The regulations surrounding whether auto-enrolment opt-downs will be permitted remains unclear among the industry.

According to auto-enrolment regulations, employers must not have any involvement in encouraging employees to opt-out. Consequently, advertising the possibility to “opt-down” or remain at a lower rate of saving once contribution rates are increased may be breaching regulations, Now Pensions director of policy Adrian Boulding has told Pensions Age. This is because it would require members to technically opt-out of auto-enrolment to instead save into a general workplace pension.

Despite this a spokesperson for the Department for Work and Pensions explained to Pensions Age that while employers are not permitted to encourage employees to opt-down, it is possible, therefore implying that members could maintain lower contribution rates.

The DWP confirmed: “We strongly encourage all employees to plan towards retirement by building up their private pensions savings, which is why minimum automatic enrolment contributions will rise in April this year and in 2019.

“In some schemes, it may be possible for individuals to ‘opt down’ to a lower contribution rate. However, this option isn’t widely available and neither schemes nor employers are permitted to actively promote it.”

Pensions Age sought further clarification from The Pensions Regulator, but it stated that it agrees with the DWP's comment.

It is understood that if a member opts-down then they are no longer part of the auto-enrolment scheme. It is up to the individual scheme to decide whether the savings can remain in the original fund. It is also not known whether the 0.75 per cent charge cap will remain for these individuals. Nonetheless, the DWP explained that members that do opt-down to a lower savings rate will be automatically re-enrolled at the original rate approximately every three years.

“We [Now Pensions] will not be offering this,” Boulding confirmed. Instead, the master trust is working with its employers to provide information packs including posters, emails and a video that reinforces the benefits of auto-enrolment highlighting that it is not just the individual contributing, as well as the need to save for retirement.

“Staying at one per cent is not enough for a worthwhile pension,” Boulding added. “Auto-enrolment is phased for a reason,” therefore reiterating the fact that it is an ongoing process to build members’ retirement savings pots rather than a one-step solution.

Rates are set to rise to five per cent next month and eight per cent in April 2019. The new contribution rates will mean that workers on an average UK wage of £28,600 will pay £45 per month and see a total of £94 go into their pension pot as a result of their employer and government top up.

Aegon head of pensions Kate Smith commented: “As the contribution rate increases, it’s important the value of long-term saving and free money workers get in return for their contribution isn’t overlooked. Even the highest interest savings accounts on the high street can’t beat workplace saving.

“Extra employer contributions into a workplace pension is like a pay rise, and it’s unlikely anyone would turn that down. We hope people recognise the need to make personal savings for retirement and see that a workplace pension is the best way to put their money to work and save for retirement.”

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