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40TH NAPF Annual Survey provides unique snapshot of pension industry

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The National Association of Pension Funds’ (NAPF) has released its 40th Annual Survey providing a unique snapshot of UK workplace pension schemes and an opportunity to reflect on how this pension landscape has changed since 1975.

Graham Vidler, Director of External Affairs, NAPF, says: “This year’s survey allows us to take stock of the major changes that we’ve seen in UK workplace pensions in the last 40 years. The obvious trend is the move from defined benefit to defined contribution. 

 
“The decline of defined benefit has been well documented as schemes have gradually closed to new members and new contributions from existing members. This year’s survey shows that trend continuing with 39% of DB schemes fully closed compared to 34% last year.
 
“That said, DB schemes are still very much the dominant investment force in UK workplace pensions, with our survey showing on average GBP2.3bn of assets in private sector DB pension schemes and GBP0.25bn in DC pensions schemes in 2014. But the number of active members in DB and DC is a very different story. 
 
“For the first time, active membership of DC schemes now outstrips the active membership of private sector DB schemes. On average, trust-based DC schemes who responded to our survey had 15,000 active members, compared to just 4,500 active members in the average DB scheme. 
 
“This shift is not altogether unexpected as most NAPF members have embraced automatic enrolment. It does, however, underline the rapid growth in the number of savers into workplace pensions that automatic enrolment has generated. We expect to see a further major shift in this area in our 2015 survey results.” 
 
This year’s survey showed 50% of DB schemes are open to future accrual among private and ‘other public sector’3 schemes, this rises to 53% when only private sector schemes are taken into account.
 
Only 8% of private sector DB schemes were still open to new members this year compared to 12% in 2013.
 
The average pension paid to DB scheme members by respondents was GBP8,071, up slightly on 2013 from GBP8,010. 
 
The overall percentage of DB scheme assets invested in equities continued to decrease in 2014.  Although it is important to note that asset allocation behaviour is influenced by scheme size and status (open or closed).
 
The average defined contribution rate continued its slow downward trend to 11.7% (12.5% in 2013).  This consisted of 7.6% coming from the employer and 4.1% from the employee.  This apparent fall in contributions is due to the sheer volume of new savers joining schemes as a result of automatic enrolment, where their contributions are currently running at the minimum rate.  
 
More than two thirds (67%) of schemes responding to the survey operate on a matching contribution basis.
 
Some 33% of employees received the minimum employer contribution and 43% of employees received the maximum employer contribution.
 
Vidler, says: “In forty years – less than a working lifetime – we’ve seen massive changes in the pension landscape. Two tier State pensions have been introduced, radically reformed and then abolished. Contracting out was in – and now is out. Scheme membership was compulsory, then voluntary and now automatic. Stakeholder pensions and annuities both became a significant part of mass market retirement provision and both are now in decline.
 
“The good news is that at the end of forty years: participation in workplace pensions is up; quality is improving and charges continue to fall. This gives us an opportunity to build a long-term pension settlement for the benefit of savers across the UK. The best way to seize that opportunity is through the creation of an Independent Retirement Savings Commission – charged with the task to ensure future pensions policy is subject to thorough and impartial scrutiny.”

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