Covid-19's effect on UK pension schemes should not be ignored.
As the World Trade Organisation warns of a 'lost decade' of economic growth globally, thanks to the effects of severe lockdown everywhere, the Office for National Statistics also paints a bleak picture for British pension schemes.
The sudden shock falls in February to March 2020 as stock markets nosedived on news that the virus had become a pandemic – as well as worries over the Russia/Saudi Arabia oil price standoff – caused immediate concern for pension scheme values.
This was well-documented at the time and has been quantified by the ONS in its latest figures. The body has revealed that gross assets of defined contribution pension schemes (excluding derivatives) fell by 12 per cent in the first quarter of 2020.
Although they recovered to their end-2019 levels by the end of June 2020, the drop in asset values came at the same time as employers across the UK announced they were having to reduce or suspend payments into their workplace pension schemes to protect their business revenues.
This means a double whammy for the 23m people in the UK who are members of a DC pension: not only did they suffer a three-month drop in pension values, but they have also missed out on a significant stock market recovery, as employer contributions were absent from the purchasing power of the employee's own contributions.
Moreover, as the economic woes deepened for millions of people, individuals also halted or temporarily suspended their own pension contributions.
According to the ONS, the combined employee and employer contributions to DC schemes fell by 11 per cent and 5 per cent respectively between the first and second quarter last year.
In real terms, this means a fall to £1.56bn in Q2 2020 from £1.76bn in Q1. The full impact, however, is yet to be seen when the calendar year-end figures come out later in 2021.
Simultaneously, growth in membership of DC occupational schemes slowed between April and June 2020, suggesting people have delayed starting saving into a workplace pension, perhaps as a direct result of worries over their future finances.
The figures do not, thankfully, indicate that people who are already members have pulled out of their occupational schemes completely – which is a positive sign.
However, what the ONS indicates is worrying, according to pensions specialists. It indicates that not only are people having to 'borrow' from their tomorrows to pay for today's bills, but they risk being left in a more vulnerable position in their retirements, with a large dent being made in their retirement plans.
Tip of the iceberg
Moreover, this is just the tip of the iceberg – as the UK enters its third strict lockdown, more than 2.6m people are estimated to be unemployed, government support schemes are expected to unwind in 2021, and people in money purchase schemes are looking increasingly vulnerable.