Michael Bow investigates what the UK can learn from countries already operating auto-enrolment.
You don’t need a crystal ball to know auto-enrolment is set to change the face of pension savings when it’s rolled out across the country. What’s less clear is what the change will lead to.
The industry may speculate on what the agenda will look like when the politicians and industry chiefs sit down for the post-mortem in 2017 to review the policy’s success (apart from how to incorporate benefit modellers into our flying hover cars).
But there is a way to peer more accurately into the future, crystal ball or not, and look at the auto-enrolment experience from abroad, where the policy has bedded down in many countries for several years. What was their experience? How successful was it? And where did the pitfalls lie?
Auto-enrolment is not a new or radical policy. Across the developed world, politicians, faced with a demographic time bomb, have moved to make pension savings a compulsion for citizens. The UK can and has learned from these experiences, experts say.
And there are two common issues, flagged up by countries such as America and Australia that have been through the experience of automatic enrolment, which look set to dominate the 2017 meetings: the need to get funding and investment levels right; and the importance of prolonged communication and engagement.
2017 Agenda Item #1: Funding and contributions
Auto-enrolment opt-outs are a real concern for policy makers. The National Employment Savings Trust, the default auto-enrolment fund, has gone so far as to invert the traditional investment life styling approach and reduce risk in the early years of a savers’ cycle, a sign of opt-out fears.
However, signals from the US, where auto-enrolment has been in place for the past three years, show it has become a benefit highly valued by employees and opt-out worries are overdone.
“It was very successful in getting take up rates higher, particularly within the younger and lower paid work force,” Fidelity head of DC and workplace savings Julian Webb says. “Generally businesses were very positive about it.”
America’s adoption of automatic enrolment was driven by a need to boost take up rates, which had stalled at 50%. Since auto-enrolment become operational three years ago, take up rates have shot up to 82% - an objective success.
Yet it had two differences to the UK model, which the UK could learn from in future. The first was a legal statute which ensured automatic increases.
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