Talking head: Nest's CEO Tim Jones explains how despite its lower than expected opt-out rates, there is still a need to increase understanding about pensions and convince people that saving for retirement is worthwhile, especially in light of the new pension freedoms.
The opt-out rate across the industry has stood at around 9-10 per cent, which earlier this year led the Department for Work and Pensions to adjust down its forecast to 15 per cent once the reforms are complete, from 30 per cent.
In our 2014 Nest Insight report, we highlighted the low opt-out levels among our members and the fact that saving for retirement had jumped up the list of people's financial priorities, to third place in 2013 compared with seventh in 2011 .
We’re currently giving careful consideration to how we can best engage and support our members to better reflect their circumstances and the new freedoms
However, we did sound a note of caution about the challenges in the years to come, including the need to increase understanding among consumers about how pensions work and build confidence that saving for retirement is worthwhile.
Our recent research report Improving Consumer Confidence in Saving for Retirement looked at this in more detail, along with the need to balance improved understanding with desired behaviour – the latter being to keep people contributing.
The Pensions Policy Institute also noted the importance of people’s attitudes to pension saving in its recent auto-enrolment report, stating that the future success of the reform – that is, high numbers of workers saving and making adequate contributions – depends on many factors including "workers' perceptions regarding pension saving".
While the opt-out rate among Nest’s membership stands at around 8 per cent, our figures show that workers aged over 50 are more than twice as likely to opt out of their workplace pension than younger workers.
The opt-out rate among Nest’s membership aged under 30 is around 5 per cent, while for those aged between 51 and 60 it is 14 per cent. This rises to 30 per cent for members aged between 61 and 70.
By opting out, these workers are walking away from employer contributions, and tax relief, which could double the value of the contributions they make. By opting out they are potentially turning down a nice lump sum when they retire, even if they were to save for just a few years.
In reality, many of us are likely to continue working, and saving, well past our state pension age, which means we may have longer than we think to build up savings and take advantage of employer contributions.
With the government’s recently announced changes to how members can access their savings, people will have the option to take their pension pots as cash – either as a single lump sum or as smaller regular amounts – to help boost their lifestyle in later years. A quarter of any withdrawal will be tax-free, with the remainder taxed at the individual’s marginal rate.
Helping our members get the best possible retirement outcome is at the heart of everything we do and we are currently giving careful consideration to how we can best engage and support our members to better reflect their circumstances and the new freedoms they will have.
Tim Jones is chief executive officer at Nest
