In the last few years, there have been major efforts by countries worldwide to reform pension systems, often involving the expansion of individual savings programs. One tool that has proven to be highly effective in increasing voluntary pension savings is automatic enrolment. Based on principles of behavioral economics, workers are automatically enrolled in an individual pension savings plan, with the possibility of opting out if they decide to do so.
The automatic enrollment public policy was launched in Brazil on February 27 this year in employer-sponsored supplementary pension plans: all workers hired by any company that offers its employees a sponsored pension plan will be automatically enrolled in the plan, without having to apply for membership. According to experts in the industry, the approval of this mechanism is a historic milestone in achieving greater pension savings and inclusion.
Despite this significant achievement, Brazilian experts say that there are some regulations that need to be improved. For example, one of them says that the rule does not apply to instituted pension plans (typically individually funded and established by unions for a specific sector). Another one is the appropriate mechanism for reimbursing contributions to automatically enrolled individuals who opt out within 120 days if there have been losses or negative returns within that period.
The article also highlights the positive international experience in automatic enrolment in New Zealand (the country that pioneered the initiative with the KiwiSaver plan in 2007), the UK (since 2012), and the USA, where it will be mandatory as of 2025, pursuant to Secure Act 2.0 of 2022, and Ireland (where the final draft of the law is currently being discussed and could be passed this year). Finally, the document ends by emphasizing the position of the OECD on this matter, which indicates, among other matters, that automatic enrollment:
Should cover all formal and self-employed workers, since it enables increased participation in pension schemes, while ensuring the necessary flexibility by allowing individuals to opt out if they wish to do so.
Should consider features that make savings attractive, such as allowing early access to funds, but only in specific cases (such as serious financial difficulty).
Should be combined with regularly updated financial incentives, to maintain the attractiveness of retirement savings.
Should be combined with gradual and automatic increases in mandatory contributions, to ensure adequate future pensions.
