Opting out of your workplace pension might seem like a good idea in the short term.
After all, by opting out, you get a little more in your pay packet each month, which will undoubtedly help with the ever-rising cost of living.
But opting-out comes at a significantly high cost in later life.
According to new research, the over 60s are throwing away as much as £1.75bn in pension savings, through this simple act of opting out of a workplace pension.
Often due to a misunderstanding of what can be done with the money they are saving.
According to insurer Royal London, who found that opt-out rates rose sharply for older savers, with almost one in four over 60s making this decision.
The figure, which is based on workplace pension opt-out rates for Royal London’s auto-enrolment business, shows rates remain below 10% across all other age groups.
The opt-out rates are in line with those disclosed by other auto-enrolment providers, including NEST.
But what impact could opting-out of a workplace pension have on your standard of living in retirement?
If someone age 60 on the average wage was auto-enroled into a pension scheme, paying the minimum of 8% contributions, they could build a pension pot of just under £14,000 by the time they reach their 65th birthday.
pension contributions made to a workplace pension are made up of an employee contribution, employer contribution and tax relief from the government. These three sources of contribution mean pension scheme members only need to contribute a little over £6,000 of their own money to gain the illustrated outcome.
Opting-out of a workplace pension at age 60, therefore, could result in a loss of £7,000.
Royal London highlighted data from the ONS Labour Force Survey, which shows there are around 1.1 million people aged 60 and over in full-time employment. This means that more than 250,000 people could be affected by this loss of pension wealth.
If each of these 250,000 people are missing out on £7,000 each, that’s a collective £1.75bn in lost pension wealth as a result of opting-out.
There are lots of reasons why older employees decide to opt-out of their workplace pension. These reasons could include the perception that they have already saved sufficient amounts in a pension, or that they are too close to their planned retirement age for further savings to make a meaningful difference.
But opting-out of a workplace pension, at any age, means missing out on employer contributions, tax relief and investment growth, all three of which can significantly improve their income in retirement.
“It is understandable that someone at the age of 60 might think it is too late to save enough to make a difference to their retirement income but they are wrong. Our figures show older workers are throwing away thousands of pounds on retirement income by opting out of their scheme. We would urge anyone thinking of opting out of their auto-enrolment scheme to think twice before doing so.”
Helen Morrissey, pension specialist at Royal London, said:
