The coronavirus crisis could mean many people are heading for a poorer retirement, experts have warned, as figures showed a sharp fall in pension contributions last year.
Employee payments into private sector defined contribution (DC) schemes fell by 11% between the first and second quarters of 2020, the Office for National Statistics (ONS) said.
In the second quarter, £1.56 million was contributed into private sector DC schemes, but in the first quarter the total was £1.76 billion.
Alistair McQueen, head of savings and retirement at Aviva, said of the figures: “This will mean a poorer retirement for many. The longer this drop persists, the greater the retirement impact will be.”
Mr McQueen said: “The impact of the pandemic on pensions has been highlighted by today’s ONS report on occupational pension schemes.
“Furlough has protected millions of jobs. This has allowed a continuation of record private sector occupational defined contribution membership through the first half of 2020 – now at 23.1 million members, including active, deferred and pensioner members.
“Furlough, however, has brought with a drop in incomes for millions. This has resulted in an alarming 11% drop in total private sector occupational defined contributions by employees, from £1.76 billion in quarter one to £1.56 billion in quarter two 2020.”
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.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The drop in contributions will include some people deciding to scale back contributions because they’re worried about being overcommitted in uncertain times.
“However, it’s important not to underestimate the impact of other factors. Some of this is seasonal, because people will have made lump sum contributions at the end of the tax year, and some is due to the fact working hours dropped dramatically, so incomes took a hit – which automatically means lower contributions.”