Pension contributions bounce back after first lockdown

Pension contributions bounce back after first lockdown

Employee contributions to defined contribution schemes jumped by 12 per cent after parts of the economy were restarted following the UK’s first lockdown last year.

Data from the Office for National Statistics, published this week (March 29), showed that employee contributions to private sector DC schemes hit £1.8bn in the third quarter of last year (July to September), up from £1.6bn the previous quarter (April to June).

Employer contributions to these schemes also jumped 7 per cent to £4bn in the third quarter of 2020, up from £3.7bn in the previous quarter.

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According to AJ Bell, this means both employee and employer contributions have essentially returned to the levels seen before coronavirus hit.

Tom Selby, senior analyst at AJ Bell, said: “It is hugely encouraging that, after a dip in both employee and employer pension contributions at the start of the pandemic, the amount savers are saving for retirement has quickly bounced back.

“While at this stage we do not have a clear picture of what is happening on the ground, this may in part reflect the fact some employers who furloughed staff have chosen to top-up salaries. In doing so, employees will also see their automatic enrolment pension contributions boosted.

“It is also possible the UK’s accidental savers have started to put some of the £180bn built up as a result of lower spending during the pandemic towards their retirement.”

Under auto-enrolment rules, employers must put staff into a workplace pension scheme and contribute towards it. 

These responsibilities remained in place under furlough rules.

But there were concerns that some individuals would opt out of their workplace scheme due to fears over Covid and their financial situation.

Selby said: “Anyone not paying into their workplace pension is missing out on both the upfront boost of tax relief and free money via a matched employer contribution.

“The vital importance of saving for our future – be that by building up a rainy-day fund or looking to the longer-term – is one of many key lessons the UK must learn from this pandemic.

“Workplace pensions are the foundation for most people, but to enjoy a comfortable retirement most people will need to go above and beyond this basic level. Furthermore, lots of people – including the self-employed – are not included in auto-enrolment and so need to take total responsibility for their retirement.”

Back in June, the Work and Pensions committee urged the Pensions Regulator to consider helping workers who have opted out to re-enrol sooner than the current three-year timeframe under auto-enrolment rules to protect their pension pot.

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