Auto-enrolment appears to be working, with the majority of employees choosing to stay in the scheme, new research from the Department for Work and Pensions has shown.
In the first six months of the Government's auto-enrolment pension scheme, an average of 9% of employees chose to opt-out.
This is far lower than the original predictions which were around 30%, a study from the Department for Work and Pensions (DWP) has revealed.
However, it's worth remembering that the workplace pension scheme has so far only been adopted by large companies. As a result just 42 firms were included in the research.
Lack of savings
The whole aim of auto-enrolment is to make sure people are saving enough money to pay for their retirement.
Workers who are aged 22 and over (but below State Pension Age) and earn more than £9,440 a year will be automatically signed up to a workplace pension during the next five years.
Overall the equivalent of 8% of the worker's salary goes into the pension, though at least 3% of this comes from employer contributions. Those who are self-employed, or already in a private pension scheme, aren't being signed up.
The Government believes the scheme will increase the number of people with a private pension by around eight million. with the total amount saved rising by £11 billion per year.
Opting out
The highest number of people who have chosen to stay in a pension scheme are aged under 30, while the smallest number are aged over 50.
Before auto-enrolment began, there was a fear that workers would simply choose not to be a part of the new scheme. Although the data collected so far only refers to 42 companies, it’s a good indicator of how well the scheme is working.
However, some experts have warned that there is still a lot of work to be done. Tom McPhail, Head of Pensions Research for Hargreaves Lansdown, explains that the largest companies were always going to produce the best results and the real test will be when the scheme rolls out to smaller companies.
The contribution rate, for example, isn't yet high enough to avert the pensions crisis and it will be a lot harder for smaller companies to maintain a high participation rate. Older people also need to be encouraged into not opting out, as even those over 50 will benefit from joining.
There are also fears that many companies are not yet prepared to join the scheme. With 29,000 employers set to sign up in the first half of 2014, it won't be until the end of next year that we see real results.