Pandemic pressure results in increase in people opting out of pension
Data shows that young workers are most likely to opt-out of auto-enrolment, with affordability a key factor in their decision.
However, data from Nest shows there were no significant changes in average contribution levels between April 2020 and September 2020. Most Nest members have continued to save, with about a fifth contributing more than the minimum contribution rate.
Pension experts have warned that anyone who stops saving into their workplace pension scheme is turning down free money from their employer.
Tom Selby, senior analyst at AJ Bell, said: “Given the severe financial pressures and uncertainty facing millions of families as a result of coronavirus, it is no surprise to see the number of people opting-out of workplace pension saving rise in the first six months of 2020/21.
“While the increase in opt-outs at NEST was relatively small – from 8% in March to 11% between April and September – it is still concerning as anyone going down this route is voluntarily foregoing a matched contribution from their employer. They will also miss out on the upfront savings boost provided by pension tax relief.
“The figures suggest the young are clearly feeling the financial squeeze the most as a result of lockdown, with NEST reporting the highest opt-out rates among those under the age of 35.”
The cost of quitting your workplace pension scheme
Although times are tough for lots of people, quitting your workplace pension scheme should still be viewed as a last resort.
“Before going down this route you should sit down and write a budget to see if there are any other areas in your everyday life you can make savings,” said Selby, “For those who have seen their earnings reduced as a result of furloughing, it’s also worth remembering that your auto-enrolment pension contributions will naturally fall if your wages fall. This is because the amount you pay in is a percentage of your salary, rather than a flat amount.”