Over 60s are throwing away up to £1.75bn in pension savings by opting out of their workplace pensions according to Royal London.
Analysis of the mutual insurer’s auto-enrolment book shows that while opt out rates remain below 10% across all other age groups they rise significantly for the over 60s with almost one in four (23%) choosing to opt out (see chart below). This is in line with figures issued by other auto-enrolment providers such as NEST.
Royal London analysed the impact this would have on someone’s retirement savings. If someone aged sixty on the average wage was auto-enrolled into a pension scheme and paid the minimum of 8% contributions then they would have amassed a retirement pot of just under £14,000 (13,980) by the time they reach age 65.
Given that pension contributions are made up of an employee contribution, employer contribution and tax relief from the government scheme members would only need to contribute just over £6,600 of their own money to achieve this outcome. This means that by opting out of their pension each member could be missing out on up to £7,000 each.
According to Labour Force Survey data there are approximately 1.1m people aged 60 or over who are in full time employment which means more than 250,000 people could be affected. If each of these stands to lose up to £7,000 each then collectively this group could be missing out on as much as £1.75bn in retirement savings by opting out.
There are many reasons why people in this age group choose to opt out. They may feel they already have enough saved into a pension or that they are too close to retirement to make any real difference to their retirement prospects. However, by opting out they miss out on employer contributions, tax relief and investment growth which can significantly improve their retirement income.
Helen Morrissey, pension specialist at Royal London, said:
“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.”
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.