Over-55s saying no to free money

31 May 2017

Older workers are three times more likely to opt out of an auto-enrolment pension scheme than their younger colleagues, according to research from Now Pensions.

The workplace pension provider says 22% of over-55s are opting out of their auto-enrolment pension, compared to 8% of under-55s.

In order to increase levels of saving, auto-enrolment has been phased into the workplace since 2012 and requires employers to offer all eligible staff access to a pension scheme. Instead of asking employees to sign up to the scheme, they are signed up automatically with the right to opt out if they choose.

The Moneywise guide to auto enrolment 

In addition to tax relief from the government, those workers that opt out also miss out on employer contributions equal to 1% of their qualifying salary (rising to 3% by April 2019).


‘People are effectively throwing money away’

According to Adrian Boulding, pensions policy director at Now Pensions, the benefits of auto enrolment have not been adequately explained to older workers.

He says:  “Whilst they may think that it makes sense not to have another pension scheme – perhaps they think they’ve saved enough, or perhaps they feel they can’t afford it - people who do this are effectively throwing money away by missing out on their employer’s contribution to their pension, and the government’s contribution in the form of tax relief.”

Now Pensions has provided two examples of how older workers could be missing out on free money:

Rav is 57 and earns the average UK wage of £27,000 a year

He pays the auto-enrolment minimum of 1% of his salary above £5,876 into his pension scheme as does his employer, giving a total of 2% or £422 over a year.  But if he had saved in a bank or building society instead of a pension, he would have missed out on both tax relief and the employer contribution, meaning that only £169 would be in his savings account.  As Rav is over 55, he can also exercise his pension freedom and, assuming he is a basic rate taxpayer and eligible for a quarter of his pension tax free, he could withdraw £359 cash, after tax, from his pension. 

Jane is 60 and earns a salary of £57,000 a year

Her employer is re-enrolling her into a scheme where employee and employer both pay 1% of her full salary. After a year the pension contributions will have amounted to £1,140. As she is over 60 she can take this out using the pension freedoms, and even after paying higher rate income tax she would have £798 cash. But if she had opted out of the pension and put the money she saved, after tax, into a bank or building society account she would have only £342.

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