Society’s poorest most likely to opt out of pension schemes

The poorest in society are most likely to opt out once government proposals forcing companies to enrol employees into pension schemes come into effect in 2012, according to research from Hymans Robertson. 40% of those who earn £15,000 or less would choose to opt out, with almost a third across all income brackets agreeing they would do the same.

This is despite the fact that over two thirds of people across all income ranges don't think they are saving enough for retirement, with nearly three quarters of women (73%) fearing they won't have enough to secure a decent income in old age. This figure rises to 89% for those earning under £15,000 and to 80% for those earning £15,001 to £25,000.

Nonetheless 70% think the government is right to press ahead and force companies to automatically enrol employees into pensions and almost the same percentage believe that it will help people save more for their retirement.

Chris Noon, Partner at Hymans Robertson, comments: "Proposals to automatically enrol employees into pension schemes are vital in giving people a chance to save to secure a more comfortable retirement.  We welcome the Government's rebrand of Personal Accounts to NEST which should help to raise awareness of the forthcoming proposals and educate people on the importance of saving to secure a decent retirement.

"However careful education will be needed to make workers aware that it should only be seen as part of their retirement planning. A concerted effort is required from the Government, employers and the pensions industry to do more to educate low and moderate income workers on the necessity of saving for retirement, and also the benefits of employer contributions."

The research also looked at how comfortable people were with different contribution rates to pensions. It found that almost half of would contribute more than the minimum set as part of NEST and those over 45 are most likely to be willing to pay more. However, there is a gender gap. Fewer women are willing to invest more than the minimum in their pension than men (42% of women versus 59% of men would pay more than the minimum set). The study revealed that there is also an income gap with willingness to contribute more rising steadily with earnings.

Noon added: "It is good news that the older age groups, who need to save faster than others owing to impending retirement, won't just settle for the minimum that NEST will deliver. And even if employers don't pay more than the minimum set by NEST, many employees will look to invest their remaining money elsewhere to guarantee a better pension.

"We also believe that given the lowest paid workers are most comfortable with paying 5% or less in contributions, that this validates the decision to cap employee contributions at 4% as NEST is actually targeted at the lower paid.

"But the gender gap is worrying - we know that women are more likely to work part-time, take career breaks and get paid less, all of which can potentially affect both their return from the State pension, as well as the private provision they make."