Workers saving less into pensions

Sales of investment fund ISAs hit a three-year high

Consumers are shunning pensions in the face of investment volatility and the current economic uncertainty, figures show.

The amount of money people saved on a regular basis into personal pensions held with insurance companies dropped by 11% during the first quarter of the year, compared with the same period of 2008.

A total of £751 million was invested in the schemes during the three months, the lowest level since the third quarter of 2006, according to the Association of British Insurers.

The drop in pension saving was even steeper for lump sum investments, which tend to be more volatile, with these falling by 28% year-on-year to £3.45 billion.

Saving for retirement through company pension schemes invested with insurers also fell during the first three months of the year, with workers putting £175 million in the schemes, 14% less than during the same period of 2008.

Unsurprisingly, volatile investment conditions also led to a fall in the amount of money people saved with insurers, such as through with-profits bonds and unit-linked bonds.

Regular premium savings and investment business was 16% lower than a year earlier, with £17 million invested during the three months, although the figure was a slight improvement on the final quarter of last year.

The value of lump sum investment business dived by 58% year-on-year, and by 20% compared with the previous quarter, to £3.03 billion, a level last seen in the first quarter of 1997.

The only area of business that saw an increase was people converting their pension pots into annuities and drawdown policies, with sales in this area rising by 2% to £3.42 billion.

An ABI spokesman said: "It is not surprising, given the economic circumstances, that new business is down - this is the usual pattern in a recession. On the investment bond side, the effects of the recession have been exacerbated by ill-considered changes to the capital gains tax regime."