The U.K.’s Ambitious New Retirement Savings Initiative

The United Kingdom is rolling out a broad retirement savings initiative with an objective similar to Presi­dent Obama’s recently announced “myRA” program. Both aim to encourage retirement saving among workers who do not currently participate in employer plans, typically those with average to low incomes. Both also steer new participants initially into low-risk investments. The U.K. initiative, however, is far more ambitious. It requires all employers to “auto-enroll” their uncovered workers, with the right to “opt out.” And the government created a new non-profit entity, the National Employment Savings Trust (NEST), to provide employers with high-quality, low-cost plans. This brief reviews the U.K. initiative to date. The first section discusses the creation of the employer mandate. The second section reviews the develop­ment of NEST. The third section explores two issues that merit further consideration – the design of NEST’s default Target Date Funds and the govern­ment’s efforts to limit NEST’s market reach. The final section concludes that the U.K. initiative re­flects the best contemporary thinking on the design of 401(k)/IRA-type retirement savings plans, but its success in addressing a critical national retirement income challenge remains untested.