Millennials won’t opt out of auto-enrolment once contributions rise
Auto-enrolment is proving popular with millennials as they plan to continue under the scheme once contributions increase.
Nearly three quarters (71%) of millennials decided not to opt out after being enrolled and a further 8% said after initially opting out, they then went back into the scheme.
The research from Royal London found that 75% who have a pension, said they would increase their pension payments automatically in line with a pa rise while 40% said they plan to increase their monthly contributions next year.
Currently both the employee and employer pay 1% each to make a 2% total contribution. From April 2018, minimum auto-enrolment contributions rise to a total of 5% – 2% from the employer and 3% from the employee. They increase further from April 2019 to 8% – 3% from the employer and 5% from the employee.
Royal London found that once the 5% contribution rise kicks in, 74% would continue to save in their pension while once this rises to 8%, those prepared to save dropped to around two thirds (62%).
However, if the increase in contributions was to 8%, but contributions were matched, so 4% from the employer and 4% from the employee, then those willing to continue to save jumped back up to over three quarters (76%).
Jamie Clark, pensions business development manager at Royal London, said: “It’s encouraging to see that auto-enrolment is welcomed by millennials and the potential concern that many would opt-out when the increases come into effect next year appears to be unfounded.
“Increasing saving into a pension can seem daunting and difficult when there are other financial priorities and pressures. It’s great to see that automatic gradual increases in contributions, perhaps in line with pay rises, is potentially viewed by millennials as a way to help lessen the financial impact.”
Commenting on the research, Andy Tarrant, head of policy and government relations at The People’s Pension, said: “While it is encouraging news that millennials currently seem to be engaged with auto-enrolment, we can’t assume this is enough.
“It should be a no-brainer to save into a scheme where your money is doubled by contributions from your employer, even before any investment returns, but we need to ensure that the right incentives are in place to keep people saving, ideally increasingly, as they transition into further life stages and earn higher wages. It’s a good starting point to get people saving; it’s another challenge to make sure they save enough.”