Positive trends in the UK defined contribution (DC) pension market have continued despite the volatility seen in the markets amid the Covid-19 pandemic, with aggregate DC assets growing from £471bn in 2020 to £490bn in 2021, according to industry research.

The DC Future Book report, from Pensions Policy Institute (PPI) and Columbia Threadneedle Investments, found that there were around 13.7 million active members in DC workplace pension schemes in the year to June 2021, with 8.7 million of these in master trusts.

The median DC pot size has also increased by £1,800 between 2019 and 2020 to £11,400, continuing a positive trend with existing members being enrolled for a longer time, with the median DC pension pot at state pension age standing at £38,400.

It also found that around 10.5 million employees were automatically enrolled by 98 per cent of employers, equal to around 1.87 companies, which is nearly twice as many employees as those recorded in 2015, 5.4 million.

In contrast, the number of employees found ineligible for automatic enrolment grew to 10.1 million, compared to 9.8 million in 2020, which was attributed to the impact of Covid-19 and employees earning less, working part-time or being on furlough.

The number of DC pots accessed, meanwhile, has decreased by 36 per cent, falling from 433,000 in 2019 to 277,500 in 2020, with a “marked fall” also seen the number of pots being fully withdrawn, falling to 134,500 in 2020 compared to 252,000 in 2019.

The report suggested that this could be as a result of savers being more cautious about accessing savings during a period of volatility, although it also noted that partial withdrawals have increased from 222,000 in 2019 to 232,000 in 2020.

If trends continue as they currently are, the report predicted that there could be 15 million active DC savers by 2041, and aggregate assets in DC schemes could grow to around £995bn and median DC pots could grow to around £63,000.

The firms warned, however, that the unprecedented volatility should encourage DC schemes to assess the resilience of their default funds, allowing them to derive and implement suitable measures to improve member outcomes.

Commenting on the findings, PPI senior policy researcher, Lauren Wilkinson, said: “The long-term nature of pension investments, and the pragmatic approach taken by many DC schemes and savers in response to uncertainty and volatility, mean that the DC schemes have been less impacted than other areas of the economy and society more broadly.

“However, it remains to be seen what the longer-term impacts of the pandemic will be on investment, employment, policy and individual saving behaviours.”

Columbia Threadneedle Investments EMEA head of distribution, Michaela Collet Jackson, added: “While the Covid-19 pandemic has had a major impact on societies and economies, it did not halt positive trends we have been seeing in the UK DC market for some time, including growth in aggregate assets and median DC pot sizes.

"Similarly, due to DC schemes’ long-term investment horizons and diversified portfolios they withstood the market volatility and protected their members, a large proportion of whom are invested in default funds.

“However, this is not the time for complacency. A prolonged market downturn could have resulted in a far worse outcome for DC scheme members and their nest eggs."

Given this, Collet Jackson encouraged pension trustees to use the experience of Covid-19 as an opportunity to work even more closely with their advisers and asset managers to assess the resilience of their schemes’ default funds.

She also emphasised that the Covid-19 has heightened awareness of environmental, social and governance (ESG) factors, particularly around social issues such as health and labour practices.

"This shifting emphasis among investors highlights how rapidly ESG issues can evolve, underscoring the importance of trustees being both proactive and flexible in their approach to responsible investment considerations," she continued.

"Reviewing investment strategies is a complex task, but we believe valuable lessons can be learnt to support DC schemes to emerge even stronger post Covid-19.”

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