Pension saving held up last year but several groups remain ‘underpensioned’
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
New data shows pension saving held up during the pandemic, but experts warn it is still to be seen what effect the phasing out of furlough will have. The figures also show persistent gaps in coverage for some groups.
Nine in 10 (88%) eligible employees now participated in a workplace pension during the pandemic year of 2020, a similar level to 2019, new statistics from the Department for Work and Pensions show. The figures are a clear indicator that the pandemic disruption has not deterred people from saving, but some have warned that with the impact of the end of the government’s furlough scheme yet to be felt, this could still change.
Despite the positive news about last year, the DWP also notes that “there are some gaps that remain in 2020 and there is relatively low participation of below 65% for some eligible groups including micro employers and Pakistani & Bangladeshi employees”.
The Pakistani & Bangladeshi ethnic group had the lowest participation rate at 63%, despite having had the largest increase of 27 points since the introduction of auto-enrolment.
Another big unresolved issue is the low participation rate of the self-employed, who have seen an overall long-term decline in participation from 21% in 2009 to 2010 to 16% in 2019 to 2020. The government is still due to tackle the issue in earnest, having previously announced it would do so in the ‘mid-2020s’.
In terms of participation, women are slightly more likely to be in a scheme with a rate of 90% versus 88% among men, having a greater participation rate both in the public and private sectors, but part-time workers are still much less likely to contribute – especially male part-time workers.
Still some ‘worrying gaps’
Kate Smith, head of pensions at Aegon, said the figures highlight the huge progress made over the last 10 years in encouraging people to save for their retirement, but also highlighted that gaps still remain, including among employees in the smallest private sector companies where only around 60% of people have a pension.
“There are still worrying gaps around part-time employees and the self-employed, which clearly demonstrates that improvements to auto-enrolment are needed. Female part-time participation rates continue to be higher than [those] of male part-timers, but overall women are saving much less in a pension than men,” Smith highlighted.
The self-employed in particular risk being left behind in terms of pension savings, she warned, with participation rates having declined to just 16% over the last 10 years.
“This is a really worrying trend as the self-employed were one of the hardest hit groups by the pandemic,” she observed.
Tom Selby, head of retirement policy at AJ Bell, pointed out that the 2020 savings rates could not be the whole truth when it comes to the pandemic, as furlough is ongoing.
“The UK economy has been held together by hundreds of billions of pounds of state support, primarily provided through the furlough scheme. As this support is withdrawn, policymakers will need to keep an eagle eye on both the unemployment rate and any knock-on impacts on retirement saving,” he said.
“It’s also worth remembering there are millions of people, including the low paid and self-employed, who are not part of auto-enrolment, with many saving little or nothing for their financial future.
Will pension savings rates drop once furlough ends?