Pensions  

Third of millennials to opt-out when auto-enrolment hits 8%

Third of millennials to opt-out when auto-enrolment hits 8%

Auto-enrolment is popular among millennials, with 71 per cent deciding to not opt-out after being enrolled, according to research from Royal London.

However, the scenario might change in 2019, when contributions reach 8 per cent.

According to the survey, if total contribution increased to 5 per cent - with a 3 per cent contribution from the employer and a 2 per cent contribution from the employee -, nearly three quarters (74 per cent) said they would continue to save in their pension.

But if the contribution is hiked to 8 per cent – five percent for the employee and 3 per cent for the employer, then the number of millennials prepared to continue to save dropped to nearly two thirds (62 per cent).

Hugh Nolan, president of the Society of Pension Professionals, argues that this research “is a classic example of a glass half full”.

He said: “Younger workers do seem to be happier to save than we have feared, but there is still serious cause for concern. More than a third of millennials say they would opt out of a pension with contributions at the planned auto-enrolment level.”

According to Mr Nolan, “the huge success of auto-enrolment to date would be massively undermined if opt out rates rose to this level”.

Auto-enrolment was officially launched in October 2012 and by 2018, when the roll-out is complete, it is expected that up to 11m people will be newly saving into a pension or saving more as a result.

Mr Nolan said: “Pension contributions remain inadequate and the state pension is unsustainable. Young workers face a ticking time bomb of paying for higher benefits for current pensioners than they will ever receive themselves.”

Despite the opt-out rates in an 8 per cent scenario, half of the millennials said their pension was a high priority.

Three quarters of the respondents with a pension said that they would increase their pension payments automatically in line with a pay rise.

Andy Tarrant, head of policy and government relations at The People’s Pension, said: “Whilst it is encouraging news that millennials currently seem to be engaged with automatic enrolment, we cannot assume this is enough.”

He added: “It should be a no-brainer to save into a scheme where your money is doubled by contributions from your employer, even before any investment returns.

“But we need to ensure that the right incentives are in place to keep people saving, ideally increasingly, as they transition into further life stages and earn higher wages. It’s a good starting point to get people saving; it’s another challenge to make sure they save enough."

According to Billy Burrows, director of Retirement IQ, “young people struggle to save when they are preoccupied with student debt, housing costs and living costs”.

He said: “Saving through workplace pensions makes sense for most millennials and providing their incomes are rising the automatic increases in contributions is probably hardly noticed.”