Pension opt-outs have not jumped since auto-enrolment rate rise

An article recently published by the Guardian newspaper reports that millions of low-income households have found extra cash to put into a pension in the latest success for the government’s auto-enrolment scheme, quelling fears that opt-out rates would jump after higher contributions began in April.

Nine million people have joined workplace pension schemes since auto-enrolment began in 2012. The scheme faced its first major test in April, when workers were forced to begin paying 3% of their salary into a pension, up from 1% before, with the option to drop out if they could not afford it. In 2019, the contribution rate will jump again to 5% of pay.

But analysis by Legal & General Investment Management found that since April, opt-out rates at workplace schemes it manages have not risen as anticipated.

“The experience across all our bundled clients has been similar, with opt-out rates showing no jump in April and May,” it said. LGIM cited one employer with 30,000 workers enrolled, where only 40 have opted to reduce their contribution rate to 1%.

Other providers reported similar figures. Adrian Boulding of Now: Pensions said: “We have seen no discernible impact from the higher contributions. For the two months after the minimum contribution increases, the underlying opt-out rate rose from 7.98% to 8.18% – just a 0.2% increase. Prior to the increases there were fears of a bigger spike.”

When the auto-enrolment started, the Department for Work and Pensions (DWP) projected that opt-out rates could be as high as 28%, but the most recent official data – recorded before the April contribution increases – showed overall opt-outs are running at about 9%.

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Julian Kaye Dip PFS