Smaller employers expect more of their staff to opt out of saving for their pensions when minimum deductions from their pay packets are increased this April, immediately after Brexit.
According to a survey by the Association of Consulting Actuaries, 65 per cent of businesses employing fewer than ten people expect modest or substantial decreases in participation.
About 6.1 million employees face a cut in their take-home pay when pension deductions under the automatic enrolment rules are increased in April, according to calculations by the Department for Work and Pensions.
Minimum employee contributions are due to be raised from 3 per cent of eligible pay to 5 per cent in that month, a time when there could already be considerable consumer uncertainty. Brexit, with or without a deal, is due to take place on March 29. Employer contributions are due to be raised from 2 per cent to 3 per cent at the same time, boosting total contributions to 8 per cent of pay.
Almost ten million people are now saving in workplace pensions as a result of the auto-enrolment regime begun in 2012. Some experts had feared that employees would opt out of saving when minimum deductions were raised last April, but the department said that by the end of June 2018 rates of opt-out had been consistent with levels before April.
However, the latest poll from the ACA suggests that staff at smaller employers, which typically pay lower wages, may be under more pressure to opt out this time. Opt-out rates for employees of smaller businesses are already much higher, at 26 per cent to 30 per cent, compared with staff at larger employers, where they are 6 per cent to 10 per cent. Seventy-five per cent of larger employers expect no extra opting out this April.
In its report into auto-enrolment, the association pointed out that despite the success of the policy in enrolling ten million employees into pension saving, 13 million people in the private sector were still not saving in a pension.
The self-employed and employees under 22 are excluded from the rules, which also apply only to people with annual earnings of more than £10,000. Moreover, deductions start to be made only on earnings above £6,032.
In its latest evaluation report on auto-enrolment, the work and pensions department said that more than 1.4 million employers were now complying with their duties, although the number suspected of failing to comply had more than doubled in the past year as the smallest employers were now required to take part. Compliance notices sent by the Pensions Regulator to employers suspected of not fully complying are now running at 5,000 a month, rising from 34,000 in 2016-17 to 61,000 in 2017-18.
Auto-enrolment was introduced to “nudge” low earners into saving into a pension, while not compelling them to do so. Employees can opt out, but they have to opt out again every three years.