But smaller firms plan to limit future wages to fund auto-enrolment, finds CIPD
More than two thirds of employers have now automatically enrolled workers into a pension scheme, with many contributing substantially more than is legally required, CIPD figures have revealed
The average employer contribution is 5.6 per cent of salary, with employees typically contributing 4.7 per cent, the CIPD’s latest Labour Market Outlook report found. The legal minimum requirement for employers and workers is 1 per cent each.
In the private sector, employer contributions have typically been 4.5 per cent, while employees have contributed 3.9 per cent on average.
Opt-out rates have been lower than expected too. Just 7.4 per cent of eligible workers have chosen to leave the scheme, with the figure climbing slightly to 7.7 per cent in the private sector.
Earlier this year, the Department for Work and Pensions cut its forecast for auto-enrolment opt-outs from 30 per cent to 15 per cent. Yet of the 1,080 employers questioned for the LMO, nearly half reported an opt-out rate of less than 10 per cent.
Across the different regions of the UK, 60 per cent of Scottish employers had opt-out rates of fewer than 10 per cent, compared to just 28 per cent of Welsh firms.
The CIPD’s performance and reward adviser Charles Cotton said: “So far, pension automatic enrolment has been a success. It’s been the wake-up call we needed to get the UK saving for the future. Employers are in many cases going above and beyond the requirements and the majority of workers have opted to stay in the scheme.
“However, in the coming months, we need to keep a close eye on the number of workers leaving the pension scheme and what can be done to encourage them to stay. We also need to explore ways that we can increase the amount of money going into saving for retirement.”
To do this, he added, employees must be encouraged to consider their employer’s contribution as well as their take home pay when taking their total earnings into account.
Almost 30 per cent of those surveyed are yet to enrol in the scheme – most of which are small to medium sized firms. Of these, nearly half anticipate restricting future pay growth to pay for auto-enrolment, while 19 per cent envisage job cuts and hiring reductions.
“To mitigate any possible negative consequences, firms need to plan in advance, look at the cost implications, examine the potential responses and evaluate which ones meet the needs of the business, its employees and workers,” advised Cotton.
Only 14 per cent of the organisations that have already implemented auto-enrolment have cut or frozen salary growth while 13 per cent have cut back on hiring or staff numbers.