Auto-enrolmentJun 7 2018

Auto-enrolment hike has minimal effect on opt-outs

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Auto-enrolment hike has minimal effect on opt-outs

The increase of auto-enrolment minimum contributions in April had a minimal effect on the number of workers leaving their pension schemes, according to data from provider Now: Pensions.

The workplace pension scheme - the third largest auto-enrolment provider in the country, with more than 1.5m members – saw its opt-out rates increasing from 7.98 per cent to 8.18 per cent in that month.

Auto-enrolment minimum pension contributions increased in April, from 2 per cent to 5 per cent. In 2019 they will increase again to 8 per cent, with the employee paying 5 per cent.

Despite the increase in opt-out rates, the increase in April of the National Living Wage from £7.50 to £7.83 for over 25s brought new savers to auto-enrolment – which currently has a minimum threshold of £10,000.

Due to this, an additional 32,777 people joined the Now: Pensions’ scheme between April and May, increasing the provider’s member numbers to more than 1.7m.

Adrian Boulding, director of policy at Now: Pensions, said early indicators on the auto-enrolment hike were "very positive".

He said: "Despite the increase, most auto-enrolled savers seem to be sticking it out, with opt-out rates remaining close to 8 per cent.

"For the lowest earners, the increase in the National Living Wage coupled with the increase in the personal allowance will have cushioned the impact on take-home pay.

"Over the next couple of months we should get a much clearer idea of whether there is any real change to opt out rates and cessation rates.

"The bigger test will be next April when the increase is likely to be more keenly felt."

The data from Now: Pensions included opt-out and cessation rates.

Cessation data is different from opting-out, 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 monitored by The Pensions Regulator.

The only data regarding cessation rates – when members decide to stop saving and leave their scheme – was revealed in the government's auto-enrolment review, published in December and showed 16 per cent of savers ceased their contributions.

The pensions watchdog has started contacting providers to collect data on cessation rates.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said the evidence coming from workplace pension providers was that opt-out rates remain subdued which he said was great news for the UK’s retirement prospects.

He said: "It is too soon to demand further rises to minimum contributions, we first need to see how the increase to 8 per cent of pay affects things in April 2019. Our research already shows that with careful communications half of people are prepared to pay more than the minimum anyway.

"Overall the signs look good that the solid foundations are being built for people’s successful long term saving."

maria.espadinha@ft.com