DC pension member contributions increase following lockdown dip

Member contributions to private sector defined contribution (DC) schemes grew by 12 per cent between Q2 and Q3 2020, rising from £1.6bn in June to £1.8bn as of September 2020, according to figures from the Office for National Statistics (ONS).

Public sector defined benefit and hybrid (DBH) schemes also saw an increase in employee contributions from £0.6bn in Q2 2020 to £0.7bn in Q3, although there was a 8 per cent decline in private sector DBH employee contributions.

Alongside this, the ONS flagged that the number of employees furloughed as part of the Coronavirus Job Retention Scheme also dropped during this period, falling from 6.8 million at 30 June 2020 to 2.8 million at 30 September 2020.

Employee pension contributions had previously fallen amid the pandemic, with the spring lockdown bringing an 11.2 per cent fall in member contributions to occupational DC schemes between Q1 and Q2.

However, the latest data has revealed increases in both employer and employee contributions, with private sector DC schemes also reporting a 7 per cent increase in employer contributions to £4bn in Q3 2020, up from £3.7bn in Q2 2020.

Private sector DBH schemes, however, recorded a 2 per cent fall in employer normal contributions during the period, from £2.2bn in Q2 2020 to £2.1bn in Q3 2020.

Indeed, more broadly, employer contributions to private sector DBH schemes fell by 11 per cent during the period, falling from £7.3bn in Q2 to £6.5bn in Q3.

Furthermore, over 60 per cent of the private sector DBH employer contributions in both Q2 and Q3 were deficit reduction contributions(DRCs), which in turn fell from £4.7bn in Q2 to £4bn in Q3 2020.

Despite this, the ONS clarified that the data cannot fully indicate whether employer DRCs to private sector DBH schemes were affected by the coronavirus pandemic, stating that it would be necessary to compare the pattern of payments made with the payments that had been planned before the pandemic.

Commenting on the figures, Royal London pension specialist, Helen Morrissey, said: “After seeing a dip in employer and employee pension contributions in the last set of data it is encouraging to see the figures have bounced back.

“While this will be because less workers were on the Job Retention Scheme it is heartening to see the uncertainty caused by the pandemic has not caused people to turn their back on pensions by either stopping or slashing their contributions long term.”

In addition to this, the ONS data also revealed that the market value of pension funds has increased by less than 1 per cent from 30 June to 30 September 2020.

Gross assets excluding derivatives of private sector DC schemes have also risen by almost 9 per cent during this period, with DC schemes investing “almost entirely” via pooled investment vehicles.

In contrast, gross assets excluding derivatives of private sector DBH schemes were £2trn at the end of Q3, with 57 per cent being direct investments, 37 per cent via pooled investment vehicles, and the rest in the form of insurance policies.

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