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FIAP > Boletín – Recientes > Pension Notes No. 49 – Automatic Enrollment for complementing pensions: the successful case of the United Kingdom – October 2020

Pension Notes No. 49 – Automatic Enrollment for complementing pensions: the successful case of the United Kingdom – October 2020

10 November, 2020
    ● The automatic enrollment mechanism for encouraging retirement savings in individually funded private pension schemes is one of the policies that some countries have implemented to alleviate the depleted finances of their public PAYGO systems and raise the replacement rates that workers can access after a lifetime of work.
    ● Automatic enrollment is the nudge required for getting workers to save, since it avoids having to make the decision to enroll and makes it easier for them to save longer.
    ● The case of the United Kingdom is emblematic, since it was the first country to massively include a mechanism of this type to improve the levels of pension savings in its pension system. The mandatory minimum contribution to this system has been 8% of the total wage since April 2019 (3% paid by the employer, 4% by the worker and 1% by the State).
    ● More than 10 million workers have been automatically enrolled as of June, 2020, contrasting with only one million automatically enrolled in June 2013.
    ● This system has ensured that 91% of those who are automatically enrolled remain in the system. Only 9% of automatically enrolled workers have opted out.
    ● Results in the UK have been especially relevant and meaningful among low-income and part-time workers, women and young people. The system has ensured that workers in small and medium-sized enterprises (SMEs) and those with lower wages also save for their retirement.
    ● In the light of the experience of the United Kingdom, it would be particularly relevant for the automatic enrollment mechanism to be adopted as part of the design of the pension systems in Latin America and other regions with low pension coverage. This would enable increasing workers’ retirement savings levels, promoting a savings culture, and creating a pension system for self-employed workers who have not invested for their retirement in any way.

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