New research by Royal London has found that automatic enrolment into a workplace pension is very popular with Millennials with nearly three quarters, (71%) deciding not to opt out after being enrolled and a further 8% saying that they opted out but then went back in.
Encouragingly, 75% of Millennials who have a pension say that they would increase their pension payments automatically in line with a pay rise; 40% say that they plan to increase their monthly pension contributions next year, with this increasing to 50% for those who said that their pension was a high priority.
The research also tested Millennials’ awareness of the planned automatic rise in pension contributions to be implemented from next year. When asked if they would continue in stay in their workplace pension if their pension contributions increased automatically:
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 76% saying they would continue to save in their pension.
Jamie Clark , Pensions Business Development Manager at Royal London, commented:
It's encouraging to see that auto-enrolment is welcomed by Millennials and that the potential concern that many would opt-out when the increases come into effect next year appears to be misfounded. Over half (57%) told us that they know that they should be saving more into a pension. 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 increase in contributions, perhaps in line with pay rises, is potentially viewed by Millennials as a way to help lessen the financial impact.
A Millennial from our research, explained that she found it really tough to save for a pension when she first started work and opted-out of her first job’s pension scheme. However, when she started a new job she initially opted out but then chose to opt-in when she had a pay rise. She is taking advantage of the option to increase pension contributions in line with her salary, which is making saving for her pension much easier.
Catherine Harford said:
I’d taken a pay cut to go to this new job so trying to save any money into the pension scheme when I started just wasn’t possible so I opted-out. However, the following year I received an increase in my salary and the amount I contribute is in-line with my step-up in salary so there was no ‘real’ impact to my financial position. The money is taken from my salary before I have it and that really helps.... It’s silly not to take advantage of this ‘free’ money.
This experience highlights the important role that employers have in ensuring that individuals are able to take advantage of every saving opportunity available to them, where possible. This could be matching or increasing the contributions they make to a workplace scheme they have in place for employees or allowing workers to sacrifice part of their salary or a bonus as a pension contribution.
The Government is currently reviewing how to build upon the success of automatic enrolment and how to encourage as many people as possible to save into a workplace pension. Royal London has recommended that plans need to be put in place so pension contribution levels go beyond 8% in total and that people are ‘nudged’ to put money into their pensions when they receive a pay rise.