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Recession fuels sharp drop in personal pension contributions

Released: 07 September 2011 Download PDF

Total contributions to personal pensions fell from £20.9 billion in 2007/08 to £18.7 billion in 2009/10, largely due to a fall in the number of people contributing during the recession.

The drop of over £2 billion is revealed in Pension Trends Chapter 8: Pension contributions, published today by ONS.

There was a sharp fall in the number of people contributing to personal (including stakeholder) pensions during the recession, as many people who had previously made small contributions stopped contributing.

Pension Trends Chapter 8 also considers:
• The level of contributions to private sector occupational pension schemes made by scheme members and their employers
• Employee contributions to public sector occupational pension schemes
• Differences in contributions between different types of private sector occupational pension scheme – defined benefit (DB) and defined contribution (DC) and by contracted out status
• How the minimum employer contribution required from October 2017 under the ‘workplace pension reforms’ compares with current employer contributions to equivalent schemes.

Also published today is Pension Trends Chapter 6 which looks at private pensions and examines differences between DB and DC pension schemes and between provision in the public and private sectors. The chapter notes that:
• In 2009, 56 per cent of active members of private sector DB schemes were in schemes closed to new members, while most public sector workers can still join a DB scheme
• In funded DB schemes the employer must pay out pension at an agreed rate, assuming all the risks, such as poor investment performance and rising life expectancy
• By contrast, in DC pensions (including personal pensions) individual members assume the investment risk and also face risks such as declining annuity rates

Background notes

  1. Private (non-state) pensions comprise occupational pension schemes for private sector and public sector employees as well as personal pensions, which include stakeholder pensions.
  2. Personal (including stakeholder) pensions are currently the only form of pension provision for the self-employed. Employees can contribute to occupational pension schemes, group personal pensions (GPPs) and group stakeholder pensions (depending on what type of pension their employer offers); they can also take out individual personal pensions.
  3. The figures for total contributions to personal pensions quoted in this news release include contributions to retirement annuity contracts (RACs) and freestanding additional voluntary contributions (FSAVCs) as well as stakeholder pensions. No new RACs could be taken out from 1 July 1988, but those with contracts could continue to contribute to them.
  4. The figures for personal pensions come from HM Revenue and Customs (HMRC). The methodology for producing these estimates has been revised recently by HMRC. For further information, see
  5. Figures are for the UK unless otherwise stated.
  6. Defined benefit (DB) pension schemes are those in which the rules specify the rate of benefits to be paid. The most common DB scheme is a ‘final salary’ scheme, but Career Average Revalued Earnings (CARE) schemes are becoming more common. A defined contribution (DC) pension is one in which the benefits are determined by the contributions paid into the scheme, the investment return on those contributions (less charges), and any annuity that is purchased. DC pensions are also known as ‘money purchase’ pensions.
  7. If a private pension scheme is ‘contracted out’ of the additional state pension, members obtain rights in that scheme in place of rights to an additional state pension.
  8. The workplace pension reforms are the reforms to private pensions starting in October 2012, with gradual roll-out to all employers by September 2016. They involve the automatic enrolment of all eligible employees into a qualifying workplace pension scheme, and the introduction of a new trust-based DC pension scheme known as NEST.
  9. In funded schemes, benefits are met from a fund built up in advance from contributions and investment income. In unfunded schemes (most of which are in the public sector), there is no fund; benefits are paid from current employees’ pension contributions and general taxation. DB schemes may be funded or unfunded. All DC pensions are funded.
  10. Further details on private pensions can be found in Pension Trends Chapter 6 at
  11. Further details on pension contributions can be found in Pension Trends Chapter 8 at
  12. Podcasts for Chapters 6 and 8 can be found at:
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  15. National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.
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