Lower furloughed wages hit pension contributions
Pension pots have fallen
Pension contributions have suffered as thousands of furloughed workers have been paid only part of their salaries over the past year.
Figures from the Office for National Statistics (ONS) revealed that payments into defined contribution (DC), or money purchase, pensions schemes have seen a sharp fall.
Employee contributions fell by 11% between the first and second and quarter last year, while employer contributions declined by 5%.
Growth in the number of members of DC schemes also slowed in the second quarter.
Kate Smith, head of pensions at Aegon, said the figures clearly demonstrate the impact that furloughed wages and job losses have had on saving, reports The Actuary. Individuals were entitled to receive a percentage of their salary from the government’s support package.
“Alarmingly, these figures represent just the start of a trend, as furlough has continued and job losses are increasing,” she said.
“The longer-term impact of this could seriously affect the financial well-being of some people by putting a massive dent in people’s retirement plans and ability to save for the future.”
The data also shows that gross assets of DC pension schemes, excluding derivatives, fell by 12% in the first quarter of last year as stock markets declined in February and March, but recovered to their end-2019 levels by June.
Private sector defined benefit and hybrid (DBH) pension schemes’ investments were less affected by the stock market fall, with the value of their gross assets, excluding derivatives, increasing by 2% in the first Quarter, and 6% in the second quarter.
However, the data also shows that those over 55who are entitled to access their pension pots were more prudent during the period, though this may have changed as lockdown continued.
“Initial figures showing payments and income withdrawals have fallen slightly in the first half of 2020 are encouraging, showing that the over-55s have been cautious when accessing their pension pot while values are depressed,” Ms Smith said.
“But the picture may well have changed in the second half of 2020 as the pandemic continued.”