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James Lloyd: How to crack the auto-enrol opt-outs

We need to think more boldly about the ‘difficult 10 per cent’, and not simply resign ourselves to their absence from pension saving.

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The Government’s workplace pension reforms have a simple objective: maximise participation rates.

We have always expected some individuals would opt-out of their employer pension scheme following automatic enrolment, but with the number rising each month, we need to think about how opt-outs can be brought back into pension saving.

Recognising the absence of really detailed data to analyse now, a recent research project from the Strategic Society Centre and the Institute for Social and Economic Research at the University of Essex took a creative approach to finding out what motivates those that are opting out, and what are their characteristics.

Using data from the 40,000-person Government-funded Wealth and Assets Survey, we examined the characteristics of employees who have already rejected workplace pension saving, despite access to an employer scheme with employer contributions.

The study threw up various findings of note.

First, it found if you give employees access to a workplace pension scheme with employer contributions, the prevalence of non-savers is around 10 per cent, which is very similar to the opt-out rate found by the Government among the first employers to hit their staging dates. This reinforces the idea that there is typically a core 10 per cent of workplace pension refuseniks at any one time, although our subsequent analysis also revealed roughly one in three non-savers would go on to workplace pension saving within two years.

Second, the key characteristic that predicts someone being an ‘eligible non-saver’ is being a tenant. If struggling renters are more likely to reject workplace pension saving, this could be an issue of affordability, or of renters diverting their spare income toward a house deposit. But it is undoubtedly a troubling finding given the trends of rising rents, house price inflation and the ever later age that UK workers are getting on the property ladder.

Third, even after controlling for other factors, you are much more likely to be in that difficult 10 per cent if you display certain financial attitudes and behaviour, relating to budget management and attitudes to different types of investment. These findings were not altogether surprising, but they also offer some hope as to the potential ‘pressure points’ for further policy intervention to influence behaviour.

We need to think more boldly about the ‘difficult 10 per cent’, and not simply resign ourselves to their absence from pension saving until they are auto-enrolled again upon changing jobs or after three years. We believe opt-outs should compelled to complete a survey that can link them to some of the key drivers for rejecting workplace pension saving, and appropriate further measures could follow.

Given that regardless of their income, non-savers are much less likely to have money leftover at the end of the month, opt-outs should be offered recourse to advice and counselling on financial management. We also think given the availability of employer contributions has such a big influence on decisions to participate, opt-outs should be sent regular statements every six months detailing the employer contributions they have missed out on.

The key point is auto-enrolment creates a self-defined group of ‘opt-outs’, who can be the subject of further policy intervention, making use of the ‘opt-out’ journey, and the evidence that will slowly add to our recent research on why workers reject workplace pensions. In short, we need to think beyond auto-enrolment of the ‘opt-out opportunity’.

James Lloyd is director of the Strategic Society Centre



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. At some point, it is inevitable that the right to opt out will be removed and that automatic enrolment will become fully compulsory. The good news for whichever party/Government eventually has to do this is that, if it ends up with only 9%-10% having opted out, there will be more voters thinking “well I am in it, why shouldn’t they be in it?” than there will be voters unhappy about having opted out then being compelled.

  2. Well I guess that’s one view.

    The other is that this is nothing but a further employment tax. Firms are already paying around 14% this further imposition in in terms of contribution and further imposed and unwelcome administration is going to make small firms ecstatic. The larger firms are delighted as it now enables them to dumb down their pensions.

    The schemes themselves are equivalent to a Trabant when compared to alternative Fords and BMWs. Will we tart to have another pensions review in 10 to 15 years time when these rather second rate plans start to mature for the older members.

    That the smaller firms suffer the greatest burden is grotesque in view of the fact that the Government is allegedly encouraging them and it is hoped that they will add to employment and be the companies of tomorrow. I wonder whether small firms will end up exempt. Will AE lead to an increase in unemployment or a slow down? Will young people again be disadvantaged in the selection process as opposed to those over 65 who presumably can be exempt. Will small firms rely more on outsourced self-employed? And of course all the self-employed can easily ‘get under the wire’. The Government can do what it likes – those who are determined will always find a way out.
    It would be quite another thing if the government did away with employer’s NI and then upped the contribution level to AE.

    That’s another view!

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