In October 2012, the Government began introducing a groundbreaking new policy to automatically enrol people into workplace pension schemes.
"[This is] a new dawn for pension savers, with millions more workers being helped to save towards a pension with a contribution from their boss."
John Cridland, Director-General of the CBI
The programme of automatic enrolment into workplace pension schemes is at an early stage. However, the early results have been impressive: 1.6 million workers have been enrolled to the end of August 2013, and research among the largest employers, who enrolled their workers first, showed overall pension enrolment rates increasing from 61 to 83 per cent.
Because these figures come from the first few months of the scheme and apply only to the largest employers, the results might well change over time, as automatic enrolment is rolled out to all businesses.
What we do know, however, is that these early findings are in line with the behavioural economics literature, which shows that individuals often go with the ‘default’ option, which for millions of Britons previously meant no company pension.
The simple insight is that the pension default could be changed to overcome the behavioural biases that result in people failing to enrol. So the decision was taken to switch the default option: from one that required people to 'opt in' should they wish to join a company pension scheme, to one that allowed people to 'opt out' if they did not want one.
It is a good example of a ‘nudge’ – a way of helping people make better decisions for themselves but without closing off any options. People are still able to opt out of their pension if they wish to.
Though an apparently straightforward change, automatic enrolment has been years in the making and has only been possible due to the work of DWP officials and partner organisations. The key decisions date back to the previous administration: automatic enrolment was one of the recommendations of the Pensions Commission, chaired by Adair Turner in 2005.
After the Government accepted that recommendation, DWP officials began working out the detail of the policy, implementing a highly successful communications campaign and managing this huge change programme which continues until 2018. DWP officials have been working collaboratively throughout with delivery partners including The Pensions Regulator, who are providing guidance and tools to help employers affected by the scheme.
Even now, DWP are only one year into a six year process. So far only the largest employers have been affected. But over the life of the programme, some 1.3 million employers will be required to automatically enrol their staff.
For small and medium sized businesses, this will create challenges that do not affect larger firms (with dedicated corporate centres to support the changes) to the same extent. This will require DWP and The Pensions Regulator to provide additional support and guidance for the smaller employers, which is already being planned for.
All in all, this has been a great example of a department and its partners working over a long period of time to devise a policy, work out the necessary regulatory changes, and then support businesses to implement the changes - with the aim of changing Britain's workplace saving habits to help millions of workers to start saving for their future.
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