Out-Law News 3 min. read
09 Aug 2013, 2:10 pm
Research conducted by the Department for Work & Pensions (DWP) has found that an average of just 9% of people employed by the 50 biggest UK employers who were automatically enrolled into a workplace pension scheme have opted out of those savings arrangements.
It had been anticipated that 30% of all staff eligible for auto-enrolment would be likely to opt out of their workplace pension scheme, according to previous DWP research.
Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, described the opt out rates (8-page / 52KB PDF) as "encouraging" but warned that staff employed by smaller companies may take greater persuading over the pension savings options chosen by their employers.
"We mustn’t forget that the experience of the large employers that have already auto-enrolled their staff may not be matched by that of the smaller employers still due to go through the process," Tyler said. "Smaller employers’ member communications may be less sophisticated, and workers for smaller employers may have less confidence in their employer choosing the most appropriate pension scheme for them."
"If auto-enrolment is to be the success the Government and the pensions industry are hoping for, workers’ confidence in pensions must be maintained. Work currently being undertaken by the DWP, the Pensions Regulator and the Office of Fair Trading (OFT) aimed at insuring workers are enrolled only into quality schemes will play an important role in keeping opt-out rates low," he added.
Auto-enrolment is a pension savings scheme set up by the Government in a bid to boost the extent to which people save for retirement. It began operating in October last year. Since then some of the UK's largest companies have begun automatically enrolling eligible staff into either workplace pension schemes that meet minimum requirements or the Government-backed National Employment Savings Trust (NEST). Under the scheme, employers are legally obliged to make contributions towards the pensions of workers automatically enrolled into saving. Workers are able to opt out of those schemes.
The date on which smaller businesses have to comply with the auto-enrolment regime depends on the number of people they employ. A number of 'staging dates' running from 1 October 2012 through to 2018 have been set. Approximately 11 million people are expected to be eligible for auto-enrolment by 2018, according to Government estimates, with the majority of that number being new savers.
"Seeing our largest employers report such low opt out rates bodes well for this ambitious programme, which will see millions more putting money aside for the future," Pensions Minister Steve Webb said. "Too few people have been saving for retirement. It is all too often something to be put off, something for tomorrow. These figures show that people really value the chance to save into a workplace pension as they know they will also get money from their employer and the taxman too."
"The sooner people start a pension the better, and this report shows that young people are keen to take charge and plan for their future," he added.
The OFT is currently conducting a market study into 'defined contribution' (DC) workplace pension schemes which are expected to be widely used by companies seeking to comply with the auto-enrolment programme.
Last month the OFT outlined some preliminary concerns it has about DC workplace schemes. It said that savers in some schemes where financial advisers are paid for making recommendations about pension investments through in-built commissions may not be receiving value for money from those arrangements.
The regulator also said that some companies may have insufficient "governance over the performance of some schemes ... to ensure that scheme members are getting the best possible investment outcomes" and that some of the DC schemes it analysed may not be able to be scaled sufficiently to deliver value for members. In addition it raised concerns with the ease with which charges imposed by pension scheme providers could be compared because of the way those charges are presented.
The Pensions Regulator, which is responsible for tackling non-compliance with the auto-enrolment rules, earlier this year consulted on new standards for DC pension schemes and has issued guidance to help businesses select good quality pension schemes. The Pensions Regulator will also oversee compliance with rules introduced by the Government that will require the automatic transfer of individuals' pension pots between employers' workplace schemes when those individuals change jobs.