Employees should have the option to reduce their pension contributions rates to 8% under the scheduled auto-enrolment scheme.
AJ Bell is urging the Government to consider permitting people to lower their contribution rate in a bid to prevent a potential rise in the number of opt-outs.
The first contribution rate rise is scheduled for April this year, where the percentage will grow to 5%. This is set to rise further in April 2019 to 8%.
According to AJ Bell, the change in rules could put employees in a difficult position, forcing them to choose between a minimum contribution of 8% or opting out entirely.
Whilst there is a growing concern that this minimum proportion is too low, the pension provider warns that increasing it could lead to a spike in opt-out rates.
In order to address this issue, it instead suggests that the default total contribution is set at 12%, whilst allowing employees to ‘opt down’ to 8% should they wish to.
For those who opt down initially, contributions would automatically rise to 12% every three years – this reflects the process which occurs currently.
Summarising the important of the proposal was Tom Selby. The AJ Bell Senior Analyst stated: “By doing this, the Government could potentially increase pensions adequacy without increasing opt-out rates and casting huge numbers of savers into the retirement wilderness.”
