Workplace pension savings boost

Pension funds were hit by the global economic downturn

The fall in the number of people paying into private sector final-salary pension schemes has slowed, despite a trend for these benefits to be closed.

Active membership of these UK defined benefit schemes dipped slightly to 2.6 million in 2008, from 2.7 million in 2007 and three million the year before.

Workplace pensions as a whole rose in popularity with nine million people paying in during 2008.

The data comes in an annual report from the Office for National Statistics.

Membership

The number of active members in occupational pension schemes crept up by 200,000 from 8.8 million in 2007. This was due to increased membership in the public sector.

PENSION SCHEMES EXPLAINED Occupational scheme - one organised by an employer Active member - a worker making contributions Final-salary scheme - guaranteed pension based on earnings at end of career and length of service Defined contribution scheme - investment fund, determined by contributions and investment returns, used to buy an annual pension. Also called a money purchase scheme

While active membership in private sector defined benefit schemes dipped slightly, the number of workers paying into defined contribution - or money-purchase - schemes in the private sector picked up from 900,000 in 2007 to one million in 2008.

Under defined contribution schemes, staff pay money into a pension fund during their working life, which is topped up by their employer. When they retire they use this fund to buy a financial product - known as an annuity - which provides them with an income in retirement. How good a deal people get with this annuity depends on the rates available when they retire.

In final-salary schemes, a pension based on the length of service and the amount of earnings at the end of a career.

The ONS figures show that the number of people paying into private sector final-salary schemes that remain open to new members has dipped. Some 42% of members of defined benefit schemes were paying into open schemes in the private sector.

Rash Bhabra, of pensions specialists Watson Wyatt, said that one in 10 non-government jobs came with a defined benefit pension, but he expected this to fall to one in 25.

Affordability

Future affordability of pensions has been a source of concern for employers.

These figures show what was happening 18 months ago and could represent the calm before the storm Rash Bhabra, Watson Wyatt

The global economic slowdown has recently prompted a number of companies to propose closing their final-salary schemes to existing members, as well as new members.

"These figures show what was happening 18 months ago and could represent the calm before the storm," said Mr Bhabra.

Final-salary pensions tend to be replaced with defined contribution schemes, but the figures confirm that these are less generous in terms of employer contributions.

The average private sector employer top-up in final-salary schemes in 2008 was 14.6% of a salary for open schemes and 18.1% for closed schemes. This compared with 6% for open defined contribution schemes and 7% for closed ones.

Meanwhile, the average amount private sector employees put into their pension savings dropped from 2007 to 2008 for those in final-salary schemes, but rose for those in defined contribution schemes.

The ONS survey covered 1,429 private sector schemes and 239 public sector schemes, and excludes personal pensions, group personal pensions and stakeholder pensions.

TUC general secretary Brendan Barber said: "Even on the most generous definition, more than 60% of the private sector workforce are not saving in an employer-supported pension, and are likely to face poverty in retirement.

"No doubt some will use these figures to renew their politics-of-envy attack on public sector pensions, but the real pensions crisis is in the private sector, where gold-plated boardroom pensions are boosted by taxpayers while growing numbers of ordinary workers get nothing.

"It is time to start levelling up rather than attacking the pensions of hard working vital public servants."

Pensions Minister Angela Eagle said: "These figures show that more people see the value of saving into a pension. The most important thing is that both people and their employers contribute over their working lives and our reforms will help millions more to do this."