Auto-enrolment hike impact will be hidden for months

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Auto-enrolment hike impact will be hidden for months

The impact of the increase in auto-enrolment minimum contributions won’t be known for months, as The Pensions Regulator (TPR) is only now starting to collect data on employee drop out rates.

The pension contributions under auto-enrolment are rising today (6 April) from 2 per cent to 5 per cent.

One year later, it will increase again to 8 per cent.

But according to a spokesperson at the pensions watchdog, it will take some time for the regulator to get sufficient data to be able to know if savers have dropped out of their workplace pension schemes as a consequence of these hikes as has been feared.

This is because up until now the regulator had not been collecting data on the number of employees who have chosen to leave their workplace pension scheme after the six week 'opt-out' window.

He said: “The process of collecting data has begun, but it will likely take a number of months before we can draw a meaningful conclusion.”

A spokesperson at the DWP said: “We closely monitor the impact of automatic enrolment including the effect of increasing minimum contribution rates.”

Cessation data - drop out rates - is different from opting-out, with the latter, which is counted, referring to a six-week window when a member is first auto-enrolled in the scheme and has the choice to leave and get all his contributions back, which is already monitored by TPR.

The only data regarding cessation rates – when members decide to stop saving and leave their scheme – was published in the government's auto-enrolment review, published in December.

According to the document, 16 per cent of savers have ceased their contributions. But this is arrived at using a sample, rather than comprehensive data.

There are now more than nine million people auto-enrolled in a workplace pension scheme, according to figures from The Pensions Regulator.

Darren Ryder, TPR’s director of auto-enrolment, said last month that the regulator is working with the Department for Work & Pensions (DWP) to collect this information.

He said: "We are making sure that we are monitoring that - we will be gathering data from HMRC and through our relationship with some of the main schemes being used for auto-enrolment."

Adrian Boulding, director of policy at provider Now: Pensions, told FTAdviser that cessation rates will become more relevant than opt-out ones.

He said: “As we go forward, the only people that will be automatically-enroled are going to be new employees, or those who reach age 22, or had a promotion and reached earnings of £10,000 a year. That is probably a small minority of the employers’ workforce.

“Whether in any point in time, their entire workforce is at risk of making a decision that they don't want to be part of the pension scheme anymore and ceasing contributions.”

At the moment, and according to Now: Pensions own data, roughly 5 per cent of staff per year are ceasing contributions, Mr Boulding revealed.

The provider, with 1.5m members, will be sharing their data with the regulator and DWP, he concluded.

maria.espadinha@ft.com