9th August 2013
The vast majority of employees are opting to contribute to the new workplace pension scheme defying expectations that nearly a third would actively decide not to join.
Opts outs from the new workplace pension system are running at nine out of a hundred employees suggesting that the reform is being much more successful than some experts predicted. Employees have to actively opt out of the pension or they will be signed up automatically. Figures from the Department for Work and Pensions suggest that most employer schemes experienced an opt-out rate of between 5% to 15%.
Even among employers who had previously used auto-enrolment programmes with contractual rather than statutory auto-enrolment, participation rates have still increased, from 90% up to 96%. The highest level of opt outs is among the over 50s.
Tom McPhail, head of pensions research at Hargreaves Lansdown says: “These early results are encouraging. However there is still a great deal of work to be done. The largest employers were always likely to produce the best results so the real challenges still lie ahead. By the end of 2014 we’ll have a much better idea of whether we really are getting to grips with the pensions crisis.”
The firm has put together what it calls the 5 auto-enrolment challenges. These are as follows –
1. Increasing contribution rates. All the research shows that current pension contribution rates are insufficient to deliver an adequate retirement income. We still haven’t averted the pension crisis, yet.
2. Maintaining high participation rates among smaller employers. Big companies tend to do pension communication well; it will be a challenge for smaller employers to match these good early results.
3. Encouraging the over 50s in particular not to opt out. They will still benefit from the employer contribution and if they are first time savers they can potentially use the trivial commutation rules to have their pension back as a lump sum.
4. Encouraging opt-ins. 1.7 million workers are missing out on auto-enrolment because they don’t fit the criteria. As well as discouraging opt-outs, we need to do everything possible to encourage opt-ins.
5. Getting through the bottle-neck. 29,000 employers will hit their staging date in the first half of 2014, it is still not certain that they are all doing the forward planning work with payroll and pension providers to ensure that it all works smoothly. It is also not certain that there is sufficient provider capacity to meet this impending demand.