Higher minimum pension contributions 'will not prompt mass opt-outs'

The introduction of larger minimum pension contributions under auto-enrolment laws next month will not lead to a large rise in the number of people opting out of the system, a study by financial services firm Royal London has concluded. 

A paper by the company has argued that the increase to 5% of pay - with 2% coming from the employer - will not have a notable impact on income as it comes at the same time many people get their annual rise. With the current average pay increase standing at 2.4%, that would mean income increasing modestly, rather than falling. Furthermore, the 4.4% hike in the national living wage will mean the lowest-paid workers will still see take-home income rise despite the increase in contributions. 

Director of Policy at Royal London Steve Webb said, "Evidence from the US suggests that when contributions into workplace pension schemes were gradually increased by a few percentage points from low single digit rates, opt-out rates were very low, and the same is likely to happen in the UK."