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Pensions contributions fell 10% during recession

ONS figures show contributions to personal and stakeholder pensions, retirement annuity contracts and AVCs fell by more than £2bn

Contributions to personal and stakeholder pensions fell by 10% during the past two financial years as the recession took its toll on people’s budgets, according to the Office of National Statistics.

Total contributions to personal and stakeholder pensions, retirement annuity contracts and free standing additional voluntary contributions reached £20.9bn in 2007/08, but fell sharply during the recession to £18.7bn in 2009/10.

Personal and stakeholder pensions are flexible, allowing people to make contributions when they have money available and stop in times of hardship.

HM Revenue & Customs estimates the total number of people making contributions to personal and stakeholder pensions fell to 6.4 million in 2008/09 from 7.6 million in 2007/08, as those making small contributions stopped.

The average contribution per person was higher in 2008/09 at £3,010 compared to £2,660 in 2007/08. In contrast, self employed contributions fell from £3,570 to £3,270.

Employers do not have to contribute to group personal pensions (GPPs) and stakeholder pensions. The ONS said that of those employees who work for smaller private sector employers with fewer than 100 employees, 6% of those with GPPs and 13% of those with stakeholder pensions received no employer contribution in 2010.

Darren Philp, director of policy at the National Association of Pension Funds, said: “These trends reflect the current state of the economy and the impact this is having on UK households. It is understandable that people have more pressing financial priorities during difficult times, but contributing to a pension regularly is vital to ensure a decent income in retirement.

“The UK’s population is on a collision course with its own retirement. People are not saving enough and millions risk facing poverty in their old age. The auto-enrolment reforms being introduced from next year are likely to result between 5 million and 9 million people starting to save into a pension or save more. This is a key opportunity to get the country saving for its old age.”

The TUC’s general secretary Brendan Barber said: “A 10% fall in personal pension contributions in a single year is very worrying.

“With living standards under such a severe squeeze it is understandable that people cut back on their pensions, but keeping up decent contributions is the only way to deliver even modest living standards in retirement.”

The TUC has launched research into the pension pots of directors of FTSE 100 companines, revealing that the average fund has risen to £3.9m.

Barber said: “This is yet another sign that ordinary people are paying a heavy price for the crash while those who did most to cause it are not paying their fair share.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds