The minimum contribution rate rise for auto-enrolment pension schemes has not deterred savers, with the “overwhelming majority” of people continuing to pay into their scheme, according to the Pensions and Lifetime Savings Association.
In April this year, the minimum contribution rate for auto-enrolled savers rose from 1 per cent to 3 per cent for employees, and 1 per cent to 2 per cent for employers, taking combined contributions from 2 per cent to 5 per cent.
Numbers for the three largest master trusts - Nest, Now Pensions and The People’s Pension – show the proportion of people who stopped contributing to their pension increased by just 0.2 of a percentage point in the months after April, the PLSA revealed.
Prior to the rate rise, in the three-month period between January and March, the average proportion of members stopping saving was 3.3 per cent. In the three months after the contribution increase (April – June), the average proportion was 3.5 per cent.
The figures have been welcomed by Work and Pensions Secretary, Esther McVey, who said they show that “auto-enrolment is working and transforming retirement for millions of people”.
“The proportion opting out or ceasing saving remains low as contribution rates increase, helping people save markedly more for their retirement,” she added.
The PLSA said the small rise in opt-outs includes those who decided to stop contributing in that period but will also capture individuals who stopped saving either because they changed jobs or because their employer switched pension provider.
Figures from the largest master trusts also show that opt-out rates – the number of people who leave the pension scheme within one month of joining – have remained steady since April. All schemes’ rates stayed at their usual level in the period around the contribution increase, and the average rate for the three master trusts between April and June was 6.2 per cent.
Auto-enrolment has resulted in over 9.88 million eligible people being enrolled into a pension scheme, and the PLSA said it’s very positive that the impact of the most recent contribution increase has been so small.
However, with minimum contributions increasing to 8 per cent from April 2019, the PLSA is urging the industry and government to continue to work together to help savers understand the benefit of saving into a pension, including the value of employer contributions and tax relief.
Commenting, PLSA director of policy and research, Nigel Peaple, said: “Automatic enrolment has been the most successful pensions reform in a generation, resulting in millions more people saving for retirement.
“It was designed with contributions rising gradually over time to ensure people could afford the payments, and so it’s extremely encouraging people are continuing to save after the first increase. In this case, doing nothing really does pay.”
He noted that this year’s increase could mean someone on average earnings ends up with a pension pot of £80,000 instead of £32,000.
“With small numbers making such a big difference, and many people saving for the first time, it’s vital industry and government continue to work together to sustain savers’ confidence in pensions and help people achieve the retirement they want,” he concluded.