Young workers in small and micro businesses are less likely to opt out of auto-enrolment than older workers, despite there being a sense they won’t stay in a job for long, the government has found.
A report carried out by Ipsos MORI on behalf of the Department for Work and Pensions (DWP) published today (20 June) identified a group of young people it called the ‘transitory young’ - people who were considered more likely to opt out of a workplace pension because of their frequent job moves.
Despite this, it found the younger age group as a whole (22 to 29 year-olds) and those who have been in their jobs for less than a year, were among the least likely to actually opt out.
It was the older age groups (aged 40+) who were most likely to opt out, the report stated.
The survey covered employers who had automatically enrolled their staff into a qualifying workplace pension scheme between
September 2016 and March 2017, and their experiences of this process.
The government classed small employers as those with five to 29 workers and micro employers as those employing one to four workers.
Overall, it found an average of more than eight in ten eligible workers (85 per cent) from small and micro organisations stayed in their workplace pension scheme, while 14 per cent opted out within a month.
A further two per cent initially stayed in, but then ceased contributions after a month.
Although opt-out rates were, on average, higher in micro organisations than in small ones, 83 per cent of people aged 22 to 29 stayed auto-enrolled in the smallest businesses, alongside 66 per cent of the 40-49s and 64 per cent of those aged 50-59.
The opt-out and cessation rates in this survey differ from those in the 2017 Employers’ Pension Provision (EPP) survey, which was also carried out on behalf of the DWP and found opt-out rates of nine per cent among all employers and ten per cent specifically among micro employers.
The DWP explained there would have been a very short period of time between implementation of automatic enrolment in early 2017 and the survey interview from July to October 2017 for some of these employers, which could skew the figures.
The DWP’s qualitative research found prominent reasons for workers opting out of a workplace pension scheme included them not thinking they could afford to save for retirement, or expecting that other provision would provide for them.
Some older workers were also opting out because they felt they had sufficient existing pension provision or investments.
Part-time workers were more likely to opt out, as were the highest and lowest earners, older people and those who had worked at the employer for a longer period.
The data quoted in this survey shows the average (mean) percentage of all workers in small and micro firms who opted-out or ceased contributing.
This is different to the average opt-out rate across small and micro employers, which can be slightly higher.
The DWP found a clustering at either end of the scale with three in five employers (63 per cent) having no eligible workers opt out and 14 per cent having a majority of their staff opt out.
It said this was to be expected given that the survey covered only the smallest employers.
Minimum auto-enrolment contribution rates went up in April, creating a fear more people would chose to opt out.
The rates went up to 2 per cent employer contribution and 5 per cent overall and will go up further next April to 3 per cent employer and 8 per cent overall.
But provider Now: Pensions said the concerns were unwarranted.
The workplace pension scheme - the third largest auto-enrolment provider in the country, with more than 1.5m members – saw its opt-out rates increase from 7.98 per cent to 8.18 per cent in that month.
Adrian Boulding, director of policy at Now: Pensions, said the figures were good news but over the next couple of months the market should get a clearer idea of whether there is any real change to opt out rates and cessation rates.
"The bigger test will be next April when the increase is likely to be more keenly felt," he said.
Tom McPhail, head of policy at Hargreaves Lansdown, said the low opt out rates among the young were to be expected as young people realised the value of saving into a pension whereas older people might have given up on the idea.
He said: “Mostly young people understand they are going to need retirement savings and mostly they are happy somebody has organised it for them.
“Older workers have reached capitulation where they realise they are never going to have enough money in retirement and they’d rather have some more money to spend now.”
Mr McPhail also said the government needed to come up with a policy change to allow the ‘transitory young’ to take their pension with them when they change employer rather than having to open up a new one.
carmen.reichman@ft.com
