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Opting out of auto-enrolment

ended 25. September 2023

A journalist at the Investors Chronicle is writing a piece on opting out of auto-enrolment. Her Qs are below. 

  • Are there ever any circumstances when you should consider opting out of pensions auto enrolment and what are these?
  • What if you have a reduced pensions annual allowance (of e.g. £10,000) – what are the pros and cons of opting out?
  • Are there any other pressing financial commitments that could justify opting out, and what are the pros and cons?
  • Any other important things to consider when considering opting out?



 

2 responses from the Newspage community

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George Agan
Chartered Financial Planner at Flying Colours
During a cost-of-living crisis, it may seem extremely tempting to opt out of auto-enrolment, but you should be mindful of several things. Employer pension contributions are considered ‘deferred pay’ but, in truth, they're the closest thing you get to free money. This is because your employer is matching a good proportion of the contribution you are making. This provides substantial increases to the money you invest on your own, which you could lose out on entirely by opting out. It can be like accepting a pay cut for your later life. You could also miss out on the incredible impact of compounding returns, which is especially important for those who are younger. If you invest £5,000 annually with 5% growth per year net of charges, starting at age 25, at 65 that will be worth £639,000. If you do the same but start at 35, that will be worth £354,000. Making the decision to opt out and missing out on the time invested could cost you severely in later retirement.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
It's rarely a good idea to opt out of auto-enrolment. The benefit of receiving employer contributions on top of personal contributions, up to a certain level, can provide a significant boost to pension savings. Compounded over a number of years, this can really make a difference to when someone can comfortably retire. For those affected by the tapered annual allowance, or money purchase annual allowance, it could be worth speaking to employers to see if they would be willing to pay extra salary in lieu of the pension contributions in order to not exceed the annual allowance. There are, however, a few things to consider here which means it's important to get professional advice before taking action.