Fears that millions of low-income households would struggle to find the extra cash to put into a pension following rate rises in April have proven unfounded according to analysis by a leading investment fund.
Since auto enrolment began in 2012, nine million people have joined workplace pension schemes, making it a huge success. Yet this year it faced its first major test when workers were forced to begin paying in 3% of their salary into a pension, up from 1% that they were previously paying. In 2019, the contribution rate will rise again to 5%, although at each rate rise, savers are given the option to opt-out.
The good news for government however is that despite the 2% rise in contributions this April, analysis indicates that opt-out rates have stayed approximately the same, there being no discernible impact from the increased rates. The underlying opt-out rate stands at 8.18%, much smaller than the figures predicted when auto enrolment was first rolled out. In 2012, the Department of Work and Pensions predicted that opt-out rates could be as high as 28%.
Sir Steve Webb, the former pensions minister who was instrumental in the commencement of auto enrolment commented:
"We have seen very little impact of April's rise in contributions. The rise coincided with the annual boost to tax thresholds, some annual pay rises and an increase in the living wage, all of which will have cushioned the rise in contributions"
"Inertia also remains a powerful force and will continue to be so as long as contributions remain at relatively modest levels."
Auto enrolment has been an undoubted success since its inception, with individuals saving an extra £6.9 billion into workplace pensions in 2017-18 as a result of auto enrolment and this is expected to climb to £13.3 billion in the current financial year and nearly £20 billion the year after.