Around three million people are likely to turn their backs on landmark Government plans to automatically enrol them into a pension, the National Association of Pension Funds (NAPF) said today (Thurs).
Based on data from a Populus poll for the NAPF, one in three people are unlikely to stay in the workplace pension that they are auto-enrolled into. This is a rise from the one in four opt-out rate uncovered by a 2007 Government study before the economic downturn.
The auto-enrolment reforms aim to tackle the UK’s pensions saving crisis by placing all workers into a pension from 2012. Up to nine million new savers could be created.
Asked why they would opt out of the pension, half (48%) said they cannot afford the contributions, but 29% said they do not trust the Government, and 26% said they do not trust the pensions industry.
Suspicion about pensions and charges was echoed elsewhere in the survey – 80% want greater transparency about how pensions work and what they cost.
The NAPF believes fears about fees and charges are a major obstacle to the success of auto-enrolment. Today at its Annual Conference it announced that it is convening a Summit on charges and transparency.
The Summit will draw together consumer groups, industry leaders, employer bodies and employee groups. Its aim is to kick-start the development of an industry code of practice on the transparency of fees and charges.
Joanne Segars, NAPF Chief Executive, said:
“People are wary of pensions and that’s a big threat to auto-enrolment. We’re alarmed that so many say they’ll reject the new deal, and the picture has got worse since the recession.
“Our society is sleepwalking into a crisis because it isn’t saving enough for its old age, and auto-enrolment is meant to be a big wake-up call.
“But there’s no point in bringing people into a pension if their savings are going to be eaten away by fees and charges which they can’t understand. They’ll simply walk away.
“The pensions industry has to be much more upfront about what it is doing. People need information about their pension in a form they understand. That means pounds and pence, not basis points and unit prices.
“With auto-enrolment just around the corner, the industry needs to do more to help people engage with their pension. The Summit will help forge a clear direction on transparency and communication.”
Ms Segars also called on the Government to do more to communicate the benefits of auto-enrolment, to try to keep people in their pensions.
In the Populus poll of over 500 adults eligible for auto-enrolment into a pension, 27% said they would be unlikely to stay in the workplace pension that they were put into. This rises to 32% when a 27% proportion of the 16% who said they didn’t know whether they would stay in or not is taken into account.
In 2007 a study by the Department of Work and Pensions which used this approach estimated the opt-out figure at 25%.
Encouragingly, 57% say they are likely to stay in the pension and, of them, 49% think it’s a good deal to get 3% in contributions from the employer. But 31% of those likely to stay in say they will struggle to afford it, and will cut back on other spending, with clothing, food and holidays the most popular areas for cutbacks. But alarmingly, to stay in their pension, 25% say they will reduce debt repayments, and 20% will save less.