Regular statements of lost contributions should be sent to workers who opt-out of their workplace pensions, a think-tank has proposed
31 JANUARY 2014 | BY JUDITH UGWUMADU
The Strategic Society Centre's suggestion comes in response to its findings that one in ten workers have 'opted out' of the defined contribution auto-enrolment scheme. The government-backed scheme was introduced in October 2012 and is still being phased in to the UK's private sector employers.
A statement of lost employer contributions, tax-relief and an accumulated value of their pension pot should be used as a means to encourage workers to opt back in, the centre said. Its Who saves for retirement report? published this week, and sponsored by insurer Prudential, explores what the government can do beyond auto-enrolment and other aspects of the post-2012 reforms to maximise participation among workers who have chosen to opt out.
James Lloyd, director of the Strategic Society Centre, said: 'We have always known some workers would opt-out of their workplace pension after being automatically enrolled.
'The government now needs to develop additional measures for encouraging saving among workers who reject their employer scheme, even when employer contributions are available.
'Given the tendency toward "loss-avoidance" among non-savers in our research, the government should ensure workers opting out of their employer pensions are given regular statements setting out the contributions they have missed out on, and what their accumulated pot would be worth.'
Prudential's Tim Fassam added: 'Relying on the [state pension] alone will see many people retiring below the poverty line and shows the importance of building up a personal pension.
'Virtually everyone with the option of a company pension should take advantage of that, and the tax relief and employer contributions that go with it. When combined these often come to more than double the amount of pension contribution the employee has to make.'
Alongside workers receiving regular statements, the SSC added that the government should give 'opt-outs' the chance to reclaim lost employer contributions if they committed to rejoining their workplace pension and remain in it for a defined period. The think-tank said policymakers should not see the decision of workers who opt out as the 'end of the story' but should rather use growing evidence on why workers reject workplace pension schemes to deploy targeted interventions that push workers to opting-back in.
The Department for Works and Pensions figures last year showed more than 1.9 million workers were automatically enrolled across nearly 3,000 employers between October 2012 and October 2013. The DWP said the average opt-out rate was around 9%.