Workplace pension contributions fell during first lockdown

Interactive investor comments on new Office for National Statistics data on occupational pension schemes.

The Office for National Statistics this morning published data on funded occupational pension schemes in the UK between October 2019 and June 2020, for the first time.

The data shows:

• growth in membership of defined contribution (DC) workplace schemes slowed in the second quarter of last year, with 23 million members by the end of June 2020, the same number as at the end of March, compared with 22.4 million at the end of September 2019. The ONS said this “may be because of the impact of the coronavirus pandemic on the labour market, but caution is advised in interpreting the results”.
• Employee and employer contributions to DC schemes fell by 11% and 5%, respectively, between the first and second quarters of last year.
• Pension payments and income withdrawal fell by 4% in the second quarter compared with October to December 2019, but lump sum benefits were up 5% over the same period.
• The value of assets in DC schemes fell by 12% during the first quarter of last year but had recovered by the end of June 2020; defined benefit and hybrid schemes were less affected by the stock-market fall.

According to the figures, at end of June 2020, 23.1% of occupational pensions were defined contribution, 11.4% were private sector defined benefit, including hybrid, and 7% were public sector defined benefit schemes, including hybrid.

Commenting on the figures, Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “During the first lockdown, at a time when some were losing jobs or at least part of their income, the growth in membership of workplace pension schemes slowed and contributions declined.

“These figures show us that unless economic fortunes reverse soon, the impact of the pandemic may not just be felt in the immediate term but also in decades to come, when today’s younger workers retire with potentially less than they need, because they were unable to contribute enough to a pension during their working lives.

“Even without the pandemic, the risk of retiring without enough to last is real for workers in today’s defined contribution schemes if they are only paying in the minimum amount.”

Analysis by interactive investor showed that a 21-year old who is out of work for four years until age 25 could miss out on £27,000 on their eventual pot as a result. Having to wait for two years to find permanent work will result in a pension nearly £14,000 lower at age 68.

Interactive SIPP holders performance over the period

The average interactive SIPP account was up 6.8% in 2020 in median terms, recovering from a 15.8% fall in the first quarter of the year. By the end of June 2020, the average SIPP account cumulatively over the year to date was down 3.8%.

Interactive investor SIPP holders demonstrated relatively strong diversification within their portfolios, holding more cash than other accounts, less direct equity, and with more ETF and fund exposure.

Notes to editors

• ONS release
  https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/fundedoccupationalpensionschemesintheuk/october2019tojune2020