Low opt-out rate as staging dates approach for SMEs

The annual Scottish Widows workplace pensions study revealed that the government initiative has brought in 1m new pension savers from the employees of 250 of the UK’s largest businesses.

That figure is set to soar as the scheme captures smaller businesses in the next four years with staging dates for medium-sized businesses starting next year.

Statistics from the department for work and pensions, released in a consultation document in July, showed that 30,000 of medium-sized companies will join auto-enrolment in mid-2014.

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This will be followed by approximately 50,000 smaller and micro-sized companies which will be included before the full roll-out is completed in April 2017.

The government hopes that auto-enrolment will invigorate retirement saving after figures from the Office for National Statistics, published on 27 September, showed that the number of people contributing to occupational pension schemes had fallen to a record low of 7.8m.

In its own 26-page analysis, Scottish Widows estimated that auto-enrolment will add 4.3m people to the membership of workplace schemes within two years.

Awareness of the project among employees has increased from 39 per cent last year to 65 per cent, according to the report.

However providers and advisers have raised doubts on how well employers were prepared for the next wave of staging dates.

A report by the Centre for Economics and Business Research showed that 70 per cent of small firms have taken action, but 65 per cent of micro firms with fewer than 10 employees had not done anything.

Adviser view

Gordon Bowden, director of Buckinghamshire-based Quainton Hills Financial Planning, said: “The two main problems for the future of auto-enrolment are, first, the administrative burden that will be placed on small to medium-sized employers. We’ve only scratched the surface of this issue with larger employers going through the system so far.

“The longer-term issue is that employees have a false sense of security when they are enrolled into a pension, but their contributions are really not high enough.”