A new survey has found that three million workers, equal to 27% of those who could be automatically enrolled to pensions over the next few years, will opt out.
The survey conducted by the National Association of Pension Funds (NAPF) has found that huge numbers of people could opt after being automatically enrolled into new work place pensions.
Lack of trust
The main reasons respondents gave for their intention to opt out were affordability and lack of trust in both the government and the pensions industry as a whole.
A similar survey in 2007, before the economic downturn, found that one in four workers planned to opt out.
In response to a general lack of pension provision the government will force all employers to opt any employee over the age of 22, who is not already in a work place pension, and who earns above £7,475, into a work place pension.
The program of auto enrolment will start with the largest employers in 2012 and conclude with smaller businesses in 2016.
Employers will start by contributing 1% rising to 3% from 2017 onwards; employees will have to pay a minimum of 1% from 2012 rising to 4% by 2017. The government will also pay an additional 1% in the form of tax relief.
In an added tier of complication the percentages are not based on an employee’s full salary, but earnings between a minimum, currently £5,715 and a maximum of £38,185.
A recent report from Standard Life said that up to six million new pension savers could be created by auto enrolment, but once a member has been automatically enrolled they can opt out and the survey from the NAPF seems to indicate that many might do just that.
500 people were surveyed, 27% thought it unlikely that they would remain in the scheme, 57% said they would maintain their membership and 16% were undecided.
Of the people who indicated they would opt out 48% said that they could not afford the contribution, and a combined total of 55% said they did not trust the government or the pensions industry.
This lack of trust was echoed by 80% of people who said that wanted greater transparency in how pensions work and their costs.
The Standard Life survey, published earlier this week, showed retention rates could be as high as 82% if information is presented “clearly and effectively”.
Joanne Segars (right), chief executive of NAPF, said: “People are wary of pensions, and that is a big threat to auto-enrolment. We are alarmed that so many say they will reject the new deal, and the picture has got worse since the recession.”
She continued: “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.”
On the subject of charges and fees Segars said, “There is 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 will 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” she added.