Automatic enrolment is a response to some of the challenges facing the UK pensions system, and ultimately to the issue of millions of individuals in the UK not saving enough for their retirement. It will require employers to automatically enrol eligible workers into a qualifying workplace pension scheme. Individuals will have the right to opt out of the scheme. Once fully implemented, automatic enrolment aims to transform the culture of saving, increasing the number of individuals newly saving or saving more in a workplace pension by around 8 million, within a range of 6 to 9 million, and increasing the amount that is being saved in workplace pensions by around £11 billion a year, within a range of £8 billion to £12 billion.
Automatic enrolment is being staged in between October 2012 and February 2018 by employer size, starting with the largest employers. As a major reform affecting all employers in the UK, this research was commissioned to understand the impact on the first employers to go through automatic enrolment and in particular to measure opt-out rates and their impact on pension participation in those organisations. Lessons from this research will be used to inform good practice for other employers in implementing automatic enrolment within their organisations.
The research was carried out between October 2012 and April 2013 with 50 employers with staging dates during this period. The research consisted of 3 strands including in-depth interviews with the lead person responsible for pensions, collection of management information and in-depth interviews with workers who have opted out. DWP will publish a separate report with findings from interviews with 50 workers from these organisations. Early findings from 17 of these interviews completed by the time of publication have been included in this report.
This is the first official government study of the impact of automatic enrolment since it began and is part of a wider evaluation programme set out in a published Workplace Pension Reforms Evaluation Strategy (July 2011). Following on from the strategy, DWP published the baseline evaluation report in July 2012, which describes the landscape before the implementation of automatic enrolment and sets out the indicators against which progress will be measured. Future evaluation reports will be published on an annual basis.
The research is being used to improve our understanding of the impact of automatic enrolment on employers and to identify key lessons for other employers who will be staging between now and 2018. The department has published changes to the automatic enrolment regulations aimed at improving the operation of automatic enrolment for employers and pension providers.
The findings in this study show that the average opt-out rate so far (9%) is lower than expected. This is consistent with the level widely reported by employers and pensions providers in the media. Previous research based on individuals’ intentions indicated up to a third might opt out. This research, and other ongoing research, will aim to understand the key drivers of opt-out and the consequent effect on pension participation levels. This will continue to be monitored as part of the wider evaluation programme.