Background The introduction of auto-enrolment was a landmark moment in UK pension policy. The Government introduced auto-enrolment in 2012 to help more people save for retirement. Its purpose was to increase pension scheme membership in the private sector and reduce dependency on the State Pension – in order to reverse years of decline. Under auto-enrolment, all eligible employees are automatically put into their workplace pension scheme. Alongside their personal contribution, employees benefit from an employer contribution and Government tax relief. Workers can choose to opt out of their workplace pension – however, less than 10% have done so. What is auto-enrolment? Employers have a legal obligation to provide a workplace pension scheme. They must autoenrol all eligible employees aged between 22 and State Pension age, those that earn more than £10,000 a year in a single job and who ordinarily work in the UK. By law, both the employer and employees have to pay a minimum amount into a pension scheme. This is currently 8% of an individual’s earnings between £6,240 and £50,270 a year. The employer must pay at least 3% of this, with employees paying the balance including tax relief. Employers and employees can choose to contribute more than the auto-enrolment minimum. The success of auto-enrolment relies on the idea of inertia and the fact that people have been nudged into saving into a workplace pension in the first place and are likely to stay doing so. What is inertia and what is its link to auto-enrolment? Inertia is the idea of maintaining the status-quo or going with the flow. Put simply, it is the tendency to keep doing what you’re already doing and not making an active decision to change a behaviour or way of doing things. Auto-enrolment harnesses the power of inertia by removing the need for people to make an active decision about whether or not to save into a workplace pension scheme. A decade of auto-enrolment: has it helped or hindered saving psychology? 5
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