Pensions - Articles - Comment on DC pension contributions overtaking DB schemes


The amount of money paid into defined contribution (DC) pension schemes by employees has overtaken the amount paid into defined benefit (DB) schemes for the first time in history.

 The Office for National Statistics (ONS) reports that employees contributed £4.1bn into DC pension pots in 2018 while £3.2bn was paid into DB pension schemes by workers. Stuart Price, Partner and Actuary at Quantum Advisory, puts this down to automatic enrolment and education.

 Stuart said: “Auto enrolment has seen a huge increase in the number of employer DC pension schemes and there’s no denying people are more clued up about their pensions than ever before with 84% of eligible employees enrolled into a workplace pension. The majority of employees know that in order to enjoy a comfortable retirement, they cannot rely on a state pension and must start saving into a private pension as early as they can. Auto-enrolment has gone a long way to encourage this effort and, despite last year’s minimum contribution increase, has seen a steady participation in the scheme. In 2017 there were 7.7 million active members of private sector DC schemes in the UK; a very reassuring figure. 

 “This month (April 6th) saw the biggest increase to minimum contributions to date, with the employer contribution increasing to 3% and the employee contributing 5% into their pension fund. This will no doubt propel DC contributions far higher than DB in the ONS’ report next year.”

 Another reason for the disparity between DC and DB inputs is the steady decline of the generous DB schemes. Stuart explains: “DB schemes, which were once the norm, provide in most cases a far superior pension than their DC counterparts. Now, however, due to increasing life expectancy, low interest rates and scheme deficits pushing up the running costs, they are barely affordable and scarcely available to private workers.

 “I’ve no doubt that the latest ONS figures are a sign of things to come and the DB contributions employees pay will continue to fall while the contributions into DC schemes grow and grow.”
  

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