Pensions  

Auto-enrolment opt-out declines year-on-year

Auto-enrolment opt-out rates have declined year-on-year, suggesting that auto-enrolment for smaller businesses is on track, a department for work and pensions report has shown.

The 10-page publication, Auto-Enrolment Opt-Out Rates: Findings from qualitative research with employers staging in 2014, showed the opt-out rate of a sample of 7,200 employees, who staged between January 2014 and July 2014, was 4 per cent – a drop of 5 per cent year-on-year.

The report stated: “It appears that opt-out rates are remaining stable around one-in-10, which could suggest that employer size is not a major factor in opt-out rates.”

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This bodes well for small and mid-sized employers, who are staging in 2015, Darren Philp, director of policy at the People’s Pension, said, adding: “AE is still on track. Opt-out rates remain impressively low, and participation rates are improving. Encouragingly, the data also suggests those trends are set to continue as smaller employers start auto-enrolling.”

Women were more likely to opt out, with a rate of 14 per cent. However this could be because they are more likely than men to work part-time.

Part-time workers were more likely to opt out than full-time counterparts, with an 8 per cent difference, according to the research.

Mr Philp added: “Clearly there is 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.”

Smaller employers should prepare early and communicate AE clearly to workers, was the advice given in the study.

As of October 2014, more than 4.8m people were auto-enrolled into workplace pension schemes. The next staging date is in June 2015, for companies employing 30 or fewer employees.

Meanwhile, Ian Gutteridge, director of pension benefits for wealth management firm Premier, has said that The Pension Regulator’s recent issuing of fixed penalty fines for firms failing to auto-enrol in time marked a new phase of regulatory intervention in the pensions industry.

He said: “Many businesses still believe they can wait until one or two months prior to their staging date before considering what scheme to have in place. But they need to be ready to avoid the risk of receiving fines from TPR.”

Key points

- 44% were in a pension scheme before AE

- 35% have been auto-enrolled

- The 12% of opt-outs were from the new auto-enrolled employers.

- 23% of the opt-outs were aged 50 and over.

- 9% of the opt-outs were between 30 and 49.

Source: Survey conducted by DWP among 7,200 employees.

Adviser View

Gary Dunn, partner at Preston-based True Potential Wealth Management, said: “This is good news, and positive statistics. Those who opted out possibly did so before they were aware of the pension legislation or were under the impression they could get a small annuity. It is a different scenario now.

“Also the larger companies are more likely to pay better salaries than the smaller ones, so we might see a rise in opt out when they start staging.”