Top story News and analysis
Young people opting
out of auto-enrolment
Data has shown that the number of employees under 40 opting out has
increased, possibly because of other financial pressures. By EMMA GREEDY
Financial education could be key to showing workers h how important it is to save
Figure
it out
35%
of UK adults say
they don’t have
a pension
43%
admit they don’t
know how much
pension money
they will need
55%
of people estimate
that up to £100,000
is enough to retire
comfortably on
Finder
Photography: Anna Pantelia/CERN
Younger employees appear to be
opting out of pension scheme
contributions, which could be to the
detriment of their later lives.
Research carried out by the
Department for Work and Pensions
(DWP) found that from April 2018
onwards those aged 22 to 29 and aged
30 to 39 saw the largest increase in
deciding to stop contributing
towards their pension. Of the 22-
to 29-year-olds surveyed, 0.23%
opted out of their pension schemes,
and 0.15% of 30- to 39-year-olds did
the same.
Between April 2014 and June 2019
the average stopping saving rate was
slightly higher for males, at 0.76%,
than for females, which was 0.59%.
Though these increases appear
modest the DWP said they are
notable compared to other age
groups, where the changes observed
are negligible.
Head of benefits strategy at
Howden Employee Benefits &
Wellbeing Steve Herbert thinks that
younger employees could be opting
out of pension contributions to
free up more income for other
spending priorities such as rent,
travel, leisure and student loans.
“This choice to stop saving might
well be linked to the costs associated
with day-to-day living since the
financial crisis in 2008, particularly as
the opt outs come at a time when the
cost of contributions was increasing
for many savers,” suggested Herbert.
Lesley Carline, president of the
Pensions Management Institute,
said the DWP report confirms what
the industry already knows – that
competition for people’s money is as
high as ever.
“Those at the beginning of their
careers with student loans to pay off
may focus on holidays, going out and
paying their ever-increasing rents
before considering their pension,”
said Carline.
“The here and now tends to
overshadow the future. When you
enter the 30 to 39 age bracket the
same pressures exist, only
exacerbated by attempts to buy
houses and raise families.”
Crispin Freeman, senior associate
in the pensions team at UK law
firm Burges Salmon, believes that
despite the pressures young people
face the importance of prioritising
pensions savings early should still
be communicated.
“The perceived payback for
investing in a pension is unattractive
in our quick-fix society,” said
Freeman. “It appears to take many
years of pensions contributions
to accumulate a sufficiently
large pot to provide even a small
pension, but again saving early is
an important part of building up
that pension pot.”
Freeman believes that better
education about the value of the
employer contributions available
under auto-enrolment is required.
Younger workers are, by virtue of
their age, unlikely to be close to the
pension lifetime savings limits, or
have their retirement priorities
otherwise organised, and Herbert
believes much more needs to be
done to embed a savings culture
across the UK’s younger workforce.
He said: “The need to educate and
inform employees on the realities of
retirement income, and the benefits
of joining and remaining in a
scheme offered by the employer, will
continue to be vitally important.”
So what can HR do to help
provide pension planning support
for younger employees?
Carline suggests HR assists
all staff with general financial
wellbeing, as it is a good starting
point and can help young people
understand that budgeting
is important.
“Employees must understand
what costs they will face when they
retire and think how they might
expect to meet them,” she stated.
Herbert suggested that perhaps
there is more to this subject
than pensions alone and HR
needs to be aware of young
employees’ outgoings.
“A good pension scheme and an
adequate amount of savings come
retirement age are of course
paramount. But for many employees
it’s a difficult balance saving for
retirement while also managing
more immediate everyday costs and
financial pressures.
“So employers should look to
provide some more basic financial
education to help employees manage
their everyday finances better.
“Because if employees can
reduce their monthly outgoings
they will find it much easier to also
maintain a decent level of pension
savings too.” HR
hrmagazine.co.uk April 2020 HR 7
/hrmagazine.co.uk