Findings from GlobalData’s 2021 UK Life & Pensions Survey reveal that 17.3% of furloughed workers have increased their pension contributions since the start of the COVID-19 pandemic. The survey found that furloughed workers tend to make pension contributions above the minimum rate.
Auto-enrolment requirements governing workplace pensions require pension contributions of at least 8% of qualifying earnings. Employees are required to contribute at least 5%, while employers must make contributions of at least 3%. When the COVID-19 pandemic first hit, the industry feared that a wave of employees placed on furlough would opt out of their pension schemes. Such individuals were likely to be stretched financially, as their wages were reduced to 80% of their usual salary.
According to our survey, most workers pay into their pensions above the employee minimum rate. 60.6% of adults indicated that they paid at least 6% of their income in pension contributions the previous month – above the 5% minimum. This proportion was highest among furloughed workers at 78.3%.
While the majority of individuals cited no changes to their saving behaviour since the start of the pandemic, the unemployed were by far the most likely to have reduced contributions towards their pensions. In contrast, furloughed individuals and those in full-time employment were most likely to have enhanced their contributions. Full-time employees who have worked from home because of the pandemic may have been positively impacted from a financial point of view, saving on commuting costs as well as socialising expenses during lockdowns. Some have clearly taken advantage of this to enhance their contributions.
Meanwhile, despite having their wage cut, some furloughed employees may be better off financially as a household. As well as reduced socialising and commuting costs, the wage reduction may have prompted these individuals to pay closer attention to their expenses. It is also worth noting that for furloughed employees, the 8% contribution rate is temporarily calculated on their reduced wage. These individuals may have voluntarily tried to make up this loss by increasing their personal contributions.
It is good news that furloughed employees have not opted out of their pension schemes en masse, given that a substantial proportion of the UK workforce has been placed on furlough. HMRC data indicates that a cumulative total of 11.6 million jobs were supported by the furlough scheme at some point between its inception and July 14, 2021. For most, private pensions are an essential source of income in retirement given that the state pension is insufficient to live on.