Last month the Department of Work and Pensions (DWP) issued a report based on the early experience of opt out’s from Auto-Enrolment (AE).

As we have already covered on this blog, all the anecdotal evidence was pointing towards the trend of opt outs being rather low. The official findings from the DWP confirm this impression, with the headline opt-out rate of only 9%.

This is clearly early days, and to a degree the industry expected higher pension membership from those large employers who have already staged, yet it does suggest that AE is doing it’s job. For more thoughts on why the opt out rate might be lower than otherwise expected, please see my post from earlier this year: http://goo.gl/C0Q1Af

So far, so obvious, but the report did also provide two other nuggets of information which I suspect will be of interest to employer’s seeking to budget for their own AE exercise.

The first issue is the age profile of those that are opting-out. The largest percentage of opt outs so far has been from employees aged 50 and over. This group was showing a 25% - 50% higher opt out rate than other age groups.

The other area of note is one that appears to have been largely overlooked by the media so far. The DWP report makes a distinction between opt outs (those who left the pension scheme within one month of enrolment) and those who have ceased pension scheme membership in subsequent months.

The report highlights that only limited data was collected for this second grouping, but goes on to comment that:

“Typically, the proportion of workers choosing to cease active membership after the opt out window was closed was around one fifth of the original opt out rate. For example, where opt out was 8 per cent, this increased to around 10 per cent by the end of the third month.”

So the actual numbers of employees that persist in a pension scheme may well be someway lower than the headline opt out rate. Of course the data set used by the DWP was only a few months after AE commenced (the period to April 2013), so it’s possible that the numbers ceasing membership after the opt out window could yet climb higher. So the 9% figure might well turn out to be moonshine.

Despite this, and even if the headline rate were currently (say) 11%, this still points towards AE being a success. Given this, prudent employers may need to factor these findings into their overall AE budget.

Best regards

Steve