Occupational DC scheme member contributions fell by 11% amid spring lockdown

Member contributions to funded occupational defined contribution (DC) pension schemes fell by 11.2 per cent between Q1 and Q2 2020, according to figures from the Office for National Statistics (ONS).

Amid the spring Covid-19 lockdown, workers’ contributions fell from £1.8bn in Q1 to £1.6bn in Q2.

During the same period, employer contributions fell by 5 per cent, from £3.9bn to £3.7bn.

Growth in occupational DC scheme membership slowed in Q2 2020, with membership increasing by 0.4 per cent from the end of Q1 to just over 23 million, compared with 22.4 million members at the end of 2019.

The ONS stated that the slowdown in growth may have been because of the impact of Covid-19 on the labour market, but “caution is advised in interpreting these results”.

Total pension payments and income withdrawal declined by 4 per cent in Q2 in comparison to Q4 2019, although there was a 5 per cent rise in lump sum benefits paid by schemes during the same period, with around two-thirds of these coming from private sector defined benefit (DB) schemes.

The value of assets in DC schemes, excluding derivatives, fell by 12 per cent during Q1 2020, but had recovered to Q4 2019 levels by the end of June 2020.

However, the ONS said that private sector DB and hybrid schemes’ investments were less affected by the stock market fall, with the value of assets, excluding derivatives, for these scheme types increasing by 2 per cent in Q1 2020 and 6 per cent in Q2.

“During the first lockdown, at a time when some were losing jobs or at least part of their income, the growth in membership of workplace pension schemes slowed and contributions declined,” said Interactive Investor head of pensions and savings, Becky O’Connor.

“These figures show us that unless economic fortunes reverse soon, the impact of the pandemic may not just be felt in the immediate term but also in decades to come, when today’s younger workers retire with potentially less than they need, because they were unable to contribute enough to a pension during their working lives.
 
“Even without the pandemic, the risk of retiring without enough to last is real for workers in today’s DC schemes if they are only paying in the minimum amount.”

According to the ONS, at the end of June 2020, 23.1 per cent of occupational schemes were DC, 11.4 per cent were private sector DB, including hybrid, and 7 per cent were public sector DB schemes, including hybrid.

In its dataset, the ONS revealed that total membership of occupational schemes was 49.8 million in 2019, up from 45.6 million in 2018, the highest level recorded in its Occupational Pension Schemes Survey.

Active membership increased from 17.3 million to 18.2 million between 2018 and 2019, split between private (11.6 million) and public sector (6.6 million).

The average open private sector DC scheme contribution rate increased from 5 per cent to 5.1 per cent during the same period.

Buck head of DC & wealth, Mark Pemberthy, commented: “It’s encouraging to see that average pension contributions have risen in the UK, although this is likely due to the increase in the automatic enrolment threshold in 2019, rather than an active decision by individuals to save more. This is further proof of the success of automatic enrolment and auto-escalation.
 
“Unfortunately, contributions are still far from where they need to be for most workers to have an adequate retirement income, a conservative rule of thumb is that individuals should be putting away at least 13 per cent of their annual income, far higher than is currently being saved. However, it’s also important that savings are also viewed holistically. The coronavirus pandemic has shown how vital it is to have short-term savings buffers in addition to any long-term plan.
 
“With no further automatic increases currently planned, it’s now down to individuals and employers to make sure that short and long term savings levels are enough to achieve the desired outcomes.”

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