Pension saving behaviours 'relatively unchanged' despite Covid-19 impact

Pension saving behaviours have remained "largely unchanged" despite severe disruption to the economy and labour market amid the pandemic, analysis from Nest Insight has found.

However, it did suggest that there were disparities in different sectors and job types.

The analysis found that, between April 2020 and February 2021, opt-out rates increased slightly, peaking at just over 12 per cent, before falling back to the 2019/20 average of 10 per cent.

However, whilst opt-out rates have remained low overall, higher averages were found in some industries, with agriculture, forestry and fishing reporting opt-out rates of 27 per cent, public administration of 21 per cent, finance and insurance of 19 per cent, and international councils and bodies of 18 per cent.

The biggest change in pension saving behaviour was found amongst those aged 35 to 54, whilst those aged 55 to 64 and 25 to 34 showed little to no change in behaviour.

The data also showed a slight decrease in cessation rates during the pandemic, whilst pension withdrawals followed a trend of “business as usual”.

Nest Insight clarified, however, that given disruption to the job market amid the summer of 2020, it was not possible to make a like-for-like comparison between the types of individuals opting out before and during the pandemic.

Some similarities in these trends emerged when considering income, with further analysis revealing that, between April 2020 and February 2021, there was an overall flattening in pensionable pay growth with median growth rates falling to zero.

Indeed, the data showed “significant falls” in earnings for certain types of workers during the national lockdowns, such as hospitality, wholesale and retail.

Furthermore, whilst the overall impact of gender appeared to be small, the analysis found that women and younger people have been most negatively affected due to a higher representation of these groups in these poorly hit sector.

The self-employed, the unemployed, and those unable to work due to sickness were also more likely to report that their finances had been negatively hit amid the pandemic, with lower income groups also “significantly” more likely to report a reduction in household income relative to moderate income groups.

The analysis also found that when comparing responses from two financial wellbeing surveys in November 2019 and November 2020, average perceptions about the importance of saving for an emergency increased from 85 per cent to 88 per cent.

Nest emphasised that this supports the importance of programmes like its sidecar savings trial, which looks for ways to help workers build up emergency savings alongside their pension.

Commenting on the findings, Nest Insight director of analysis, Matthew Blakstad, noted that the financial impact of the pandemic has so far been mixed, with some having become 'accidental savers' whilst others have lost significant amounts of income.

He continued: “Knowing this, we might expect to see households who are facing financial stress, or fears of future hardship, tapping into long-term savings or stopping pension contributions to help increase their disposable income. But this hasn’t happened.

“Our data show that there have been no significant changes in behaviour when it comes to workplace pension saving, once again demonstrating the resilience of auto enrolment as a way of encouraging saving.

“The strength of this default savings mechanism, coupled with the clear appetite among the UK workforce to build up emergency savings, suggests that people might value being automatically enrolled by their employer into an emergency savings tool."

Blakstad also confirmed that later this year, as part of the groups broader sidecar savings research programme, Nest Insight will be testing the impact of this approach, and people’s attitudes towards it, through the Financial Conduct Authority’s regulatory sandbox scheme.

“Yet the inertia mechanism that makes auto enrolment so successful, may be a double-edged sword," he added.

"The findings from this research raise questions about whether some people are continuing to save for retirement, whilst also experiencing pressures on their household finances and potentially accumulating debt.

“In the next stage of our research, we’ll be examining the interactions between pension saving and debt to address this all-important question.”

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