Employee DC contributions drop 11% amid pandemic pressures

James Phillips reports

Defined contribution (DC) contributions were scaled back by 11% in the second quarter of 2020 as the impact of the pandemic set in, according to the Office for National Statistics (ONS).

Yet, while gross assets excluding derivatives dropped by 12% in Q1, they had recovered to their end-20919 levels by the end of Q2.

The ONS’ data – revealed in Funded occupational pension schemes in the UK: October 2019 to June 2020 – also reveals that private sector DC membership, while slowing in Q2, reached 23 million by June 2020, while private and public defined benefit (DB) membership stayed roughly the same at 11.4 million and seven million respectively.

While more people were saving, and auto-enrolment (AE) minimums continued to apply, financial pressures caused by the Covid-19 pandemic and the introduction of the furlough scheme, which saw wages cut by 20%, had an impact on the total amount saved.

The second quarter of 2020 saw £1,561m of employee contributions into DC schemes, compared to £1,757m in Q1, and £1,766m in Q4 2019. DB contributions in the private sector also saw a fall of 25% from £326m to £246m.

Employer contributions also fell, although not by as much, with DC payments reducing from £3,941m to £3,748m, while DB payments moved in the other direction, rising by 10% from £6,675m to £7,341m.

Aegon head of pensions Kate Smith commented: “The latest ONS [figures] clearly show what we had all suspected – a dramatic fall in pension contributions directly linked to the pandemic. Employer AE duties continue for all eligible employees, including furloughed employees during this time, so the good news is that contributions continued to be paid during this time for many.”

Noting the “dramatic” decrease in DC contributions she continued: “The longer-term impact of this could seriously affect the financial wellbeing of some people by putting a massive dent in people’s retirement plans and ability to save for the future.”

Canada Life technical director Andrew Tully said the statistics over the “turbulent period” showed a “number of areas for the industry and government to pay close attention to in the future”.

He said: “As a nation we are already chronically under-saving for our retirement and, as we move out of the coronavirus crisis, it’s important we find ways to increase this pension saving back, at least, to previous levels.”