You may not be as rich as your parents in retirement: 98% of pension benefits in payment are DB schemes
- There were 23.2 million members of defined contribution (DC) occupational pension schemes in the last quarter of 2020 (22.4 million in the same quarter a year earlier).
- There were 17.8 million members of funded defined benefit and hybrid (DBH) pension schemes (18.3 million a year earlier). Only 3.4 million of the DB members are active.
- 98% of benefits paid in the quarter were from DB schemes.
Th government has released the results of its Financial Survey of Pension Schemes for the last quarter of 2020.
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Sarah Coles, personal finance analyst, Hargreaves Lansdown:
“You may not be as rich as your parents in retirement, because the lion’s share of money being drawn from pensions at the moment is from generous defined benefit (DB) schemes, but if you’re paying into a scheme right now, you’re far more likely to have a much less sizeable DC pension. It means there’s a risk today’s workers are being lulled into a false sense of security by the enviable lifestyles of many of today’s pensioners.
Not all pensioners are enjoying bumper incomes, but plenty of them are. It means we may look to older members of our family and assume we can look forward to a retirement of socialising, travel and expensive hobbies (except for in times of a global pandemic of course).
Meanwhile, there’s every chance we’re paying the minimum into a defined contribution pension we’ve been automatically enrolled into. And while it’s clearly vastly better than making no preparations at all, it’s not going to provide the same kind of lifestyle. Over time, the number of people paying into DB continues to fall, while DC keeps rising, so more and more people will end up with less generous pensions than their parents.
If we want to live like the current generation of retirees, we need to revisit our budgets and see how much more we can afford to pay into our pensions. Check to see if your employer will match any extra pension contributions, which could provide your retirement savings with the vital boost they need.
There are those who would argue we need to boost the auto-enrolment minimums, so everyone has a better pension. However, while employers and companies are battling to get back to normal, the extra cost may be a step too far. Our experience shows that 60% of people whose employers will match additional payments into their pension will voluntarily pay more, so if employers step up to offer matching payments, they can reach the employees who can afford to pay more, without forcing it on those who can’t.”
Notes For Editors
- Employees paid in £1.7 billion to DC in the last three months of 2020 and employers £3.5 billion (£1.8 billion and £3.7 billion respectively in the same quarter a year earlier).
- 77% of employer contributions in the quarter were to DB schemes, and 68% of employer contributions in this period were making up scheme shortfalls.
About Hargreaves Lansdown
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