Pension blackspots revealed: Millions of workers missing out on savings due to low pay and minimal employer contributions

Lucy White
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Royal London pointed out it is higher paid workers who stand to lose the most relative to their salary if they don't pay into a workplace pension (Source: Getty)

Millions of workers are still not paying into pensions, despite automatic enrolment becoming essential, because they earn under the £10,000 threshold, according to the Trade Unions Congress (TUC).

Employers must enrol any workers over the age of 22 and earning at least £10,000 in a workplace pension scheme – and make contributions, which are being ratcheted up from next April.

But nearly nine million workers are still failing to save for retirement due to low pay, the TUC said, with the worst level of pension coverage falling across the agriculture, forestry and fishing, hospitality, “other” services such as hairdressing and beauty, construction, and arts and entertainment industries.

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Worst five industries for pension coverage

Industry Amount of workers not paying in to a pension scheme
Agriculture, forestry and fishing 65 per cent (93,000 workers)
Hospitality 60 per cent (908,000 workers)
Other services such as hairdressing and beauty 56 per cent (270,000 workers)
Construction 50 per cent (493,000 workers)
Arts and entertainment 48 per cent (253,000 workers)

“Auto-enrolment has been a great success. But it’s not a case of ‘job done’,” said TUC general secretary Frances O’Grady.

“We urgently need the government to help more low-paid workers join schemes. And ministers must set out a plan for increasing contributions from employers.”

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The TUC found that in low-paid sectors, like wholesale and retail, nine out of 10 savers received contributions worth less than eight per cent of their salary from employers. The vast majority of pension savers in higher paid industries, like financial services, received more than this.

Most employers currently use pension schemes requiring a total minimum contribution of two per cent.

However Steve Webb, director of policy at the UK's largest mutual insurer Royal London, pointed out that it is higher paid workers who stand to lose most in monetary terms without a workplace pension.

“Automatic enrolment has been a huge success so far, with millions more workers now starting to build up a pension to top up their state pension,” said Webb.

With a state pension of over £8,000 per year, lower paid or part-time workers will find that the state pension replaces most of their pre-retirement earnings.

“But for those on higher earnings an additional pension income is needed, and we need to make sure that as many people as possible stay opted in to workplace pensions – especially when contribution rates rise next year.”

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