Informed inertia – the new game in town

Auto enrolment minimum contributions will soon be rising. While this marks a milestone in the policy and is no doubt causing sleepless nights for the DWP, our research shows that two thirds of auto enrolled savers are blissfully unaware of the impending change.

Perhaps this shouldn’t be a surprise, after all, much of auto enrolment’s success is down to inertia. But crossing our fingers and hoping savers don’t notice that more is being taken out of their pay packet for their pension feels like a high-risk strategy.

Get to know their pension

The time is right for auto enrolled savers to do what the government campaign is urging and start to ‘get to know’ their pension. We need to move from ‘inertia’ to ‘informed inertia’ with pension providers, employers and the government working together to drive home the benefits of pension saving. In taking this approach, we stand a much better chance of convincing savers to continue to do nothing when the contributions rise.

At the moment, contribution levels are so low that many savers aren’t noticing the small deduction from their pay packet. But, with minimum contributions increasing from 2% of qualifying earnings – with 1% being paid by the employer and 1% by the employee to a new total of 5% – with 2% being paid by the employer and 3% being paid by the employee – the change is likely to be noticed.

For somebody earning £30,000 they’ll see an increase in the amount being paid into their pension from just £40.21 per month (of which they were contributing £20.10) to £100.52 (of which they will contribute £60.31).

These additional employer contributions into a workplace pension are like a pay rise, and it’s unlikely anyone would turn that down. But, if they decide to stop paying in, they’ll lose their employer contribution. Saving into a pension is also one of the most tax efficient ways to save which shouldn’t be overlooked.

The first big test

Successfully navigating this increase is auto enrolment’s first big test. So far, headline opt out rates have remained reassuringly low at around 9%, with millennials far more likely to stay in than older age groups.

For the most part, people want to do the right thing and save for their future and auto enrolment makes it easy for them to do so.

But, with member contributions tripling, it will be enough for some people to question their resolve. When they do this, we need to make sure we have good answers.

Help is at hand

Savers need to know about the changes and they need to be reminded that while they’ll be paying more in, their employer will also be paying more.

To help employers communicate these changes to their staff, we’ve developed a toolkit which includes template letters, posters, payslip messaging and, very soon, a video which can be downloaded from our website.

Adrian Boulding, Director of Policy, NOW: Pensions

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