AJ Bell says its review of the latest government statistics suggests member contributions to defined contribution schemes have fallen although the decline in pension saving could reverse soon.

In its analysis of the latest figures from the Office of National Statistics this week on household budgets, the Sipps and platform provider said that the figures revealed that in 2016 the average member contribution to a defined contribution pension scheme was just 1% - down from 1.5% in 2015.

The decline comes despite news from ONS that household spending has now recovered to pre-2008 financial crisis levels as household income recovers.

Tom Selby, senior analyst at AJ Bell said: “While rising consumer spending might be good for the UK economy in the short-term, it risks storing up serious long-term problems – particularly if it is driven by cheap loans and rising consumer debt.”

However, a pattern of less spending and more saving could begin to emerge said Mr Selby.

He said: “The reason automatic enrolment was introduced was to reverse an alarming decline in retirement savings in the UK.

"Provided people stay in their pension rather than opting out, auto-enrolment could well be the start of a broader societal shift towards an economy where people spend less and save more” 

He added this is especially the case “as auto-enrolment rolls out and minimum contributions rise to 8% of banded earnings in 2019, the impact on the wider economy will be profound.”

“However, this is not a given and the shift towards higher minimum contributions – potentially above the level of 8% set out in legislation – could be painful.”

Recent research by Close Brothers and the Pensions and Lifetime Savings Association (PLSA) revealed that although confused about the savings landscape, millennials are putting aside £400 more per year in non-pensions saving than their Generation X counterparts.

The report looked at the views of workers in companies with more than 200 employees and found that millennials were saving £3,445 per year compared to £3,073 by those aged 35-54.