70% of small firm employees save into workplace pensions

Smaller employers have seen their workers' participation in workplace pensions increase to 70% since the introduction of auto-enrolment, research from the Institute for Fiscal Studies (IFS) shows.

The report found that without auto-enrolment, 26% of staff in businesses employing fewer than 30 employees would have been saving into a workplace pension.

Once the scheme was introduced, this figure increased by 44%.

However, a gap in participation rates still remains between smaller and larger organisations, as 88% of employees in medium or large companies are members of a workplace pension scheme.

The reasons for this difference are unclear, the IFS says, as it cannot be explained by differences in the pay, occupation, gender or age of employees in small businesses.

Possible explanations include a lack of interest in pension saving among employees of smaller businesses, or less effective communication from employers about the benefits of a pension.

The IFS said another possibility is that smaller employers are encouraging employees to opt out, although this is against the rules of auto-enrolment and could result in a serious penalty.

The report added that "there's a case for going further" in improving auto-enrolment, for example by extending the band of earnings to include more people, or by increasing the minimum contribution rates.

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