Pension contributions plunge 11% as Covid crisis hits

Data on occupational pension schemes, released on Wednesday, showed employee contributions fell by 11 per cent from the first quarter of 2020 to the second quarter, while employer contributions were down by 5 per cent.

During the crisis, there were concerns that savers would opt out of their workplace pensions in search of extra cash, but the pandemic had less of an impact than expected as numbers held steady.

The data showed there were 23m DC members by the end of June 2020, the same number as at the end of March, compared with 22.4m at the end of September 2019.

The ONS stated this “may be because of the impact of the coronavirus pandemic on the labour market, but caution is advised in interpreting the results”.

Total pension payments and income withdrawal fell by 4 per cent in the second quarter of 2020 compared with the fourth quarter of 2019, but there was a 5 per cent increase in lump sum benefits paid by schemes during the same period.

The value of assets in DC schemes fell by 12 per cent during the first quarter of last year but had recovered by the end of June, while defined benefit and hybrid schemes were less affected by the stock market fall.

Alistair McQueen, head of savings and retirement at Aviva, warned many could face a worse retirement if these trends continue.

He said: “Furlough has protected millions of jobs. This has allowed a continuation of record private sector occupational DC membership through the first half of 2020 — now at 23.1m members, including active, deferred and pensioner members.

“Furlough, however, has brought with it a drop in income for millions. This has resulted in an alarming 11 per cent drop in total private sector occupational DC [contributions] by employees, from £1.76bn in Q1 2020 to £1.56bn in Q2.

“This will mean a poorer retirement for many. The longer this drop persists, the greater the impact on retirement will be.”