Pension Forecast: Employers Reducing Payments Into Worker’s Pensions To Save Money

Official numbers indicate employers have reduced employee pensions by 50 per cent from January. Private sector defined contribution workplace pension schemes have gone down to 4.7 per cent of workers’ salaries in 2014. Earlier, the numbers were at 9.1 per cent. Many criticise the government’s auto-enrolment scheme as the primary suspect for the lower numbers.


The auto-enrolment scheme requires employers to place eligible workers in the pension scheme. However, plenty of workers, especially those earning below £10,000 annually, are not eligible under the scheme.

According to the ONS, it might be that workers contribute less, having their employers pay lesser amounts as well. However, the National Association of Pension Funds said a risk that employers may level down their provision exists because of additional membership fees. According to Work and Pension Secretary Iain Duncan Smith, when employers level down, they confirm that pension contributions from employers are decreasing.

“The vast majority of these new members will have been enrolled at the minimum statutory contribution rate of 2% of earnings. This means the decline in the average is probably attributable to the diluting effect of these new members, rather than a cutting of contributions for existing scheme members,” said Tom McPhail of Hargreaves Lansdown.

Mis-Sold Annuities Problem

Meanwhile, plenty of pensioners may face trouble from pension service providers because of annuities mis-selling. Regular annuities may have been sold to pensioners believing they bought an enhanced annuity deal.

A pension forecast indicated the scandal could be as large as PPI mis-selling.