The meteoric rise of defined contribution (DC) pension schemes saw inflows outpace defined benefit (DB) schemes for the very first time last year, according to figures from the Office for National Statistics (ONS).
The overall volume of payments into DC schemes in 2018 was £4bn ($5.2bn, €4.6bn), compared with £3.2bn that was paid into DB schemes.
In 2013, employees paid £3.6bn into DB pensions and only around £500m into DC schemes.
Steve Webb, director of policy at Royal London, told International Adviser: “It is a historic moment when private sector workers are now contributing more into DC pensions than DB pensions.
“This partly reflects the progressive demise of DB but also the big impact of automatic enrolment which has been overwhelmingly into DC.
“The step-up in mandatory contributions in April 2018 has helped take aggregate DC contributions above those into DB schemes, and the April 2019 step-up will reinforce that trend.”
‘Meteoric rise’
According to Steven Cameron, pensions director at Aegon, this major shift can be explained by automatic enrolment and the growth in master trusts, which are occupational pension schemes that provide money purchase benefits.
“Employers are still paying more into DB than into DC, although with the continued decline in DB in the private sector and with auto enrolment minimum contributions from employers rising from 2% to 3% from April 2019, we may, in 2020, see DC overtake DB for employer contributions too.”
The UK pensions landscape has undergone a lot of change since the pension freedoms were introduced, International Adviser reported on Thursday that DB pension transfers steadily declined during 2018 to hit their lowest level in the past two years.
