Workplace pensions bounce back after Covid

Workplace pensions bounce back after Covid

Workplace pension contributions grew by more than 15 per cent in the second quarter of 2021, as levels recovered after the pandemic, according to the Office for National Statistics.

The ONS’ latest survey on funded occupational pension schemes, published this week (December 21), showed contributions in private sector employee and employer defined contribution schemes grew by 19 and 18 per cent respectively in Q2 2021, when compared to Q2 2020.

This hike was more pronounced than in previous years, as the base level was low due the impact of Covid-19 last year, the ONS said.

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The stats also showed that at the end of June 2021, total DC membership was 25.3m, while total defined benefit and hybrid membership stood at 18.5m.

The value of gross assets excluding derivatives in DB schemes increased by 3 per cent to £2.7trn between Q1 2021 and Q2 2021.

Over the same period, private sector DC and public sector DB schemes also experienced growth, of 9 and 4 per cent respectively. 

The strong figures from DC schemes can be attributed to the growth in membership, which increased by 2.7m over the year, according to Hargreaves Lansdown.

Helen Morrissey, senior pensions and retirement analyst at the financial services company, noted “while there were concerns the pandemic would lead to an exodus from pension schemes and plunging contribution rates, the growth of DC schemes is undeniable with membership soaring to 25.3m at the end of June 2021”.

She said: “The pandemic had an enormous effect with furlough and increased redundancy rates meaning employer and employee contributions temporarily plunged last year, but they have since bounced back and membership continues to grow. DB scheme membership is flat as expected.”

Morrissey pointed out there was also a hike in benefits being paid out.

“Between Q1 and Q2 2021 we saw a sharp 51 per cent increase in pension payments and income withdrawals – including death benefits for DC schemes.

“This compares to around 9 per cent in private sector DB. While some of this will be explained by the horrible death toll of the pandemic, we could also see this as evidence that people have chosen to retire early or access their pension early to cover financial expenses.”

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