The number of people opting out of their workplace pension scheme has risen by 29 per cent between March and July this year, according to analysis by pensions provider Penfold.
The data comes from Penfold’s customer base, composed of 5,027 onboarded employees. It noted that rising opt-out rates come at a time of acute financial strain, with inflation reaching 10.1 per cent in the 12 months to July according to Office for National Statistics estimates — a 40-year high.
Penfold cautioned that the impact opting out has on long-term financial prospects is “significant”, calculating that a 20-year-old who contributes £200 a month who then pauses contributions for three years would see the final value of their pot reduced by £28,074, from £268,675 to £240,600, representing a decrease of more than 10 per cent.
The calculation assumes a retirement age of 67 and an annual growth rate of 5 per cent.
For a 25-year-old, the equivalent decrease would amount to £24,779, while for 30-year-olds that figure is £21,870.
Penfold co-founder Pete Hykin said: “Everyone understands that the pressures facing today’s savers are considerable. Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so.
“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.”
He suggested that auto-enrolment providers need to work with employers “to educate and empower employees to make the right financial decisions during these turbulent economic times”.
“If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make. But this is not operating in a context where they have all the information to make an informed decision,” he said.
Hykin argued that offering people “tools” that can “create savings goals and help individuals stick to these goals by breaking down how much they need to save every month will be crucial”.
He also recommended that providers offer “easy access to pensions experts who can help people make the right choices when it comes to managing their pension during a tougher economic climate”.
Benjamin Mercer is senior reporter at Pensions Expert, FTAdviser's sister publication
