statistics office claims 26 million people now contract out under the state second pension
The number of people in the UK with second-tier pension provision has risen to 26 million in the 25 years since contracting out was first allowed.
In 1978/79, some 18 million people had a form of second-tier cover, according to the National Statistics office. By 2002/03, the number of those contracting out and accruing cover under the State Second Pension had increased to almost 26 million, although the statistics office points out the type of provision has changed considerably over that time frame.
Twenty-five years ago, nearly 45% of people gained cover via the State Earnings Related Pension Scheme (Serps), while 34% received it through private sector schemes and 21% via public sector plans. By 2002/03, some 51% were principally using State Second Pension, 14% accessed it through a personal pension or stakeholder, 12% via a private sector scheme and 3% via money purchase occupational plans.
Only the public sector has seen little change, with 19% having their cover via this scheme compared with 21% more than two decades ago.
In April 2001, stakeholder pensions were introduced, providing a new method to contract out, and between 2001 and 2002, 86,000 of these were taken up, 60% by men. Of these, 31% terminated the arrangements that same year.
According to the statistics office, there has been a steady decline in the number of contracted-out members under the age of 30 and the trend is most pronounced in women. The state scheme is the only second-tier arrangement to show any significant proportions of people under the age of 20. In 1978/79, there were 700,000 men in Serps and 556,000 women. These figures dropped to 172,000 and 143,000 for men and women respectively by 1993/94. In the following years, these numbers rose again, with 318,000 men and 236,000 women under the age of 20 contracting out by 2001/02.
In the 23 years that were covered by Serps, between 34% and 42% of men accruing benefits were under 30 years old and 30% to 42% were in the 30-50 age bracket. With the introduction of the State Second Pension in 2001, the proportion aged under 30 was 29%, while the proportion over that age increased. According to the Government, the increase is attributable to the inclusion of those on long-term disability or illness.
As with contracted-out schemes, the age profile of women in Serps is affected by a high proportion of older women in employment being barred from accruing second-tier pensions because of a reduced rate in National Insurance contributions.