Why your grandchildren might opt-out of auto-enrolment, but shouldn’t


Thousands more workers are now saving into a Workplace Pension thanks to auto-enrolment. It’s an initiative that hopes to improve the financial security of future generations in retirement. However, research indicates that as minimum contributions levels rise, more employees will choose to opt out.

While saving into a pension may not be something that affects you, it probably affects your children or grandchildren. If they’re thinking of stopping their auto-enrolment contributions, it could cause financial pressure years down the line.

What is auto-enrolment?

Auto-enrolment is an initiative that automatically signs eligible employees up to a pension scheme. All employers must now offer a scheme, as well as making contributions themselves. While employees are automatically enrolled, and their contributions are deducted from their pay packet, they can choose to opt out.

The scheme has been hailed a success. It started its gradual roll out nationwide in 2012, nine million additional workers were enrolled into a Workplace Pension five years later. Many are making only the minimum contributions, but it’s still a significant step in encouraging more people to take control of their retirement finances earlier. The opt-out rate has hovered around the 8% mark.

So, given its success, why are there now concerns that the number of employees opting out will rise? Minimum contributions are set to increase.

Date Employee minimum contribution (of relevant earnings) Employer minimum contribution (of relevant earnings) Total minimum contribution (of relevant earnings)
April 6 2018 to April 5 2019 3% 2% 5%
From April 6 2019 5% 3% 8%


Research from the Association of Consulting Actuaries found that a quarter of businesses expect more employees to opt out as a result of the increase. Worryingly, 65% of small businesses are expecting a modest or substantial decrease in the number of employees that are members of their Workplace Pension.

It’s easy to see why some workers may be tempted to opt out. The cost of living has been rising at a pace that wages have failed to keep up with. On top of this, many among the younger generations are choosing to prioritise saving to get on the property ladder or pay off debt. With multiple financial pressures, stopping pension contributions can seem like a way to improve security, but it could harm it in the long term.

If your grandchildren are considering opting out of their Workplace Pension, it’s important to highlight the benefits of remaining a member and encourage them to do so. It could be a step that helps secure their financial future and their understanding of balancing short, medium and long-term spending needs.

Five reasons employees should remain a member of their Workplace Pension

1. Contributions benefit from tax relief: Tax relief means that some of the money employees would have paid in tax on their earnings is added to their pension instead. The amount received is linked to the highest rate of Income Tax paid. For basic-rate taxpayers, this is 20%. For higher-rate and additional-rate taxpayers, the rate of relief is 40% and 45% respectively.

2. Employers contribute too: As explained above, employers must contribute to an employee’s pension too. This minimum contribution will rise to 3% from April 2019. It’s effectively ‘free money’ for employees and can deliver a significant boost to their savings. If an employee opts out, the employer will also stop contributing.

3. Taking advantage of compounding: Pensions are typically invested and, hopefully, this will lead to it growing at above inflation rates until the employee reaches retirement age. As the money within a pension can’t be accessed before the age of 55, returns are invested and go on to generate further returns. This is known as compounding. The longer the money is invested for, the greater the chance of delivering higher returns. As a result, young workers auto-enrolled today can benefit from contributing early, even if it’s small amounts.

4. Start planning for a comfortable retirement: If eligible, the full State Pension currently pays £8,546 annually. It’s a figure that’s designed to cover the basic cost of living, not provide a comfortable retirement. When asked about their ideal retirement lifestyle, workers are likely to set out plans that need significantly more than what the State Pension provides. Contributing via auto-enrolment is an investment in their future.

5. A simple way to start investing: Many want an opportunity to benefit from the returns that investments can bring. However, it can be complex and filled with many financial decisions. When investing through a Workplace Pension, employees will typically be able to choose from several funds, with a range of risk profiles. It can be a simple way to start investing with the long term in mind.

If workers are worried about the impact contributing more to their pension could have on their budget, it’s important to note the Personal Allowance too. The current Personal Allowance is £11,850 and will rise to £12,500 in the next tax year, at the same time as auto-enrolment minimum contributions rise. The boost to Personal Allowance could help cushion or offset the increase in auto-enrolment, depending on taxable earnings.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace Pensions are regulated by The Pensions Regulator.