Requiring Auto-Enrollment: Lessons from UK Retirement Plans

Policymakers around the world are concerned that workers are not saving enough for retirement. One reason is that, in some countries, many workers do not have an employer-based retirement plan. For example, at any given time, around half of private sector employees in the United States do not have a plan and, as recently as 2012, the coverage rate in the United Kingdom had fallen to just one in three. Since relatively few people save for retirement outside of employer plans, those without a plan are at greater risk of being unable to maintain their pre-retirement standard of living in retirement. To address this coverage gap, one option gaining traction is requiring some or all employers to enroll their workers in a plan automatically, with the worker allowed to opt out. California, Connecticut, Illinois, Maryland, and Oregon have all enacted such policies while Germany, Ireland, and Poland are actively considering them. So far, however, the United Kingdom is the only country to have completed the nationwide rollout of a policy that requires all private sector employers to auto-enroll their workers in a retirement plan. The UK experience provides a unique opportunity to evaluate the effectiveness of such a wide-scale policy on plan participation and saving. This brief summarizes the results of two recent studies on the UK reform. The discussion proceeds as follows. The first section provides background on the UK reform. The second section assesses the effects of auto-enrollment on participation at medium and large employers and, separately, at small employers. The third section compares UK participation to US participation. The fourth section looks at how auto-enrollment affects UK contribution rates. The fifth section considers how “re-enrolling” workers affects retirement plan participation. The final section concludes that the UK reform has substantially increased participation rates – to about 90 percent at medium and large employers and 70 percent at small employers. And, although most of the increase is among employees making minimum default contributions, the share of employees contributing at higher rates has also risen significantly as a result of the policy.