"The government has so far shown little desire to step up to a more muscular approach if the nudge tactics of auto-enrolment falter"by Josephine Cumbo / April 11, 2017 / Leave a comment
Published in May 2017 issue of Prospect Magazine
Whether it’s a nudge or a hard shove, governments around the world have resorted to varying degrees of compulsion to get their citizens preparing adequately for retirement.
Australia, Chile and Sweden have opted for “hard” compulsion by forcing employees or employers, or both, to contribute to workplace pensions. In contrast, the UK and New Zealand have plumped for a softer approach, which sees employees nudged, or defaulted, into pension schemes chosen by their employer, but free to opt out if they wish.
So far, the British system of soft compulsion, known as automatic enrolment, has proved a success—with seven million people auto-enrolled by more than 300,000 employers since the policy was launched in 2012. Cash saved into workplace pensions—thanks to auto-enrolment—stood at £81.8bn in 2015 an increase of £7.1bn since 2012.
Significantly, only around one in 10 auto-enrolled workers has chosen to opt out of their workplace pension.
But while these achievements are impressive, progress of the policy is expected to become trickier as the coverage of automatic enrolment extends to hundreds of thousands of small and micro employers. Also, minimum contribution rates, from employee and employer, rise from the current 2 per cent to 5 per cent and then 8 per cent by 2019.
The government has so far shown little desire to step up to a more muscular approach if the nudge tactics of auto-enrolment falter. But the UK’s pension industry believes full compulsion should not be ruled out.