Opt-out rates from AE pension increased marginally in 2019, following the second staged increase in minimum contribution levels according to the Department of Work and Pensions — but overall opt-out rates remain consistently low.
The DWP’s 2019 evaluation report in AE gives a broadly positive picture of the take-up of workplace pensions, and retention rates following the increase in minimum contribution levels from 5 per cent to 8 per cent last year.
However the report also stuck a note of caution, pointing out that in 2019 less that four in 10 private sector employees (39 per cent) said that the introduction of AE had resulted in an increase in total pension contributions that their organisation had to make.
The DWP did note though that substantial variation exists by employer size.
Overall the report found opt-out rates increased from 0.72 per cent to 0.76 per cent in 2019.
DWP figures show it was younger employees who were more likely to opt out. From April 2018 onwards, those aged 22 to 29 and 30 to 39 saw the largest increases in their active decision to stop saving, at 0.23 percentage points and 0.15 percentage points respectively.
The DWP said that while these increases are modest, but notable relative to other age groups where the changes observed are negligible.
This report shows that overall men are more likely to make an active decision to stop saving into a workplace pension than women. Between April 2014 and June 2019 opt out rates were 0.76 per cent for me and 0.59 per cent for women.
The report shows that in 2019 the majority (62 per cent) of private sector employers currently had some form of workplace pension provision, up from 47 per cent in 2017. These organisations employed 94 per cent of all private sector employees.
Since the start of AE in 2012, more than 10.2m workers have been automatically enrolled into a workplace pension.
The report also showed that employers levels of awareness and understanding of AE were high, even among micro businesses and SME firms.
Finding from the DWP’s communications tracking research found that the majority of individuals interviewed viewed automatic enrolment as a good thing for them personally (79 per cent); agreed saving into a workplace pension was normal for them (77 per cent); and knew where to go if they wanted to find more about workplace pensions (75 per cent).
Evidence from the British Social Attitudes (BSA) survey indicates that “social norming” of workplace pensions has occurred across all eligible age groups and occupational classifications.
Scottish Widows head of policy Pete Glancy says: “Auto enrolment is a clear pensions policy success story, with more than 10 million extra people now saving for retirement. However, eight years on and minimum contribution levels remain far below what is required for a comfortable retirement, with no more step ups scheduled.”
He adds: “The current coronavirus pandemic has laid bare the lack of financial resilience in the UK, and auto enrolment should provide inspiration to rethink our approach to personal finance. We’d like to see a single lifetime savings pot that combines saving for the short term, a first home and retirement.
“By raising contributions and relaxing rules around access to savings, we could tackle the lifetime savings puzzle while also helping more people onto the property ladder and building greater financial resilience.”
Data collected up to 2018 found that the number of eligible employees participating in a workplace pension has increased to 18.7 million (87 per cent), up from 10.7 million (55 per cent) in 2012.
The annual total amount saved on behalf of eligible employees across both sectors (public and private) stands at £90.4 billion in 2018, which is an increase of £7 billion from 2017.
The DWP found, perhaps not surprisingly that employees with total contributions above the 2018 minimum are more likely to belong to older age brackets, have higher earnings and work for larger employers.
However, the dominance of these groups among employees with total contributions above the 2018 minimum has lessened in recent years. The share of those belonging to younger age brackets, with lower earnings and working for smaller employers has increased significantly over time.