PensionsMay 29 2013

Communication key to auto-enrolment: Legal & General

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Despite worries of up to 30 per cent of workers opting-out when auto-enrolment was implemented, initial signs show far greater success.

Food retailer Asda, which was one of the first firms to enrol its employees, has reported an opt-out rate of

8 per cent, while John Lewis saw just 3.2 per cent decide not to enrol in its pension scheme. The figures follow Nest’s early indication of a 10 per cent opt-out rate.

However, engagement with older age groups remains an issue. Legal & General, which has auto-enrolled around 250,000 employees, said opt-out rates are fairly consistent across all age brackets except for those aged 50 and over, and more markedly so for those older than 60.

Adrian Boulding, pensions strategy director for L&G, said employees closer to retirement are missing out even if they do not plan to purchase an income at retirement.

Those close to retirement may choose not to save because the pot would be too small to convert into a meaningful annuity, which is understandable logic. However, if their total pension savings totalled less than £18,000, they would be entitled to trivial commutation.

Mr Boulding said that employees opting out of auto-enrolment are losing out on employer contributions, which would contribute to the trivial commutation pot.

But it is problematic to promote auto-enrolment on the basis of being able to withdraw the money as a lump sum on retirement; it goes against the key aim of the programme, which is to increase individuals’ savings and reduce reliance on the state.