The DWP has produced its first research on opt-rates rates amongst employees who have been auto-enrolled. This question of opt-out rates will be of critical interest over the next few years as the whole point of the auto-enrolment programme is to increase participation rates in workplace pensions.
- · Opt out rates have averaged 9% across the employers in the study (in other words, for every 100 employees put into a pension, 9 chose to leave again)
- · Most employers experienced opt-outs in a range of 5% to 15%
- · These results are significantly better than the pre-event forecasts which had predicted opt-out rates of up to 30%
- · Even among employers who had previously used auto-enrolment programmes (using contractual rather than statutory auto-enrolment), participation rates have still increased, from 90% up to 96%.
- · Highest opt-out rates are among the over 50s
Tom McPhail, Head of Pensions Research, Hargreaves Lansdown: ‘These early results are encouraging however there is still a great deal of work to be done, the largest employers were always likely to produce the best results so the real challenges still lie ahead. By the end of 2014 we’ll have a much better idea of whether we really are getting to grips with the pensions crisis.’
The 5 auto-enrolment challenges
1. Increasing contribution rates. All the research shows (including Hargreaves Lansdown’s own data) that current pension contribution rates are insufficient to deliver an adequate retirement income. We still haven’t averted the pension crisis, yet.
2. Maintaining high participation rates among smaller employers. Big companies tend to do pension communication well; it will be a challenge for smaller employers to match these good early results.
3. Encouraging the over 50s in particular not to opt out. They will still benefit from the employer contribution and if they are first time savers they can potentially use the trivial commutation rules to have their pension back as a lump sum.
4. Encouraging opt-ins. 1.7 million workers are missing out on auto-enrolment because they don’t fit the criteria. As well as discouraging opt-outs, we need to do everything possible to encourage opt-ins.
5. Getting through the bottle-neck. 29,000 employers will hit their staging date in the first half of 2014, it is still not certain that they are all doing the forward planning work with payroll and pension providers to ensure that it all works smoothly. It is also not certain that there is sufficient provider capacity to meet this impending demand.