News analysis: Young people have been more accepting of auto-enrolment than their older colleagues, official data have shown, but industry figures have warned against complacency over retirement saving.
Numbers from the Department for Work and Pensions indicate under-30s have given the best reception of AE in the workplace, with just 8 per cent of young people opting out of workplace pensions compared with a 9 per cent average overall.
In May, the National Association of Pension Funds reportedemployees of its member organisations that were too young to be auto-enrolled were the most notable group opting in
At such an early stage, it is unclear whether these trends are likely to continue, with many employers yet to break down their AE success rates by age group.
Morrisons had a positive response from young employees, with a “significant number” of 20 to 21-year-olds voluntarily joining the scheme, according to Graham Sutch, head of pensions at the supermarket chain.
“I would expect the opt-out rate to fall, as those newly auto-enrolled into the scheme will primarily be new colleagues,” added Sutch. “The next big intake will be the reassessment date in October 2015.”
Analysis by Nest has found that despite some people currently contributing as little as 1 per cent of their income into the scheme, 67 per cent of employees now feel they can stop worrying that they have not done anything about their retirement.
Neil Latham, principal at Punter Southall, said simply joining a scheme is not enough to secure one’s future. “So you’re in the pension scheme and it’s only 1 per cent and you think, ‘Oh great, my life is sorted!’. But of course that’s nonsense; 1 per cent is nothing. You need to pay 15 per cent into [an] arrangement,” he said.
“Young people have much more immediate and pressing priorities; when the cost becomes significant that’s the real test.”
Once AE is fully rolled out, combined contribution rates will be a minimum of 8 per cent. Government research has acknowledged the 8 per cent default contribution rate would only be sufficient, when combined with the state pension, to achieve a replacement rate of about 45 per cent for the average earner.
That is more than 20 per cent lower than the recommended replacement rate of two-thirds of income. “Auto-enrolment helps, but it was always meant to be part of the solution rather than closing the entire gap,” the report states.
Malcolm McLean, consultant at Barnett Waddingham, predicted disappointment. “We are going to have people retiring and throwing their hands up at the level of pensions they get before any attempt is made to meaningfully increase the pensions resulting from this.
“It’s almost deliberate policy not to emphasise the consequences or the outputs from these pension plans and I can see the reason for doing that.”
At present, the government is trying to change people’s habits, he added, and raising contribution rates too much would scare workers away.
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