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Automatic Enrolment: A New Application in Savings

Jan 8 2024 • 3 min read

One of the most cited applications of behavioural science in practice is the powerful effect of automatically enrolling people into schemes like pension plans. With a simple change in the sign-up process, these interventions show that we can move from a world in which the minority of people save for retirement to one in which the vast majority of people sign up.

The reality is, however, that examples of truly powerful, positive effects from automatically enrolling people into new schemes are few and far between. And that is because for automatic enrolment to have a big impact, it requires a single sign-up process that has significant consequences at some future point.

But every now and again, a new application is identified with just such potential. And that area is savings.

The latest research from the Money and Pensions Service shows that around 9 million people in the UK have no savings; and a further 5 million have less than £100. This includes millions of people in paid employment who - when asked - say that it’s hugely challenging for them to set aside even small amounts every month, and even more challenging for them to build up a savings buffer.

Working with a range of different employers and our friends at Wagestream, Nest Insight (the research team behind the pension provider) has therefore been testing and trialling new ways of encouraging employees to build up an emergency fund.

Knowing that similar issues were at play in relation to pensions savings, and having already tried a range of different approaches, Nest Insight began a programme working with employers to test whether automatically enrolling employees into savings plans might work.

From October 2022, they began a new initiative with Bupa Care Services and the Co-operative Group to automatically enrol new users into a savings scheme. The default option was £40/month, but employees could opt-out or change their savings amount at any time.

The results were dramatic.

Four months after launch of the scheme, 70.5% of those who were automatically enrolled in were saving, compared to just 15.9% of those who needed to opt into the scheme. Furthermore, individuals in the first group built up a balance of £73 over four months, while those in the second group managed to save just £17.

If rolled out more widely, this intervention has the potential to positively impact the lives of millions of employees across the UK. In a future blog we’ll review further applications of automatic enrolment in other policy domains. But today we should just celebrate the fact that more people will be better prepared for the rainy days ahead.

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