Workplace pension opt-outs rise as cost-of-living crisis hits households

by | Oct 27, 2022

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Tom Selby, head of retirement policy at AJ Bell, comments:

“Automatic enrolment has undoubtedly been successful in dramatically increasing both the amount of money saved in pensions and the number of people setting something aside for retirement.

“However, the 10-year anniversary of the reforms comes at the most difficult time for the finances of millions of Brits since they were introduced in 2012.


“Inflation for September was clocked at an eye-watering 10.1%, with energy bills set to spike over the winter and homeowners braced for surging mortgage costs as interest rates rise.

“In the face of this torrent of financial pressure, it is unsurprising auto-enrolment opt-outs have increased.

“Encouragingly, the figure remains relatively low at just over 10%, although our research suggests it could rise, with around a third of people having either already quit their workplace pension or considering doing so in response to rising living costs.


“The Government will undoubtedly be nervously watching those pension participation rates, and for some savers the double hit of rising energy and housing costs will inevitably be the straw that breaks the camel’s back.”

A ray of sunshine…

“Despite the brutal effects of inflation, DWP data gathered from 11 large workplace pension providers suggests average contribution rates for those who have continued to save for retirement have risen significantly since 2020.


“This could in part reflect the fact some found themselves in a better financial position during the pandemic and so upped their contributions.

“It could also be a sign that employers operating in a tight labour market are boosting their pension offering in order to recruit and retain staff.

“If you are in a workplace pension scheme, it’s worth speaking to HR to make sure you are receiving the maximum employer contribution you qualify for. This is money that will be factored into your overall pay, so failing to claim it is akin to taking a voluntary pay cut.”


Make sure you have a plan

“Although times are clearly tough, anyone considering stopping saving in their workplace pension during the cost-of-living crisis shouldn’t do so lightly.

“In exiting your workplace pension you’ll essentially be forgoing free money from your employer, as you’ll lose the matched contribution, and will have to work that bit harder to build a retirement pot when you start saving again.


“Make sure you have properly gone through your monthly outgoings and made any savings you can before quitting your pension scheme. And if you feel you have no choice but to go down this route, make sure you have a plan to rejoin as soon as you feel financially able to do so.”

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