Employees who have voluntarily opted out of the government’s auto-enrolment pensions scheme have missed out on more than half a billion pounds of contributions to their retirement.
The figure of £535m includes nearly £270m that would have been contributed by their employers – in effect this is “free” money that workers have turned down.
The data has been published by Now Pensions, which has calculated that someone earning £26,500 a year who’s opted out of an employee’s pension scheme would have paid in contributions of £1,247 over the past three years, with £624 of that having come from the employer and the remainder from the employee’s pre-tax salary.
Under the legislation, employers must re-enrol any eligible employee every three years – although employees are allowed once again to opt out. There must be no pressure from an employer to encourage its employees to opt out, though.
That means that from this week, those employers who introduced auto-enrolment when the scheme stated in October 2012 will have to re-enrol all their staff.
“People’s circumstances change, and while they might not have felt in a position to save when auto-enrolled initially, over the course of three years they may feel differently,” says Morten Nilsson, of Now Pensions.
“Re-enrolment gives them an opportunity to think again. This is really important as by opting out you are essentially taking a pay cut by turning your back on your employer’s contribution.”
He adds: “For those that have previously opted out, being put back into a scheme may be frustrating and confusing. It’s important that employers clearly explain what’s happening and why.
“Convincing people to lock away their money for 40 years or more isn’t easy. But it’s important to remember that over a lifetime of saving an average earner could end up with a pension pot of £300,000.
“This can mean the difference between a comfortable and a frugal retirement.”