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Government slashes forecast for auto-enrolment opt-outs

Government slashes forecast for auto-enrolment opt-outs

Government slashes forecast for auto-enrolment opt-outs

But experts warn that ‘opt-out figures don't tell the whole story’

The Department for Work and Pensions (DWP) has cut its forecast of how many people it expects to opt out of auto-enrolment into pension schemes by half, from 30% to 15%.

This revision increases the number of new pension savers as a result of auto-enrolment from 8 million to 9 million.

The change comes after DWP data revealed opt-outs from the largest schemes were lower than expected at between just 9% and 10%.

Minister for pensions Steve Webb said: “Automatic enrolment is proving significantly more successful than previously predicted. With opt outs remaining low we now expect 9 million people will be newly saving or saving more as a result of our reforms.”

Commenting on the revised forecast, Tim Jones, chief executive of the National Employment Savings Trust (Nest), said: “If these predictions are correct it’s very promising news for future generations of pensioners, who’ll be better off as a result. A workplace pension is a great helping hand for the future and it’s encouraging to see this message getting through. Our current opt out figures are around 7% and hopefully they’ll continue to stay low.”

However, independent financial service providers Hargreaves Lansdown warned that the number of official opt-outs don’t tell the whole story. The provider said in this context an ‘opt-out’ refers to someone who stops pension saving within one month of being auto-enrolled. But people who decide to stop after this period are not counted. The provider recommended that the opt-out figures should be checked against the number of active pension savers, to give a truer picture of how many people could be slipping through the net.

Laith Khalaf, head of corporate research at the financial services specialist, said: “The DWP may be counting their chickens before they are hatched. Early signs from the auto-enrolment programme are encouraging, but much of the heavy lifting still needs to be done.

“In particular as smaller and medium-sized companies start to auto-enrol, opt-out rates may grow. Likewise as auto-enrolment contributions rise above 1% of salary from 2017, employees may start to flinch at more of their pay packet going into a pension.”

Khalaf said that employers needed to help employees understand why they are paying into a pension or they could lose out in the long-term.

“Employers can achieve this by supplementing auto-enrolment with financial education in the workforce, to explain to members how much they should be putting away for retirement, and how to make the most of the savings they have made,” he added.

Figures from The Pensions Regulator, recently released, show 3.2 million have been enrolled into a pension and nearly 11,000 employers have now registered.

Government research also found that the percentage of private sector employees who are members of a pension scheme rose from 26% in 2011 to 35% in 2013.

Petaurum Solutions Comment

With the staging dates for many SME’s now coming thick and fast, it’s important to ensure businesses have robust plans so that Auto Enrolment obligations can be met.  Whilst compliance is non-negotiable, there are ways to embrace Pensions Auto-Enrolment and gain a boost to your employer brand, helping to attract and retain talent.  It need not be seen as just an additional overhead cost either, as there are ways to offset some of these costs such as looking at pensions salary sacrifice or simply looking at internal processes and systems to make efficiencies in time and cost

As an SME, having a trusted partner alongside you early in your Auto Enrolment implementation that not only understands the pensions market, but as importantly, fully understands both the legal and HR implications and how to engage employees, will prove invaluable to keep you on track to stage.  This will help to bring your employees along on the journey and deliver a solution that is right for your business and compliant with the Regulator. With many years of experience, and a great all round SME solution with little up front costs and 36 months flexible payment plans to help you plan cash flow we are sure we can make your enrolment an all round success. Contact us to find out how we can help.

This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal, HR or benefits advice in any specific situation. Petaurum Solutions is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website.

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