Pensions experts have urged older workers not to opt out of their workplace auto-enrolment schemes
A Pensions Policy Institute study found that over 95% of workers aged between 50 and state pension age are likely to receive good value from their workplace schemes. Its report said that the recent pension policy changes, including the phased introduction of minimum contributions for auto-enrolment and the introduction of the single-tier state pension in April 2016, would boost retirement incomes for this age group.
Its The benefits of automatic enrolment and workplace pensions for older workers report, published yesterday and funded by insurer Prudential, took data from the English Longitudinal Study of Ageing, which began in 2010. Data was used to calculate likely rates of return from pension contributions under auto-enrolment, based on household circumstances.
While staying opted in a workplace scheme was the best option for the vast majority of people, those who were struggling and not able to afford their pension contributions should opt out, the PPI said.
Opt-out rates for those aged 50 are around 15%, compared with an average opt-out rate of 9%, according to the Department for Works and Pensions.
Mel Duffield, deputy director of PPI, said: 'The analysis shows that, despite the higher opt-out rates of around 15% seen amongst older workers, staying in a workplace pension is likely to deliver a very good return on their own pension contributions for the vast majority of this group.
'Even so, the pension pots being built up by older workers under automatic enrolment, and particularly by lower earners, are expected to be relatively small.
'An average 51-year-old who is eligible to be automatically enrolled in 2012 and who only makes the minimum level of contributions, will have built up a pension pot of around £13,000 by the time they reach state pension age.'
But, even those groups with low rates of return, they would still be able to benefit from being able to take a 25% tax-free lump sum at retirement and the remainder of their pension pot would likely be small enough to be taken as a lump sum.
Duffield continued: 'Following the announcement in the Budget 2014, from April 2015 all older workers should be able to use these flexibilities, irrespective of the size of their pension savings.
'Individuals will, however, require support and guidance to ensure that they can access their pension in a way that delivers a good return on saving while meeting their income needs at different stages during their retirement.'
A Prudential spokeswoman told The Actuary: 'Auto-enrolment has the potential to improve all retirees' longer-term prospects, even those closer to stopping work.
'While the perfect preparation is to save as much as possible as early as possible when working, it is also important for older workers to know it's never too late to save for their retirement. As the report shows, even making the minimum level of contributions will help them build up their pension pot, with the financial benefit that some of it may even be taken as a tax-free lump sum.'