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Early evidence shows workers have taken increased pensions contributions ‘in their stride’

20 Aug 2018 By Maggie Baska

Experts say exodus from auto enrolled pensions schemes is unlikely – but concerns remain over next year’s increase

Early figures on participation in workplace pensions schemes since April’s increase to minimum contributions appear to show that workers have taken the rises ‘in their stride’.

This April, the minimum contribution rates under pensions auto-enrolment rose from 2 per cent to 5 per cent, with the proportion employers are obligated to contribute increasing from 1 per cent to 2 per cent.

Figures obtained from the Local Government Association (LGA) and Local Government Pensions Committee (LGPC) by People Management under a freedom of information (FOI) request revealed that only 35 people opted out of their pensions schemes between 6 April and 5 July 2018.

As of 5 July, the LGA had 157 employees who remained with their pensions scheme, and the LGPC had 167 pensions members.

And Steve Webb, director of policy at Royal London, told People Management that evidence from the public sector was consistent with his firm’s experiences since April.

“Overall, the early evidence seems to have borne out my expectation that workers have indeed taken the contribution increase in their stride,” Webb said.

“It is worth saying that it may take a while before we know for sure what the impact of the April increase will be – if some people are going to quit the pension scheme in response, it may take them a while to do so, but I have seen no evidence that this is happening on a significant scale.”

People Management requested information from NEST, which administers auto-enrolment schemes, on the number of members who left their workplace pensions schemes during the same time frame. However, NEST said the information was scheme-related and not publically available.

Charles Cotton, the CIPD’s senior pay and reward adviser, said that a mass “exodus” from workplace pensions schemes would be unlikely because of behavioural science.

“Behavioural science predicted that the power of employee inertia would be unlikely to lead to an exodus from pension saving due to the increase in the minimum employee contribution levels in April, and this has been borne out by the findings,” Cotton said. “It also suggests that the next auto-enrolment contribution hike will also have little impact on the numbers saving for their retirement.”

Like Cotton, Chris Curry, director at The Pensions Institute, said that the principle of having to opt out of a system rather than join seemed to play an important role in the number of people remaining in their workplace pensions.

“Inertia still seems to be playing an important role, almost certainly helped by the fact that other changes, such as changes in income tax and national insurance, will have partially offset increased pensions contributions,” Curry said. “We shouldn’t be complacent – there is little data to go on at the moment, and people may take a little time to respond to the change.”

Ros Altmann, former pensions minister, said it was “really encouraging” to see such low opt-out rates after the increase in contributions, but told People Management that employers needed to ensure workers continued to stay with their schemes.

“It is now up to pension providers to ensure workers have a positive experience of pensions, and I encourage employers to explain the benefits and extra money which they are providing for their staff,” Altmann said.

Kate Smith, head of pensions at Aegon, said the firm’s books show that few people have opted out of their workplace schemes. Smith said the opt-out rates for new members had “slightly gone up, but it was marginal”.

“We did a lot of media around April, when the pensions contributions increased. We emphasised that staying in meant that not only would you be saving more, but Aegon would be contributing more as well,” Smith said. “I understand for a lot of people that saving [for pensions] can be an affordability issue, but we haven’t seen a lot of changes in our numbers. We are concerned about what will happen next April, when rates go up again.” 

Earlier this month, another People Management FOI request revealed that the number of complaints received by The Pensions Regulator (TPR) accusing employers of attempting to get staff to opt out of their pensions increased by 68 per cent last year

The data showed that TPR received 64 reports between 1 April 2017 and 31 March 2018 alleging employers had attempted to induce workers to leave their pension scheme, up from  38 in the year before. 

The 2017-18 figures also represented a fivefold increase from the 12 complaints received about such allegations in 2015-16.

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