Workplace pension of £65,400 in public sector six times more than private average

The number of people saving in workplace pensions has risen slightly, with the average pension value standing at £65,400 in the public sector compared to just £10,300 in the private sector.

Overall, 79% of eligible employees, or 22.6 million, were participating in a workplace pension in April 2021, up slightly from 78% in 2020, according to the Office for National Statistics (ONS).

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The ONS said that the growth was partly explained by “increased public sector employment driven by the government's response to the coronavirus (COVID) pandemic”.

In April 2021, the gap in employee workplace pension participation rates between the public (91%) and private sectors (75%) was among its lowest levels, mainly driven by increased participation in the private sector up from 32% in 2012.

Becky O’Connor, head of pensions and savings at Interactive Investor, said: “If we want more people to be less dependent on the state pension in retirement, it would help if the boundaries around auto-enrolment participation are relaxed.

“The disparities between public and private sector pension provision must also be urgently addressed. There is significant pension inequality between employees who are employed by the public sector with defined benefit schemes and those with defined contribution schemes in the private sector. This is already apparent among current retirees, who have vastly different living standards depending on who they used to be employed by."

The ONS said differences in pension type by sector may explain disparities in estimates of average-active workplace pension value as the private sector, at £10,300 makes six times less than the public sector (£65,400).

The figures show that while employee participation in the private sector in DB pensions fell from 7% from 8% in April 2020, in the public sector, 82% per cent of employees contributed to DB pensions, up 2 percentage points since April 2020.

People working in accommodation and food services had the lowest participation rate in April 2021 (51%).

Only 43% of the lowest earning full-time private sector employees earning £100 to £199 per week were participating in a pension, around half the rate of equivalent earners in the public sector.

The report also noted that the uptake of workplace pension participation has stabilised in recent years. Prior to the introduction of automatic enrolment in October 2012, participation levels were at 47% overall.

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Adrian Lowery, personal finance expert at investing platform Bestinvest, said: There has been a plateauing of pension saving as measured by participation rates in the last couple of years after the injection given to it by the introduction of auto-enrolment.

“But other data suggests that the amounts saved are still on an upward trajectory: the latest HMRC stats revealed that savers made total pension contributions worth £31.3bn in 2019-20, up from £27.9bn in the previous period. As the graph included in today’s ONS’s report shows, it is occupational defined contribution schemes that have been a major driver behind rising overall pension uptake.”

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, added: “Auto-enrolment has been a triumph, with pension participation in the private sector once languishing at a mere 32% now surging to 75%. However, there is still much more to be done as there are still too many people missing out on a workplace pension.

"Looking closely at the data we see that while eight out of ten eligible employees now have a workplace pension, this falls to just two in ten among those who are currently too young to be auto-enrolled -the under 22s. Similarly, those who fall beneath the earnings trigger of £10,000 are also much less likely to have a workplace pension and so miss out on valuable contributions to their retirement."

Jon Greer, head of retirement policy at Quilter, said: "Although automatic enrolment has so far proved to be a huge success the real test has begun. The cost-of-living crisis that many are only just starting to feel will stretch finances in a way many have not experienced before. People may choose to opt out of funding their retirement in a bid to have more money in their pocket today.

"Auto-enrolment largely relies on people’s inertia but significant financial pressures on someone’s finances today may make people take action and reduce or stop pension funding altogether. Although this is understandable, saving for your retirement should be one of the last things you stop doing if money is tight and reducing day to day spending, if possible, should be adopted before any potentially catastrophic financial decisions which will impact retirement are made.

"This increase in living costs will make retirement saving even harder for the large self-employed population in the UK whose finances are often more unpredictable. Many self-employed people have already suffered a significant financial shock during the pandemic and therefore are unlikely to be prioritising their pension provision at the moment as they build up their businesses again. A solution to help prompts this group of workers to save for retirement needs to be looked at urgently as their financial needs differ to much of the rest of the working population and auto-enrolment simply won’t fit with their needs."

Watch: When should I start paying into a pension?