A tricky course to navigate.
Whatever is written about pension saving over the past 12 months needs to written in pencil, with the option to rub-out and replace where offence is incurred.
That’s because generalizations about people’s capacity to save right now are as likely to offend for whom the impact of the pandemic has been financial meltdown as annoy those awash with unspent cash,
Many have lost their livelihoods and are living off Government funded furlough payments; payments for universal credit have shot up to support new claimants who have only the £2o pw UC crisis payment to cushion the impact of unemployment. The FCA reports today that those considered “financially vulnerable” has increased by 15% since the outbreak of the pandemic,
It is generally accepted that less of us are in work and assumed that the pandemic will dent confidence in long-term savings, but such generalizations undershoot the financial impact of the pandemic on most UK households for which lockdown has been financially positive.
For most people, the pandemic has seen spending fall with no commensurate drop in income. The capacity to save has increased and for many people that appears to mean increasing discretionary spending on retirement.
New. Half the UK has seen seen no adverse financial impact from Covid. The other half are cutting back, losing income and increasing debt. Same storm. Different boats.
— Alistair McQueen (@HelloMcQueen) February 11, 2021
So Nest Insight’s comments on “the resilience of auto-enrolment” are as likely to annoy the mass affluent (awash with unspent cash) as those struggling to pay the monthly bills.
For all that, the publication of its study “Retirement saving in the UK 2020” is timely and helpful to those in Government worried that the pandemic has derailed the savings revolution that is “auto-enrolment”.
The report’s main findings suggest continuity not disruption
At the start of the pandemic, many feared that pension savings would reduce as people stockpiled cash – as they stockpiled toilet rolls
This fear has turned out to be largely groundless. Even at Nest where financial vulnerability is at its most acute, the pandemic has had relatively little impact,
- As at 31 March 2020, opt-out rates remained low at under 8%.
- During the first six months of the 2020/21 fiscal year, opt-out rates increased to 11%.
- There were no significant changes in average contribution levels between April 2020 and September 2020.
- The majority of members have continued to save, with around one fifth contributing more than the minimum contribution rate.
The story is one of continuity. Even through turbulent times, members have continued to save in the same way with the default options still overwhelmingly the most used.
Nest has 9.5m savers opting in to retirement savings, 870,000 employers “chose” Nest as their workplace pension .
At the end of September 2020, the median pension pot balance in Nest was £606 and the mean was £1,475. As might be expected, balances are higher among members who are still actively contributing into their accounts, with a median of £1,614 and a mean of £2,440.
These amounts may seem small but they are meaningful savings to Nest’s membership which has an average salary of £21,000, is younger than average and has a high number of first time savings.
The wider picture suggests this is boom-time for saving
Evidence from other sources suggests that the resilience of auto-enrolled savers is matched by those reaching retirement
New pension freedom data out today. Total taxable payments have breached £40bn, to £42bn. Positively, no evidence of a “dash for cash”, despite the economic downturn. Average payments in Q4 2020 were an all-time low. Well done, savers! https://t.co/GJgXifqAWv
— Alistair McQueen (@HelloMcQueen) January 29, 2021
The general picture is positive with around one in five Nest savers choosing to make payments above the minimum they had to. A quarter of a million Nest Savers have opted in to saving rather than being auto-enrolled and while Nest has failed to win the hearts and minds of the self-employed, it looks likely to become a well-loved institution for long term savers
It is good to see that their savings are being put to good use.
As at 30 September, all Nest funds were performing above their benchmarks – some significantly so.
And it is good to see Nest looking to make people’s money matter through purposeful investment decision making, good governance and a commitment to help meet our goals on carbon emissions.
It seems that we want to save and save for the long term – let’s take courage from saver’s conviction.
Let’s put pensions on the front foot.
There is no evidence of mass opt-outs from workplace pensions. There is no evidence of a dash for cash amongst the over 55s. There is evidence that many people have more money in their pockets for not spending during lockdown and there is a strong argument that more money should be in retirement pots than is currently the case.
Pension provider’s websites are covered with banners appealing for our consideration of the impact of the pandemic on their staff. This is the wrong message for 2021. The message now should be that the pension savings industry is open for business and is keen to put savers money to good use.
Nest’s survey comes at the right time and delivers the right message. The pandemic is making us think about life and death issues and just as we mourn the 100,000+ excess deaths we now look at life as there to be lived.
For many of us that means thinking about the future in a new way, emancipated from many of the traditional conceptions of work. Pensions should be part of our new way of thinking, they could and should be our way to afford to stop working. Pensions can give us that freedom and we should be encouraging people to use their pension more.
Thankfully, for the 9.5m savers in Nest , the future is bright and the future’s orange!
