IFS: Has AE been too successful?
Thousands of the country’s most financially insecure individuals are remaining in auto-enrolled schemes even if it may not be in their best interests to do so, the Institute for Fiscal Studies (IFS) finds.
In a paper authored by Pascale Bourquin and Rowena Crawford, the research institute said auto-enrolment (AE) has been hugely successful - noting that over 90% of eligible private sector workers were now members of workplace pension schemes.
But the IFS said making pension membership the default had particularly boosted coverage among the young, the low-paid and the financially insecure.
And it said it was "surprising, and perhaps worrying" there was no difference in participation rates at all across groups with different levels of financial security.
It noted that even among the least financially secure 3% of eligible private sector employees - those with little or no savings, unable to afford necessities, on very low incomes and with poor health - participation rates are above 90%.
The IFS added that, given their current financial difficulties, it was not obvious that most in this group should be reducing their current gross earnings, even by 3%, in order to save for a pension.
It said: "The concern therefore remains that the strong nudge of AE - that has rightly been hailed as successful in bringing many more into pension saving - has a downside. It changes the behaviour of a small number of individuals in a way that might well not be in their best interests."
The IFS said this is an issue that could become more salient over the coming months as many individuals are experiencing falls in earnings due to the public health response to the Covid-19 pandemic.
It explained: "The proportion of automatically enrolled employees who are financially vulnerable could increase. One option for employees currently struggling financially is to temporarily leave their workplace pension scheme in favour of higher disposable income. But whether this is an option that individuals are aware of and choose to exercise remains to be seen."
Workplace pension participation of eligible employees
Source: IFS - see www.ifs.org.uk/publications/14850
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