Auto-enrolment continues to boost pension savings with total contributions rising by £5bn last year, however this is likely to be short-lived as savings are expected to slump because of Covid-19.
Data on workplace pension schemes from the Office for National Statistics, published today, revealed total contributions have risen from about £15bn in 2018 to more than £20bn last year, showing that auto-enrolment has boosted savings.
Contributions from both employees and employers into defined contribution schemes also rose rapidly as a result of auto-enrolment, reaching £6.3bn and £14.1bn respectively last year.
According to the data, contributions to DC schemes started to rise from 2015, when auto-enrolment was introduced, with employees contributions hitting £1.7bn in 2017 before it more than doubled to £4.8bn in 2018.
In comparison, employers’ contributions rose from £5.5bn in 2017 to £12bn in 2018.
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 many savers have opted to pull out of their DC schemes or reduce contributions due to the Covid-19 crisis.
Tom Selby, senior analyst at AJ Bell, said: “The figures for 2020 will be inevitably be hit by Covid-19, primarily because around eight million workers have been furloughed and therefore will likely 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.
Ms Smith said: “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.
“We could also see an increase in employees opting out of schemes to ease financial struggles, while others will lose their jobs and, with it, access to a workplace pension.”
Call for AE reform
Meanwhile, in a separate piece of research, provider Scottish Widows has warned the success of auto-enrolment is at risk of diminishing as nearly half of 22-29 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 lockdown.