Automatic Enrolment is now two years old, but with millions of workers still to be enrolled, one pension provider has issued a warning that older workers are missing out.
Anyone between the age of 22 and the State Pension age, who earns more than the annual equivalent of £10,000, will be automatically enrolled into a workplace pension over the coming years. Unless of course they are one of the 4.5 million workers, in large businesses, who have already been enrolled.
However, the National Employee Savings Trust (NEST), a provider of Automatic Enrolment pensions, has warned that many older workers are choosing to opt-out and giving away valuable money.
Figures produced by NEST show that:
- Only 5% of workers under the age of 30 opt-out
- In contrast 28% of workers aged over 60 have opted out
- To put it another way, 1 in 4 older workers are opting out, compared to just 1 in 20 younger workers.
So why are older workers wrong in option out of Automatic Enrolment? Here are five reasons:
#1: Turning down ‘free’ money – part one
If a worker remains opted in to the pension, their employer will make contributions on their behalf. That’s essentially ‘free’ money; if the worker opts out they won’t get these contributions and will consequently be poorer in retirement.
#2: Turning down ‘free’ money – part two
Workers who remain opted in will of course have to make contributions themselves, but this is topped up by the taxman. Again, workers who opt out will lose this ‘free’ money.
#3: Have you got too much money in your pension?
The answer to this question is probably a resounding “no”; hardly surprising, we don’t know many people who have too much money in their pension!
So if you need to give your pension a boost, why opt-out and turn down ‘free’ money?
#4: Combine your pension pots when you retire
If you are worried about having yet another small pension, then don’t, you can combine your small pots when you retire, to form one stream of income.
#5: Pension Freedom is just around the corner
From next April you will have complete flexibility to take your pension in whatever format you choose.
You can still have up to 25% of the fund as a tax-free lump sum, but there will be no restrictions on what you do with the rest. You could still choose to buy an Annuity with it or you could decide to take the whole pot as a lump sum, less some tax.
If it’s a relatively small sum, because you haven’t been automatically enrolled for long, and you decide to take it as a lump sum that’s fine, remember that your employer and the taxman has paid into that pot for you.
Don’t miss out
If you are one of the millions of older workers yet to be automatically enrolled think twice before you opt-out.
Not only will you be giving up ‘free’ money, but you will be turning down a higher income in retirement or a useful lump sum; which your employer and the taxman will have contributed to.
If you are an older worker, or you employ older workers, and would like more information on the benefits of Automatic Enrolment our team of experts is here to help.