No sign of ‘noticeable uptick’ in AE unenrollments despite cost of living crisis – DC and auto-enrollment
According to figures from the Department for Work and Pensions, released on October 26, opt-outs have fluctuated between January 2020 and August 2022, with the rate of those choosing not to enroll in a pension scheme increasing since March this year , falling from 8.7 percent to 10.4 percent in August.
However, the savings termination rate, which measures the proportion of active EI enrollees who decide to withdraw, stop saving, or leave employment, is higher in mid-2020 and mid-2020. -2021 than it was in August 2022, when it stood at 3.1 percent. hundred.
The termination rate, defined as the proportion of active saving members who decide to stop saving for a pension, fell from 0.49% to 0.57% between January 2020 and August this year.
We hope people will recognize the importance of saving for retirement and consider withdrawing pension contributions as a last resort.
The numbers are cause for “cautious celebration”, said Rachel Meadows, head of pensions and savings at Broadstone.
“While many people are still facing a tough winter, there is little evidence so far this year of a noticeable increase in pension withdrawals.”
Someone on a salary of £35,000, paying 5%, would reduce employee contributions by £145.83 if they opted out of the scheme, but that means they would lose their employer’s matching contribution.
This would result in an overall loss of £350.04 over the year, according to Broadstone.
“We hope people will recognize the importance of saving for retirement and consider withdrawing pension contributions a last resort,” Meadows added.
Quilter’s head of pension policy, Jon Greer, said the introduction of EI was arguably one of the “most significant and transformative” changes to pension policy over the course of the year. decade, however, she faces her biggest challenge yet as the cost of living crisis continues.
“There is a risk that as finances get stretched, people will choose not to fund their retirement and choose to have that money in their pocket today,” he noted.
“One of the reasons AE has worked is that it relies on people’s inertia, but when things go wrong and people are struggling financially, the concern is that they take action and cut back or stop altogether. fund their retirement plans.
Those dropout rates are low but have increased amid the pandemic and the cost of living crisis, pointed out Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
“There is no sign of these pressures easing as inflation continues to soar and care should therefore be taken to mitigate further waivers,” she added.
Automatic membership after 10 years
EI was introduced after the Pensions Act 2008, to require eligible employees to be automatically enrolled in a workplace pension scheme.
It was rolled out between 2012 and 2017 in phases and currently provides for a minimum contribution of 8% of earnings, with a minimum contribution of 3% from the employer.
Since the launch of EI, participation in pension schemes has increased across all sectors and occupations, in all parts of Britain, and the total annual contribution to the workplace pension scheme of all eligible private sector employees rose from £41.5 billion in 2012 to £62.3 billion last year.
There remains a gender gap in the amount saved, with total annual savings in real terms for men rising from £29.8 billion in 2012 to £40.2 billion last year, up from 11, £6 billion to £22 billion for women over the same period.
The total amount saved by women in the public sector was higher than that of men in 2012 and 2021, however, the DWP noted that there are more eligible female employees in the public sector than men, which means that the average savings per woman may be lower than that of their male counterparts. .
The DWP reviewed data from 11 large private pension providers, which indicated that between January 2020 and August 2022, the number of active members increased and total contributions increased by 32% over this period.
Morrissey said the Treasury had been called upon to put in place a timetable for the next steps of the policy, such as reducing the minimum age from 22 to 18 and allowing contributions from the first pound earned .
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“These measures would undoubtedly further strengthen people’s retirement planning, but must be balanced against current cost pressures, which can hurt people’s short-term financial resilience.”
These reforms would lead to a 3.5% increase in long-term financial resilience by the end of 2029, according to Hargreaves Lansdown, but this should be offset by the 3% drop in surplus income and the 3.3% drop in % of savings caused by inflation and the cost of living crisis.
“These reforms need to be introduced but need to be timed far enough in advance that all the scars of the current cost of living crisis are gone,” Morrissey added.
This article originally appeared on FTAdviser.com