Renters reject workplace pensions

Photo credit: 401(K) 2012

Renters are significantly more likely than homeowners to reject their workplace pension schemes, even when employers offer to make contributions as well, according to a new study out this week.

The research by Dr Mark Bryan from the Institute for Social and Economic Research at the University of Essex with James Lloyd of the thinktank, The Strategic Society Centre, found that renters were nearly ten percentage points more likely to reject their workplace pension scheme, and 26 percentage points less likely to join it subsequently, compared to homeowners, even after analysts controlled for the influence of other factors such as a person’s level of earnings, age and education.

The findings are taken from the second phase of their major, quantitative study into the drivers of pension saving, Who Saves for Retirement? which analyses data for 2006-2010 from the biannual, government-funded UK Wealth and Assets Survey.

‘If the government wants its workplace pension reforms to be a success in the long-term, it is vital that we get young people on to the housing ladder.’

Who Saves for Retirement? 2 deployed a sophisticated statistical model to measure the effect that multiple factors have on whether workers save into their employer pension scheme.

Tenant effect

The analysis found that the single largest effect – nearly 10 percentage points – was associated with being a tenant. The research also found that an employee who is a tenant has a 27 percentage points lower probability of joining their employer’s occupational pension subsequently, than a mortgage holder. The authors were also able to find some evidence that when a renter buys a house, their probability of saving into their workplace pension jumps to the level of other mortgage holders.

The research is being published just over one year after the government launched its rolling implementation of reform to workplace pension saving in the UK, built around ensuring that all employees have access to a decent workplace pension scheme with the offer of employer contributions. Research by the Department for Work and Pensions among the first tranche of employers subject to the reforms has found that the average opt-out rate was 9%.

Who Saves for Retirement? 2 also found other evidence that the UK’s high house price inflation might be putting pressure on pension saving.

The research found attitudes to pension saving were important to saving decisions, and those leaving their workplace pension scheme were more likely to judge property as the safest way to save (27-31% versus 13% among stayers), and more likely to believe that property investment yields the highest returns (45-47% versus 27% among stayers).

Revealing risk

Speaking at the research launch, Pensions Minister, Steve Webb, welcomed the findings and their importance for revealing a risk among workplace pension savers that the government had not yet considered.

James Lloyd, co-author and Director of the Strategic Society Centre, said:

“The link between housing and pensions policy is rarely made. But with the government’s auto-enrolment reforms to workplace pension saving in full swing, this research highlights the long-term challenge for the success of the reforms posed by rising house prices and declining rates of home-ownership.”

“If the government wants its workplace pension reforms to be a success in the long-term, it is vital that we get young people on to the housing ladder.”

The Strategic Society Centre has produced a policy implications paper to accompany the research.

Notes to Editors:

Published courtesy of the Institute for Social and Economic Research

1. Who Saves for Retirement? 2: Eligible non-savers has been published by the Strategic Society Centre, in partnership with the Institute for Social and Economic Research (ISER) at the University of Essex, made possible by the support of Prudential.

2. The research analyses data from Waves 1 and 2 of the Wealth and Assets Survey (WAS), which was launched in 2006 to address gaps in knowledge about the asset position and savings of households in Great Britain. The first wave was collected between July 2006 and June 2008 and the second wave between July 2008 and June 2010. Households are followed from wave to wave with a gap of two years between interviews. WAS aims to capture the distribution of assets, debts and savings among British households, together with details of retirement saving and other financial planning.

3. The research was formally launched at an event with the Steve Webb MP, Minister for Pensions, 08.30 on January 29th in Central London.

 

3 thoughts on “Renters reject workplace pensions”

  1. Before contributing to a pension scheme, there has to be sufficient income coming in to pay day to day expenses, rent, Council Tax, utilities and other essentials, plus something towards holidays etc, if there is an excess then paying into a pension for some future date is an option. But so many people pay in and don’t live long enough to get their pension, or they can only afford a small amount and will find the additional pension just takes them over the limit for means tested benefits. This can mean up to 85% of the extra pension is taken off any Housing Benefits, Council Tax Benefits, and will mean the individual concerned has to pay full dental charges etc. and can be financially disadvantaged by their unwise and optimistic decision to contribute to a pension scheme made too early in life.

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