AE remains 'resilient' amid pandemic despite early signs of the 'Covid-19 effect'

Auto-enrolment (AE) saving has remained “resilient” amid the Covid-19 pandemic and increases to the minimum contribution level, although there are some “early signs” of changes in members’ saving habits, analysis from Nest Insight has found.

The Retirement Saving in the UK 2020 report found that whilst opt-out rates remained at under 8 per cent as at 31 March 2020, the first six months of the 2020/21 fiscal year saw this increase “significantly” to 11 per cent.

It also stated that virtually all demographic groups saw an increase in opt-outs, noting that this trend was most prominent amongst those aged under 35 and for those employed in mid-sized and large firms.

Comparatively, prior to the pandemic, opt-out rates were slightly higher for women than men and older workers, and were “much higher” among workers at micro employers.

The most popular reason for opting out during the first six months of 2020/21 was that individuals were already saving into another pension, a response which got more frequent as age increased.

Affordability was the next most popular reason and was also “far and away” the most common answer given for those opting out under 35.

Despite this however, Nest Insight emphasised that there were “no significant changes” in average contribution levels between April 2020 and September 2020, noting that the majority of members have continued to save, with around one-fifth contributing above the minimum rate.

The report acknowledged that there has been a ‘Covid-19 effect’, where average contributions per month have been reduced by some savers, highlighting that this was seen more in continuous contributors than part-year contributors.

Indeed, average monthly contributions for continuous contributors were down 9 per cent in this period, with the median monthly contribution falling from £103 to £94, whilst average monthly contributions amongst part-year contributors were up 15 per cent.

However the report clarified that these two groups are “not homogenous”, also explaining that workers may have been less likely to move to new jobs amid the pandemic and subsequent labour market stagnation.

Aside from the impact of the pandemic, the report revealed that men have contributed around 40 per cent more than women on average, noting that there was also less spread in men’s annual contribution rates.

“The median annual contribution for men is around 78 per cent of their mean, whereas for women it’s around 73 per cent,” it stated.

It found that age also had a “strong effect” on contribution levels, with "significantly" lower annual contributions made by those aged under 35.

A “similar story” has emerged around scheme tenure, with those who have saved less than two years having much lower annual contributions than those with longer tenure, which Nest speculated may be due to the higher incomes associated with more
stable, long-term employment..

In addition to this, the report confirmed that, as at 30 September, all Nest funds were performing above their benchmark levels, some of which were “significantly” higher.

Commenting on the findings, Nest Insight analysis director, Matthew Blakstad, said: “We’re delighted to publish our third annual report sharing data on the pension saving experiences of people who have been enrolled into Nest.

“We hope that these reports provide useful insights for the UK pensions industry and those around the globe looking to learn from the UK experience and implement similar savings programmes.

“Whilst it’s too early to tell the full story of how the Covid-19 crisis will impact pension saving in the UK, this report provides data from the midst of the crisis and insights into the important role that the government’s furlough programme has played in supporting long-term saving."

He continued: “More than half of Nest’s members are earning less than £20,000 and many work in transient forms of employment, often in sectors that have been badly hit by the effects of the Covid pandemic.

“Yet for the most part these members have continued to save, with around one fifth contributing more than the minimum contribution rate.

“The opt-out rate has increased slightly since March, but this change is not nearly as marked as some might have predicted. For the most part, people are acting just as they did before the pandemic.

"This demonstrates the staying power of defaults and auto-enrolment, even in difficult times.”

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