Auto-enrolment

Published on 13th September 2012 in:
Pension Auto-Enrolment

Auto-enrolment: opt out and reasons for opt out

As part of pension reforms, automatic enrolment aims to help individuals in thinking about saving for their future and retirement, while keeping responsibility with the individual for the decision about whether to save in a workplace pension. If those that consider pension saving is not for them, they can opt out.

In our last Connection poll we asked responders what percentage of their workforce they thought would stay opted in to a pension scheme if they were to be auto-enrolled under the new legislation.

The largest volume of responders, 77%, thought that less than 20% of their workforce would remain opted in if they were to be auto-enrolled.

Showing a high anticipation for opt outs, this brings a need to plan for the increased amount of administration, time, and resource to manage this complicated process.

After it became the first company in the UK to apply the new rules to its workforce, Royal Bank of Scotland has seen 40 per cent of staff opt-out of auto-enrolment.

Reasons for opt out

It is the opt out rate that will be a key indicator to whether auto-enrolment is proving effective in its objective of increasing participation, however, there are many factors that will affect the level of opt outs; most notably earnings, age, gender, employer size and industry.

Indicative research from the Department for Work and Pensions (DWP) when designing the reforms stated the main reasons for potential opt-out as:

  • Can’t afford to pay into the pension (over half)
  • Concern that employers would make them redundant, cut their pay or that pay rises may be lower

Affordability will most probably always be the greatest factor for opting out of auto-enrolment, particularly amongst those with lower earnings. The other reasons mentioned, markedly that of pay rises being lower, may be more of a concern than first thought, especially for individuals that work for SMEs.

In a recent report by the Chartered Institute of Payroll Professionals (CIPP), it supports this evidence, as 15 per cent of organisations thought that the pensions scheme will mean workers will suffer a pay freeze, or even a pay cut, in the foreseeable future – perhaps not suggestion of a reason for opt out, but an increasing concern for both employers and employees.

Providing information to individuals

Information provided by employers and external sources will have a key role to play in influencing whether individuals will accept or opt out of automatic enrolment.

Those that want information need to be able to find clear explanations of what is happening to them and why in terms they can understand – if an individual is not provided sufficient information, they could become discouraged from saving.

Employers will be required to provide information to all workers, as well as signposting them to information about saving for retirement as part of their auto-enrolment duties, so it’s important to think about the best ways of doing this well in advance of staging dates.

Planning for Auto-Enrolment

With the likely-hood of opt out from employees to be high in its initial stages of auto-enrolment, organisations and in particular Payroll & HR teams need to be prepared to deal with the high amount of administration involved to cope with the complexity of the legislation.

Ceridian’s tools for Auto-Enrolment can help you stay compliant and manage the administration cost in the most effective way. Our Pension Auto-Enrolment software enables you to manage all aspects of administration, including the handling of opt-out requests and refund of contributions.

Contact us online or call us on 0800 0482 737 to find our more.

Ceridian Customer?

We will be holding a series of free Ceridian Customer Briefings that will feature a session on Pension Reform, which is aimed at those organisations whose staging date is in 2013. If you are interested in attending please contact our Events Manager for more detail.

Not a Ceridian Customer?

If your staging date is in 2013 and you would like to learn more about the legislation and its impact on you as an employer, scheme design, and how you need to prepare your payroll, but you aren’t currently a Ceridian Customer, please let us know so we can keep you informed, as we are planning an additional set of briefings.

Information sourced from Workplace Pension Reforms: Baseline Evaluation Report, Department for Work and Pensions.

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