The pandemic had a knock-on effect on pension contributions last year as workers faced being furloughed or made redundant, newly released data shows. Schemes themselves have seen little impact on their assets thus far, having recovered any losses from February and March. 

 

Defined contributions fell by 11% in the first quarter of last year and 5% in the second quarter, new figures from the Office for National Statistics show, reflecting job losses and furlough as the pandemic hit the economy. The ONS also noted a slowing down of growth in DC membership in Q2, saying it reached just over 23 million.  

  

There was a 5% increase in lump sum benefits paid by pension schemes in Q2 2020 compared with Q4 2019, despite a 4% fall in pension payments and withdrawal in that period, potentially indicating that savers look to pensions to bridge gaps in income.  

  

“This drop in contributions likely reflects the impact of furloughing, with total auto-enrolment contributions based on 80% of salary for millions of people. Some workers will also inevitably have opted out due to pressure on their incomes caused by the pandemic,” said Tom Selby, senior analyst at investment platform AJ Bell.  

  

Becky O’Connor, head of pensions and savings at investment platform interactive investor, said: “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.  

   

The platform provider says 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, while having to wait for two years to find permanent work will result in a pension nearly £14,000 lower.  

   

This worrying picture stands in contrast to the asset side of schemes. The ONS found that gross assets of DC pension schemes excluding derivatives fell by 12% in Q1 2020 as stock markets fell in February and March 2020, but they recovered to their end-2019 levels by the end of June 2020.  

   

Defined benefit and hybrid schemes were less affected by the stock market fall than DC schemes, with the value of their gross assets excluding derivatives increasing by 2% in Q1 2020 and 6% in Q2 2020. This was driven by investments in long-term debt securities and structured products, according to the ONS.