What impact will the end of furlough have on pensions?
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As the government’s furlough scheme comes to an end, will there be a significant rise in unemployment and how can the success of automatic enrolment be maintained during this time?
Low opt-out rates despite uncertainty throughout the pandemic
Latest figures from HMRC show that 1.6m people were still furloughed in late June this year, the lowest level since the start of the pandemic. It was feared at the beginning of the pandemic that one in 10 workers would become unemployed, but instead the unemployment rate is currently less than one in 20.
According to master trust Nest, the majority of members have continued to save, with around one in five contributing more than the minimum contribution rate. At the beginning of the 2020-21 fiscal year, opt-out rates increased to 11% but there were no significant changes between April and September 2020.
Although low opt-out figures remain for automatic enrolment, participation rates still remained low for the self-employed, with a long-term decline in participation from 21% in 2009 to 2010 to 16% in 2019 to 2020.
There are concerns as to how opt-out figures may change now that the furlough scheme is ending. Laura Suter, head of personal finance at AJ Bell, says the furlough scheme ending is expected to lead to a rise in people being made redundant. “Even the bosses at the Bank of England are expecting a spike in unemployment as the scheme is wrapped up,” she said.
New research by the Institute for Fiscal Studies has shown some concerning trends affecting the over-60s. Among the over-60s made redundant during the pandemic, just over half were not in or searching for work six months later, compared to 38% three years before the pandemic. This has caused concern about whether older workers made unemployed after furlough will drop out of the labour force altogether.
“Clearly being made redundant as prices are rising, benefits are being cut and after seeing a cut to wages from being on furlough isn’t great timing for anyone. The silver lining is that there are lots of job vacancies out there, so the hope is that people can find alternative work swiftly,” Suter said.
Londoners impacted the most
The IFS also found that during the pandemic, Londoners have suffered from higher rates of redundancy, lower rates of re-employment after redundancy, and lower growth in vacancies. Only 44% of Londoners made redundant during the pandemic had found new work within six months compared with 58% in the rest of the UK.
“We are used to the labour market in London doing well. It is the highest-paid region, and had considerably higher employment growth between 2007 and 2019 than the national average. But despite the protection of the furlough scheme, the pandemic has hit London hard,” said research economist at the IFS, Adam Salisbury.
The worry is that there won’t be enough support for those relying on furlough and other support such as the £20 uplift in Universal Credit. This could also prevent employees saving for retirement as they focus on trying to adjust to these changes.
“With this support now coming to an end, some workers will face precarious financial circumstances, especially as a large proportion of those still on furlough are the sole earners in their household,” said Mark Franks, director of welfare at the Nuffield Foundation, which funded the IFS research.
“It is important that the government understands which groups and individuals will be most impacted by the withdrawal of the furlough scheme and ensures support is in place for those needing to find new work,” Franks said.
Today, the government announced a new Household Support Fund of £500m. This fund aims to help vulnerable households across the country with essentials over the coming months as the country continues its recovery from the pandemic. This includes, for example, small grants to meet daily needs such as food, clothing, and utilities.
“Our new Household Support Fund will provide a lifeline for those at risk of struggling to keep up with their bills over the winter, adding to the support the government is already providing to help people with the cost of living,” said chancellor Rishi Sunak.
The fund will run over winter, with money made available to local authorities in October this year.
How can pension schemes encourage people to continue to contribute to their pension once furlough ends?