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Last week official Department for Work and Pensions (DWP) figures suggested that less 9% of workers are choosing to opt out of their company pension scheme since being automatically enrolled under the government’s flagship automatic enrolment policy.
This was rightly hailed a success story as opt out rates are well below the 30%-50% some commentators had predicted.
The People’s Pension, a low cost, high quality alternative to state backed NEST has today revealed an even lower opt-out rate. At the end of July 2013 just 6.8% of the 150,000+ members of The People’s Pension had decided to opt-out of The People’s Pension.
Jamie Fiveash, Director of Customer Solutions at B&CE, provider of The People’s Pension, said:
“We are obviously very pleased that less than 7% of employees are choosing to opt out from The People’s Pension. This means that the vast majority of employees will benefit from a scheme that should secure them with a much sounder financial footing in the future.
“That said, we recognise that we are not even one year into the automatic enrolment process, that opt-out rates are likely to fluctuate and that we have much more work to do to ensure the continued success of automatic enrolment.”
The People’s Pension also highlighted that despite being less than a year old there were already many employee schemes going dormant as a result of the employee either missing their opt-out window or changing employers. These low opt-out rates suggest even those that may envisage working for just 6 months are saying ‘I am in’, resulting in the creation of huge numbers of micro-pots.
“Pension pots with just a few pounds – or in some cases just a few pence – are clearly of no benefit to anyone. Ultimately this will drive up costs and charges to the detriment of scheme members.
“With contributions set to stay at 2% until 2015, there are an ever increasing number of dormant micro pots in the system. A low opt-out rate is generally good news but it also means a mountain of these micro pots are forming. The amounts are so small that it’s not even cost effective to transfer them – which mean initiatives such as pot follows member will not solve the problem. Short service refunds are also set to go in 2014.
“However, the decision to have a micro-pot refund system was rejected by policymakers who have largely ignored the micro pot problem, parking the issue in the “too difficult” tray and giving a commitment only to ‘monitor’ the situation.
“We would be happy to work with others in the industry, with regulators and the Government to come up with a workable solution because micro-pots are rapidly becoming a very big problem.”