PensionsNov 24 2015

DWP chief admits large numbers could exit AE

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DWP chief admits large numbers could exit AE

The head of the Department for Work and Pensions has insisted that his staff will act to prevent people from opting-out of an auto-enrolment pension as the process continues.

Robert Devereux, the permanent secretary of the DWP, appeared before Parliament’s Public Accounts Committee today (24 November) and was grilled about opt-out rates for automatic enrolment.

The department has revised the headline estimated opt-out rate to 2018 from 28 per cent to 15 per cent, given lower than anticipated opt-outs so far.

But the department’s estimated opt-out rate for when contributions reach 8 per cent would also be 28 per cent, prompting questions about whether large numbers of people would leave with a small pot.

Conservative MP David Mowat asked Mr Devereux: “If you go from the 15 per cent you have got at the moment to the 28 per cent, and you have got about 9m in your scheme at the moment that means 13 per cent of that 9m will opt out, so 13 per cent of the 9m that started with you will opt-out if you end up meeting your revised benchmark.

“You have got a whole chunk of people who have started, who you are expecting to lose with your target, who will have started to auto-enrol and will have given up as it gets to higher numbers and will be left with a tiny pension that is worthless or very hard to use.

“The corallary of that is whether that is a problem to us in policy terms because these people might not be well paid, have joined something and couldn’t keep it up. Are we too casual to let them go?”

Mr Devereux agreed that Mr Mowat’s logic was “impeccable” but added there is a lot of uncertainty about how auto-enrolment will pan out in the future.

He said: “You are absolutely right that if the level of opt-out rises, then some of the people currently in (pension schemes) will depart.

“At that point some people will be automatically enrolled with a small pot and we will then have to think what we can usefully do with them.

“But there is an extent to which all these questions are perfectly valid but I could reasonably say they are second order questions compared with getting millions of people to save in the first place.”

He said the department is trying to make “very plain” to people what their expectations of their pension will be so they have a better sense of what their pension is actually worth and whether to continue to save.

Mr Devereux said: “There are a number of avenues open to us. I don’t want to give the impression that we’re not interested in keeping people in.”

On Friday 4 December at 12pm you can earn CPD by watching the latest half-an-hour long FTAdviser On Air, which is tackling the topic of auto-enrolment.

If you have any questions for our expert panel, which includes Nest, please email emma.hughes@ft.com.