The first official figures detailing how many retirement savers are affected by the government’s pension shake-up have been revealed by the Office of National Statistics (ONS).
The figures show millions of retirement savers have a greater choice over how to spend and save their pensions – and that those with defined contribution schemes tend to have smaller savings pots than public sector workers.
From April 2014, any pension investor aged over 60 with a defined contribution pension can drawdown small pots totalling no more than £30,000 can draw a 25% tax-free lump sum and the balance of their pension less income tax.
From April 2015, the net will expand to any retirement saver over 55 years old with no cap on defined contribution fund size.
Currently, savers in defined benefit schemes are banned from drawing down their pension cash.
The ONS defines a defined contribution pension as a scheme where savers and their employers generally make contributions which are invested in the stock market.
When the saver retires, they receive an individual pension pot depending on the amount of contributions made and investment performance rather than a guaranteed retirement income.
The ONS reckons 20% of all pensions held by 5 million workers are defined contribution schemes.
The survey also shows three-quarters of private sector workers but only 5% of public sector workers have defined contribution pensions.
Average contributions, says the report are 3.1% of salary for employees and 6.6% for employers – a total of 9.4% of salary.
How much is saved in pensions
Retirement savers with defined contribution pensions who have not drawn against their fund hold an average £15,000 in their fund, while the average for defined benefit and defined contribution pensions is £33,000.
The figure suggests public sector pensions funds are higher than those in workplace or private pension schemes.
The ONS says £23 billion of pension funds are invested in safe, low-performing gilts – government issued bonds. Insurance companies, pension funds and trusts are the largest investors in gilts.
Pensions minister Steve Webb has confirmed the new pension rules will go-ahead and is introducing a bill before Parliament to make them law.
“This government is changing pension rules at the grass roots to give a better outcome for retirement savers,” he said. “These rules are about giving savers more choice over how they can draw and spend their pension cash.”