On the go: Auto-enrolment continues to boost pension savings with total contributions rising by £5bn in 2019, but savings are expected to slump this year due to Covid-19.
Data on workplace pension schemes from the Office for National Statistics, published on Monday, revealed total contributions into defined contribution pensions have risen to more than £20bn last year from about £15bn in 2018, showing that auto-enrolment has boosted savings.
Contributions from employers made up the bulk of the total, with bosses paying in £14.1bn over the year.
According to the data, contributions to DC schemes started to rise from 2015, when auto-enrolment was introduced, with employees’ contributions reaching £1.7bn in 2017 before more than doubling to £4.8bn in 2018.
In comparison, employers’ contributions rose to £12bn in 2018 from £5.5bn in 2017.
The ONS estimated that total membership of DC occupational pension schemes reached 22.4m at the end of 2019.
Between the end of September and the end of December 2019, membership of DC schemes rose by 3.4 per cent.
However, this growth is expected to stall next year as savers opt out of their schemes, reduce contributions, or see their employer contributions cut due to the pandemic.
Tom Selby, senior analyst at AJ Bell, said: “The figures for 2020 will inevitably be hit by Covid-19, primarily because around 8m workers have been furloughed and therefore are likely to have seen a reduction in their auto-enrolment contributions.
“This will only amount to a maximum of a few hundred pounds, however, and should represent a temporary blip rather than a new retirement crisis. As the UK hopefully begins to return to normality, political focus does need to shift towards building financial resilience across the system. “This must include encouraging people to take responsibility and save over and above the auto-enrolment minimum where they can afford to.”
Kate Smith, head of pensions at Aegon, agreed that the figures for next year will look significantly different as the financial and economic impacts of the coronavirus crisis take hold.
“Some employers with generous contributions are already looking to cut back to auto-enrolment minimum rates, either temporarily or permanently, and we may see more of this as the economic crisis begins to deepen,” Ms Smith said.
Call for AE reform
Meanwhile, in a separate piece of research, provider Scottish Widows has warned that the success of auto-enrolment is at risk of diminishing, as nearly half of 22 to 29-year-olds are still failing to save enough for later life.
The pension provider has called on the government to come up with new reforms to help the youngest individuals to save for the future following growing concerns about the damage Covid-19 will do to retirement planning.
Pete Glancy, head of policy at Scottish Widows, said: “Auto-enrolment has transformed the retirement prospects of millions, giving everyone a better chance to retire in safety and security. Young people in particular have benefited by saving through AE, alongside record levels of employment and inflation-busting wage growth before the lockdown.
“However, we shouldn’t be celebrating prematurely as we are still seeing the nation’s youngest savers excluded from these benefits.”
This article originally appeared on ftadviser.com
