount of total individual contributions, rising by more than 50 per cent from £6.6 billion in the 2004/05 tax year to £10.2 billion in the 2007/08 tax year.
However, it would seem that high earners have taken this opportunity while they can. New legislation has been introduced by the government in the last budget that reduces the maximum annual pension contributions to £50,000, down from £255,000.
Those on higher salaries are contributing more of a percentage of their pay to their pension. This often means that employers are also contributing more to these employee’s pension pots as many schemes have a system where employers match the contributions of employees.
The research showed that 26 per cent of those in managerial positions contributed 16 per cent or more of their pay to their pension, whilst only six per cent of those employed in junior positions are contributing 16 per cent or more of their pay towards their pension.
Darren Philip, director of policy at the National Association of Pension Funds, said: “It is understandable that people have more pressing financial priorities during difficult times, but contributing to a pension regularly is vital to ensure a decent income in retirement. The UK’s population is on a collision course with its own retirement.”
In 2012, all employees will be obliged to automatically enrol employees into a private pension as part of the National Employment Savings Trust (NEST) that is being introduced.
Use the Myfinances.co.uk comparison tables to find the best deal on a personal or occupational pension.
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