Workplace pensions get off to flying start

A surprisingly small percentage of workers have opted out of the government's workplace pensions scheme, an encouraging sign for auto-enrolment.

If you haven’t heard of auto-enrolment (also known as workplace pensions) it’s the Government’s new scheme where most working adults are automatically enrolled in a pension scheme – unless they choose to opt out.

The scheme is gradually being phased in at all workplaces across the UK, but so far only the largest employers are participating.

The good news is that auto enrolment has got off to a surprisingly strong start at those big firms.

Before the scheme was launched last October, the expectation was that around a quarter of eligible staff would opt out of the scheme once it was up and running. But all the early indicators suggest things are going much better than that.

Legal & General said last week that it has so far enrolled around 250,000 people into the scheme and it’s found that opt-out rates are in the 5% to 10% bracket so far.

Just to be clear, we’re not just talking about employees who work at L&G here. These figures also reflect what has happened at large employers where the business has asked L&G to run its workplace pension scheme.

Not just L&G

Even better, L&G isn’t the only provider to report low opt-out rates. The Government-backed workplace scheme, NEST, has reported a similar story, as has the Pensions Minister, Steve Webb.

Interestingly L&G has also revealed the areas of the market where opt-out rates have been highest. These are:

- At employers where a high proportion of the staff were already enrolled into workplace pension schemes

- Low paid, part-time workers

- Older workers (50+)

It’s a real shame that older workers aren’t as enthusiastic about auto-enrolment as their younger peers. L&G says that some older folk aren’t signing up because they think it’s too late to start building a pension pot in their 50s.

I strongly disagree with that point of view. Even if you only start saving for a pension at 55, you could still build a decent sized pot if you work hard at it.

And anyway, if you only build a small pot, you could benefit from the ‘trivial commutation’ rules where you can take all the money out of your pension pot in one go, rather than use it to buy a retirement income. Trivial commutation currently applies to all pension pots smaller than £18,000.

But I don’t want to end on a negative note. I’m delighted that auto-enrolment has got off to a strong start. Let’s just hope that the opt-out rates remain at such low levels as the scheme is rolled out across smaller employers over the next few years.

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