What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper studies the first nationwide introduction of automatic enrolment, in which employers in the United Kingdom are obliged to enrol employees into a workplace pension scheme, which employees can then choose to leave if they wish. We exploit the phased rollout of automatic enrolment since 2012 to estimate its effect on pension saving. As a result of automatic enrolment, participation in workplace pensions among eligible private sector workers is estimated to have increased by 37 percentage points, and workplace pension membership reached 88% amongst those affected by April 2015. Automatic enrolment significantly increased the average pension contribution rate, in part because some newlyenrolled employees received an employer contribution well above the minimum mandated by the government. Furthermore, many employees who did not have to be automatically enrolled were nonetheless brought into a workplace pension scheme as a result of the policy. We find no evidence of employers reducing employer contributions for newly-hired employees or existing members of workplace pensions.

The impact of automatic enrolment on the mental health gap in pension participation: Evidence from the UK

“…The mental health gap in pension participation closes after the introduction of automatic enrolment. This finding provides further support to automatic enrolment policies which have already been shown to reduce gaps in pension participation amongst financially vulnerable groups such as female and low income employees (Emmerson and Cribb, 2016;Department for Work and Pensions, 2018).…”

“…which were much more likely to have had higher pension membership rates prior to automatic enrolment (Emmerson and Cribb, 2016).…”

“…This opt-out rate is driven by older employees (DWP, 2018). Using employer provided data up to April 2015, Emmerson and Cribb (2016) find that automatic enrolment resulted in a 37 percentage point increase in the probability of participating in a workplace pension plan amongst eligible private sector employees. The largest effects on pension participation were observed for employees in their 20s, in lower paid jobs and those who joined their employer more recently.…”

Does a requirement to offer retirement plans help low‐income workers save for retirement? Early evidence from the OregonSaves program

“…Similarly, a mandated auto‐enrollment policy was introduced in the UK in 2012, requiring employers without retirement plans to automatically enroll workers into a retirement savings plan where workers contribute 4% of after‐tax earnings, employers provide a 3‐percent match, and the government adds 1% (Sass, 2014). Empirical studies support the substantial effects of auto‐enrollment on plan participation (Cribb & Emmerson, 2016, 2019; Turner et al., 2018)—evidenced by approximately 70% increase in participation rates among small firms (Cribb & Emmerson, 2019).…”

“…In Oregon, prior to 2017, 54% of workers without a 401(k) plan were low‐income workers, comparing to 18% were low‐income among workers with such an account 5 . Additionally, experiences from other countries like Denmark and UK, as well as a recent experiment in the US Army, 6 indicate that automictic contributions are more effective at increasing savings than subsidies or tax incentives (Andersen et al., 2023; Beshears et al., 2022; Chetty et al., 2014; Cribb & Emmerson, 2016).…”