Personal Pension  

AE opt-out rates will level at 15%: Deloitte

Current data revealing that auto-enrolment opt-out rates are 9 per cent are “artificially low” and it is likely they will level out at 15 to 20 per cent, Deloitte has said.

Recent separate data published by the National Employment Trust Savings and the Department for Work and Pensions revealed that current opt-out rates are 9 per cent.

In an interview with FTAdviser Andrew Power, lead RDR partner at Deloitte, said he believes this is “artificially low”, highlighting that only the bigger companies are so far auto-enrolled and that employee minimum contributions are only at 1 to 2 per cent.

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He said: “Obviously the amount that is actually deducted from salaries is very low, clearly they potentially could go up but the more driving factor is it’s likely to be the smaller companies who are potentially going to have more opt-outs either because a small company employer may be less keen on it.

“It doesn’t mean in any way they would tell people not to do it, but they may not promote it as much and also small companies often have more sort of quasi-part time workers, lower paid workers and less infrastructure to promote this.

“So I think undoubtedly it will go up in terms of the small companies. But I think what will be interesting is when the [contribution] rate goes up towards the 8 per cent. Will people who signed up when it was more like 1 to 2 per cent move out? I suppose the whole principal of auto- enrolment is a sort of inertia: once somebody has signed up they won’t sign off.”

Mr Power believes that once auto-enrolment is complete in 2018, when minimum total contributions are 8 per cent and all firms will be auto-enrolled, the opt-out rate will be around 15 per cent.

He said: “My guess would be it won’t be as high as 30 per cent but I think it will end up being 15 to 20 per cent because I say it could be 30 per cent amongst the smaller companies but the larger companies will promote it and get people in as what comes out of the payroll will be much less than otherwise.”

When asked whether the government should make pension saving compulsory, Mr Power flagged up that where it is compulsory, in Singapore, Australia and Chile, it has been “very successful”.

He said: “But I don’t think the political mood is right to do that and if opt-out stayed at 10 or even 15 per cent, I think people would say that was good enough.

“I think if opt-outs really were ending up to be 30 per cent as was previously forecast I think it might be a movement towards mandatory or something like that.”