Employee and employer contributions to defined contribution (DC) pension schemes dropped by 11% and 5% between quarter one and quarter two of 2020 respectively, according to the Office for National Statistics (ONS).
Its analysis, which looked at UK-based funded occupational pension schemes from October 2019 to June 2020, found that total pension payments and income withdrawal from funded occupational pension schemes fell by 4% from April to June in 2020 compared with October to December 2019. However, it discovered that there was a 5% increase in lump-sum benefits paid by pension schemes during the same period.
In 2020, membership reached 23 million for DC schemes, compared with 22.4 million members at the end of 2019. During the first half of 2020, total defined benefit and hybrid (DBH) occupational pension scheme membership rose from 18.3 million to 18.4 million in June 2020.
In addition, private sector DBH schemes saw a 18% decline in contributions from staff to £0.2 billion in 2020, from £0.3 billion in 2019. Public sector DBH schemes saw a similar decline of 17%.
Total pension payments and income withdrawal from funded occupational pension schemes were £13.2 billion from April to June, a 4% decline since the end of 2019. There was also a 5% increase from 2019 in total lump sums (including death benefits) from pension schemes, to £2.7 billion in 2020 from April to June.
Kate Smith, head of pensions at Aegon, said: “The latest ONS statistics clearly show what we had all suspected – a dramatic fall in pension contributions directly linked to the pandemic. Employer auto-enrolment duties continue for all eligible employees, including furloughed employees during this time, so the good news is that contributions continued to be paid during this time for many.
“But the impact of lower furloughed wages and job losses has been clearly demonstrated with a dramatic 11% drop in employee contributions and a 5% fall in employer contributions between the first and second quarters of 2020. This does not include contributions payable to contract-based schemes, which is most likely experiencing a similar trend. But alarmingly these figures represent just the start of a trend, as furlough has continued and job losses are increasing. The longer-term impact of this could seriously affect the financial wellbeing of some people by putting a massive dent in people’s retirement plans and ability to save for the future.
“Initial figures showing payments and income withdrawals have fallen slightly in the first half of 2020 are encouraging, showing that the staff aged over 55 have been cautious when accessing their pension pot while values are depressed. But the picture may well have changed in the second half of 2020 as the pandemic continued. Pensions are designed to provide an income throughout retirement and reducing the amount of income withdrawn during a period of investment market downturn could be important for the longevity of the pension pot.”