DC pension contributions increase as active membership grows

Employee and employer contributions for private sector defined contribution (DC) schemes increased again in Q4 2021, alongside increases in the number of active members, figures from the Office for National Statistics (ONS) have revealed.

The data showed a 2 per cent increase in active membership in Q4 2021, equal to an additional 200,000 savers, which the ONS suggested was comparable to before the beginning of the pandemic and reflects a broader growth in payrolled employees in the period.

In line with this, employee contributions increased by 9 per cent to over £2bn, whilst employer contributions increased by 5 per cent to over £4.1bn, having already been on the rise in the previous quarter after lockdown restrictions lifted.

Of total employer contributions, around 56 per cent, or £3.36bn, were deficit reduction contributions, although the ONS explained that whilst this is an increase on Q3, it was in line with previous annual trends.

Assets have also increased, as the figures showed that the market value of UK pension funds now stood at £2.6trn, up from £2.5trn in Q3 2021, whilst gross assets including derivatives contracts with a positive asset value stood at £3.1trn, up from £2.9trn.

In addition to this, total gross assets excluding derivatives increased by 4 per cent in Q4, rising from £2.7trn in September 2021 to £2.8trn in December 2021.

The use of pooled investment vehicle (PIV) holdings is also on the rise, with £223bn of private sector DC investments made using PIV holdings in December 2021, an increase of 12 per cent compared with end-September 2021.

The composition of investment strategies by private sector employee defined benefit hybrid (DBH) schemes has remained consistent, with £1,136bn (56 per cent) of private sector DBH schemes’ investments were direct investments.

There was also evidence that private sector DBH schemes are continuing the trend of securing their members' benefits, with insurance policies assets up by 16 per cent to £150bn by end-December 2021.

For the first time, the ONS has also included new data on overseas direct investments and overseas assets by country, revealing that equities hold the highest proportion of overseas direct investments relative to its total, at 75 per cent.

This is followed by unquoted private equity and alternatives (57 per cent) and short-term debt securities (57 per cent).

Of the largest direct investment asset holding (central government bonds), 93 per cent were UK government gilts and 7 per cent were overseas.

Whilst the composition of overseas assets has remained relatively stable, according to the figures, the ONS pointed out that there was increased direct investment in overseas central government bonds at the end of December 2021 compared with the end of September 2021, rising from £36bn to £42bn.

In addition to this, the data also showed the composition of direct investment overseas long-term debt securities and equities assets by country at end-December 2021.

This revealed that of the overseas direct investment in long-term debt securities and equities, 55 per cent and 54 per cent, respectively, were in the United States, although for equities there was also a "significant" 7 per cent in Japanese holdings.

For both asset types, investment in Russian Federation long-term debt securities and equities made up a small percentage of total investment, with investment in Russian Federation long-term debt securities falling from £832m as at December 2020 to £493m in December 2021.

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