The Government should consider allowing people to lower their contribution rates to 8 per cent under auto-enrolment to prevent a potential spike in opt-out rates over the next few years, AJ Bell says.
Contribution rates are due to rise to 5 per cent in April this year and 8 per cent in April 2019 with many in the industry waiting to see what the effects might be.
The provider argues existing rules will eventually force employees to choose between receiving a minimum 8 per cent total contribution in their pension or opting out.
The consensus is that 8 per cent is not enough, but there is a danger that increasing the minimum beyond this will cause a surge in opt outs, it adds.
To combat this problem AJ Bell proposes increasing the default total contribution to 12 per cent but allowing savers to ‘opt down’ to 8 per cent if they choose rather than quit their pension altogether.
Those who choose to opt down to 8 per cent would have contributions automatically increased to 12 per cent every three years which is what happens currently.
AJ Bell senior analyst Tom Selby says: “By doing this, the Government could potentially increase pensions adequacy without increasing opt out rates and casting huge numbers of savers into the retirement wilderness.”