Pension contribution rise could mean eighth of employees opt-out of scheme
New research indicates that an eighth of employees may opt out of workplace pension schemes when contributions rise next year under auto-enrolment.
Next year, the total minimum contributions are due to grow to 5% up from the current 2%, with plans to increase this further also on the horizon.
Whilst providers have previously warned that a rise could result in people opting out of the scheme, it’s also been contested that the rate’s current level is barely noticeable for employees.
According to the findings from Aviva, one in 8 of employees surveyed felt that a rise in the contributions would lead them to consider leaving their scheme, whilst a third stated that they were unsure what they would choose to do.
The results of the survey also indicated a divide in gender, showing that of those who confirmed they’d opt out if contributions increased, 2% were women, whilst 5% were men.
Commenting on the potential rise and futures consequences for employees was Kate Smith. The head of pensions at Aegon stated: ‘With employee pension contributions set to triple from 1 to 3% in April there’s a risk opt-out rates may spike as people start to notice the impact on their take-home pay.
‘In the near future, these pressures could act as the first big challenge to the government’s auto-enrolment programme.
She also drew attention to the choices to be made by employers, potentially limiting the prospect of them pushing up wages.
‘Employers also face hard decisions. With their auto-enrolment contribution doubling from next April, increases in the minimum wage and Brexit uncertainty, many will struggle to justify wage increases.’
‘Employers are between a rock and a hard place, not knowing whether to flag up auto-enrolment increases to their employees to be helpful and drive up pension engagement, or whether this risks putting them off pension saving.’