Opt-out rates creep up to 12%: DWP

Opt-out rates for auto-enrolment have increased slightly from their low of 9 per cent to 12 per cent, new data from the Department for Works and Pensions has revealed.

A report published today (4 November) by the DWP found that of the 46 employers who supplied detailed opt-out rates, most individual employers had between 5 and 15 per cent of their workers opting out after being auto-enrolled.

The 2012/2013 employers’ survey found an average opt-out rate of 9 per cent. While there is a slight difference between the two figures, the DWP warned that both the 2012/13 and 2014 figures are from small samples so therefore have a “certain margin of error”.

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The report said: “It appears that opt out rates are remaining stable around one-in-ten, which could suggest that employer size is not a major factor in opt out rates, but this remains to be corroborated through surveying small and micro-sized employers implementing automatic enrolment in 2015.”

Opt-out rates were 23 per cent for workers over 50 years old, compared to 7 per cent for those under 30 years old and 9 per cent for those aged between 30-49.

Concerns about affordability was chief among the reasons as to why people were opting out, followed by feelings that they already had adequate retirement provision and that they were already close to retirement.

Some employees also stated that they thought the contribution rate was too low for the pension to adequately make a difference in retirement.

Workers citing this reason included those offered the statutory minimum of 1 per cent matched contributions, as well as those offered higher contribution rates (which tended to be between 2 per cent and 3 per cent), suggesting that a “certain number of workers would require significantly higher contributions to wish to remain in a workplace pension”.

Concerns about pensions as a savings vehicle were also flagged up. Workers citing this reason were sceptical about the rates of return offered by pensions, compared to other investments. These concerns often related to the long timeframe and lack of control over the investment of a pension fund.

Darren Philp, director of policy and market engagement at The People’s Pension, said: “The DWP’s research shows that auto-enrolment is still on track. Opt-out rates remain impressively low and participation rates are improving.

“Encouragingly, it also suggests those trends are set to continue as smaller employers start auto-enrolling their staff.”

However, he pointed out the next stage of auto-enrolment will be tough for employers and the number of companies staging from January 2016 will be a “huge challenge” for policymakers, regulators and providers.

Mr Philp added: “It’s interesting that some employees opted out because contributions were too low, while others were concerned about the affordability of contributions. Clearly there’s a delicate balance to be struck. People need to pay meaningful contributions to have a decent retirement income, but if contributions rise too quickly then this could lead to higher opt outs.”