This brief Note examines the impact on pension savings of the introduction of automatic enrollment in occupational pension plans in the United Kingdom, to the end of 2016.

As is known, automatic enrollment, which was implemented in the United Kingdom in October 2012, entails that employers are obligated to automatically enroll workers in an authorized pension scheme. Workers can choose to opt out of the scheme whenever they want, but they will be enrolled again every three years. This rule covers all workers aged 22 years and older (up to the legal retirement age, which depends on the year each individual is born) earning more than GBP 10,000 (approx. USD 11,760) per year. The purpose of this policy is to encourage more private pension savings by increasing the number of savers and the value of savings, thus reducing the burden of funding for state pensions in the long term.

The results show that since the introduction of automatic enrollment:

• 6.5 million people have been enrolled and 66% of all workers are now enrolled in an occupational pension scheme.
• Total contributions have increased, but mid-sized contributions have decreased since workers and employers agree to contribute the minimum required by law. Total minimum contributions are now 2% (1% employer, 1% worker) until 05.04.2018; they will be 5% from 06.04.2018 to 05.04.2019 (2% employer, worker 2%, 1% State); and 8% from 06.04.2019 onwards (3% employer, worker 4%, 1% State). It is not clear what will happen when minimum contribution levels increase.
• Opting out rates are lower than expected, with estimates ranging from 8% to 14%, but the factors that explain this behavior are not entirely clear. This will be a significant issue as minimum contribution rates increase.

This brief Note examines the impact on pension savings of the introduction of automatic enrollment in occupational pension plans in the United Kingdom, to the end of 2016.

As is known, automatic enrollment, which was implemented in the United Kingdom in October 2012, entails that employers are obligated to automatically enroll workers in an authorized pension scheme. Workers can choose to opt out of the scheme whenever they want, but they will be enrolled again every three years. This rule covers all workers aged 22 years and older (up to the legal retirement age, which depends on the year each individual is born) earning more than GBP 10,000 (approx. USD 11,760) per year. The purpose of this policy is to encourage more private pension savings by increasing the number of savers and the value of savings, thus reducing the burden of funding for state pensions in the long term.

The results show that since the introduction of automatic enrollment:

• 6.5 million people have been enrolled and 66% of all workers are now enrolled in an occupational pension scheme.
• Total contributions have increased, but mid-sized contributions have decreased since workers and employers agree to contribute the minimum required by law. Total minimum contributions are now 2% (1% employer, 1% worker) until 05.04.2018; they will be 5% from 06.04.2018 to 05.04.2019 (2% employer, worker 2%, 1% State); and 8% from 06.04.2019 onwards (3% employer, worker 4%, 1% State). It is not clear what will happen when minimum contribution levels increase.
• Opting out rates are lower than expected, with estimates ranging from 8% to 14%, but the factors that explain this behavior are not entirely clear. This will be a significant issue as minimum contribution rates increase.