Does automatic enrollment into retirement saving increase household debt? The authors study the randomized roll-out of automatic enrollment pensions to approximately 160,000 employers in the United Kingdom with 2-29 employees. They find that the additional savings generated through automatic enrollment are partially offset by increases in unsecured debt. Over the first 41 months after enrollment, each additional month increases the average automatically enrolled employee’s pension savings by £32-£38, unsecured debt (such as personal loans and bank overdrafts) by £7, the likelihood of having a mortgage by 0.05 percentage points, and mortgage balances by £118.

The increase in non-revolving unsecured debt balances is higher among individuals with lower incomes, higher credit scores, and younger ages. Surprisingly, creditworthiness steadily increases with time under automatic enrollment; the prevalence of defaults on debt decreases and credit scores increase. Overall, our study shows that automatic enrollment has complex effects across different facets of the household balance sheet.

To review the study in detail, download it here.