Has auto-enrolment helped or hindered saving psychology? Since auto-enrolment came into effect in 2012, a high number of eligible employees have been enrolled into a workplace pension, including many younger workers, lower earners and women. The Covid-19 pandemic had a negligible impact on participation rates, largely due to government support and the furlough scheme. The current cost of living crisis, though, poses a more serious threat to both short- and long-term saving that needs to be taken into consideration. Inertia has been paramount to high participation and also explains why opt-outs have remained low, but this idea of going with the flow can be a double-edged sword. High participation does not necessarily lead to engaged, competent savers. Participation is largely passive. Many are saving at the default contribution rate and are not making the voluntary saving that is needed to deliver an adequate income in retirement. Simply by being automatically enrolled in a pension, many people think that their pension has been taken care of and are less actively engaged than those who made a voluntary decision to join a pension. Default contribution rates are decidedly sticky and have a significant impact on saving psychology, encouraging people to maintain the status quo. Indeed, many believe that the default rate is the recommended rate and assume it is sufficient. Awareness and understanding of pensions remain low. Many pension savers do not know whether they are saving enough, or indeed what enough is. Many also struggle with thinking about and planning for the long-term, and with thinking about the future life they want to achieve. The recently launched Pension Attention campaign aims to raise awareness and interest in pensions and help people connect with their pension. This is an important first step, but plans also need to be put in place to build on this. Engagement is a process and, depending where people are on their pension journey, may take time to bring about changes in behaviour. Pension Dashboards, due to be launched in 2023, are a welcome development and should help people to find their pension information more easily. But information alone is not enough. People need to understand the information and know how to act on it. Information without guidance could simply confuse or worse demotivate people from taking action when they need to. People also need to be nudged to engage with the information and consider taking informed decisions. It is also important to recognise that people are at different stages of their pension journey. A one-size-fits-all approach will not work for everyone, and developments need to be sensitive to the different context and needs of pension savers, combining flexibility with tailored solutions, information and guidance. It is widely recognised that there is a problem with engagement, but what is meant by engagement is not fully defined. Engagement is multi-dimensional comprising cognitive (understanding), affective (emotional) and behavioural (action) dimensions. All of these need to be addressed to develop empowered and engaged pension savers. To move beyond participation to developing competent savers requires a whole ecosystem approach involving government and policy, providers and employers. It will require a combination of policy developments, nudges, personalised information and guidance and tools working together to build competence. A decade of auto-enrolment: has it helped or hindered saving psychology? 31
RkJQdWJsaXNoZXIy MjA4NTgz