Fears about the long-term impact of COVID-19 underline the importance of financial resilience

Nest, the largest pension scheme in the country by number of savers and participating employers, has released new research which puts in stark relief the importance of financial resilience in both the short and long term. The data shows widespread concern about the long-term financial impact of COVID-19, as changes to the Job Retention Scheme begin to take effect.

With more than 9 million members, a weighted survey of Nest members can be reflective of a wider UK point of view. Nest’s latest Voice of the Customer research shows the vast majority (72 per cent) of Nest savers think COVID-19 will negatively impact their personal finances, with nearly half (47 per cent) believing the impact will be significant.

This is a slight improvement compared with research conducted in March where 80 per cent of Nest members reported thinking the pandemic would negatively affect them and 60 per cent thought the impact would be significant. Nest members who are furloughed reported higher levels of concern about their personal finances.

Just over a third (34 per cent) of furloughed Nest members report COVID-19 will impact their finances a great deal over a long period of time, compared to only 17 per cent of those still employed full time. Amongst those furloughed, 38 per cent say they are just making ends meet, 7 per cent are having to draw on savings and 10 per cent say they are running into debt.

Automatic enrolment was a revolution in creating long-term financial resilience. Capitalising on inertia, it brought millions of new people into pensions saving and reversed years of decline. Now, the financial pressures Nest members are facing underlines the importance of thinking more broadly about financial resilience in the short term as well as into retirement.

Nest Insight, the independent research unit set up by Nest Corporation, is leading a programme of research on these interactions. Working with industry, funding and academic partners, the Nest Insight team is currently running a UK research trial to test the impact of a combined savings tool, often referred to as the ‘sidecar savings model’. This is where a short term ‘emergency savings’ account is linked to a traditional defined contribution pension pot and contributions are made to both pots via employees’ payroll.

Commenting on the findings, Nest’s Director of Customer Engagement, Mark Rowlands, said:

‘While fears over the impact of coronavirus are still widespread, our research shows workers were feeling more positive in June, at the height of lockdown, than at the outbreak of the pandemic. This suggests the steps government took to support jobs and workers helped calm fears.

‘We are concerned the trends we are seeing among our membership highlight existing inequalities and reveal an uncertain future for a vulnerable section of the labour market.

‘The full impact on workers as the economy slowly recovers and the job retention scheme unwinds remains to be seen but the pandemic has shown us the importance of policy in helping secure short and long-term financial resilience.

‘Automatic enrolment transformed the UK’s pension saving landscape and we can learn from how it was developed and implemented to help promote shorter term financial resilience too. We will to continue to work together across all financial sectors, supported by government, to develop programmes which will explore how workers can be supported to build up short term savings as well as longer term pension pots.’

Nest has yet to see any significant changes in member behaviours due to COVID-19 – with opt-outs, cessations, and members accessing their savings at the same rate as in previous years. It is widely thought the full economic effects of the pandemic are still to be felt, and these rates may increase as a result.

COVID-19 is the first big shock to the automatic enrolment system. Long-term financial resilience through pensions savings is incredibly important and to reduce the impact on people’s long-term financial security, we would recommend restarting contributions as soon as possible once people are able to return to work as normal.

Notes to Editors:

• This research was conducted by Nest in the week of 15 June 2020, one month after the Job Retention Scheme was extended on 12 May.
• This Voice of the Customer research surveyed 1,737 Nest members. The data is weighted by registration and contribution status as well as gender and age to be reflective of the Nest membership.
• Nest was set up by the government to ensure every UK employer could offer a workplace pension to their employees.
• Since then, it’s grown to become the largest workplace pension scheme in the country with more than 9.2 million members.
• More than 820,000 employers use Nest. One in three of the working population is expected to have a Nest retirement pot by the late 2020s.
• As a not-for-profit pension scheme, Nest is set up to serve its customers’ interests and aims to help millions of people enjoy a better retirement. Nest’s members benefit from an award-winning investment strategy and one of the most diversified DC portfolios in the industry.
• Currently investing £12.3 billion on behalf of its members, by the end of the next decade Nest will have close to £100bn assets under management.