End of furlough prompts pension saving concerns

The upcoming end of the government’s furlough scheme and a potential rise in unemployment as a result has prompted concern from the pensions industry.

Although the number of workers on furlough has gradually been falling, there were still nearly 1.6 million people using the scheme at the end of July.

The scheme is due to wind up at the end of this month (September), with some concerned that this could lead to an increase in unemployment.

“As the scheme winds-up it will put employers, the jobs market and also people’s savings habits to the test,” commented Aegon head of pensions, Kate Smith.
“It’s as yet unclear whether the re-opening of the economy will mean those still on furlough will have jobs that they can pick back up, or whether their roles are now at risk of redundancy.”

Smith added that one “remarkable” outcome from the pandemic has been the relatively minor impact on workplace saving trends.

“Despite the number on furlough peaking at 8.9 million in early May 2020 and a total of 11.6 million jobs furloughed since the scheme started, workplace pension participation has remained resilient,” she continued.

“Very few people have opted out of their workplace pension and the already low opt-out rates even saw a slight fall over the last year.”
Smith warned, however, that any large rise in unemployment following the wind-up of the furlough scheme could put the brakes on the 'significant' progress of auto-enrolment and workplace pension participation rates.

“Individuals who lose their job not only face a loss of income but will also no longer contribute to their workplace pension, and benefit from ‘free’ money from their employer,” she stated.

“Gaps in pension saving will only exacerbate the differences in the financial health of those whose jobs have continued unaffected during the pandemic and those who have faced difficulties.”
Quilter head of retirement policy, Jon Greer, noted that many savers pressed pause on their pension saving due to the pandemic and subsequent financial insecurity.

“With furlough coming to an end after 18 months it is important for those that are returning to full-time employment who opted out not to forgot to opt back into their company pension scheme,” he said.

“Employees may not be prompted to return to saving for their retirement immediately, so it is important they do not lose sight of it and put it on the backburner. Even those who have already returned from furlough should be reviewing their pension contributions, and it is good practice to do this at least once a year.

“The government could consider whether a partial opt-in auto-enrolment system could boost opt-ins. The current system requires individuals to fully opt in or fully opt out, with little flexibility in-between. If someone needs the extra money, a partial system could allow them to opt-out of their own contributions, while still receiving the employer contributions.

“The government could target this specifically at the lower paid who may be more likely to opt out entirely. Given this could mean people can still save for their retirement, even if they face short-term financial insecurity today, it is a proposal the government could look further into and assess whether it would improve participation and overall contributions.”

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