Newsletter: The impact of phasing

It’s widely acknowledged that the first phased increase in auto enrolment minimum contributions
had little to no impact on opt-out rates, but less is known about the effect it had on people’s broader financial lives, attitudes and behaviours. How did it affect people’s awareness of how much they and their employer contribute, and their confidence in providing an income for themselves at retirement? Did it change their view of the affordability of pension saving? And, how has it interacted with their other savings and, in some cases, their debts?

To find out, we surveyed NEST members before and after the first rise. Here are our key research findings:

  • The perceived affordability of pension saving didn’t change. Before and after the increase, very few members (1 in 20) thought that too much of their income was going into their pension.
  • After the increase, over a quarter of members (28 per cent) told us that they’d thought about increasing their contributions further.
  • Around half of NEST members (51 per cent) didn’t notice an increase in their pension contributions.
  • After the rise, there was a slight overall increase in confidence in being able to provide for retirement, and members aged over 60 became more likely to consider their pension as their main source of income in retirement.
  • There was no evidence to suggest that there had been a negative impact on levels of overall debt or non-pension saving behaviours.

Our full report, The auto enrolment experience over time: Understanding the real impact of contribution increases on behaviours and attitudes, is available here. Only got 10 minutes to spare? Take a look at our ‘Quick read’ section which will take you through all of the key research findings.

Some extremely positive signs emerged from our research, giving us many reasons to believe that the next rise will similarly have a low impact on cessation and opt-out rates. Our research also highlights, however, that whilst inertia has clearly been harnessed as a powerful force of good, we do need to be mindful of its flipsides:

  • A lack of engagement with retirement outcomes: In our surveys, most members told us that
    they check their payslips, but about half didn’t notice a change in the amount they’re contributing. This low level of awareness suggests it’s unlikely that people are questioning whether they’re contributing enough. For those on lower and moderate incomes, who might otherwise expect to rely solely on the State Pension, auto enrolment is likely to provide a very meaningful uplift in
    their retirement income and quality of life in retirement. But, some people may need to take further action to achieve the retirement outcome they’re hoping for. Getting people to engage with retirement outcomes rather than inputs is an important first step.
  • The impact on people’s broader financial lives: Whilst there’s little, if any, evidence to suggest that savers are funding increased pension contributions through debt, our work does highlight
    three groups to monitor as we move forwards. These include people who are more likely to be over-indebted or struggling to save outside of their pension. This is something to watch, and
    we intend to explore this further during the coming year.

How the UK Saves 2018: the effects of phasing

At the start of March, we also published How the UK Saves 2018: the effects of phasing, with our strategic partner, Vanguard. This is a supplement to the main How the UK Saves report we published together last year. The analysis supports the findings of The auto enrolment experience over time: Understanding the real impact of contribution increases on behaviours and attitudes, highlighting the low impact on opt-out and cessation rates following the April 2018 rise in minimum contributions. Read the full report here.

Further reading