Last week at the Nest Insight conference we launched the inaugural edition of How the UK Saves, with our strategic partners, Vanguard.
Many of you will be aware of the great success Vanguard’s Center for Investor Research has had with its other annual publications, How America Saves and How Australia Saves. For us, being offered the chance to get involved with the first edition of How the UK Saves really was a no-brainer. One of the key drivers behind establishing the Nest Insight unit was to find ways to share our data, and the insights they present, widely and freely. This publication is a huge step towards realising that vision, and we’re grateful to Vanguard for working with us to bring it to fruition, as well as for their broader support for Nest Insight.
At Nest Insight we certainly appreciate the value of data sharing and transparency. We’ve learned a lot from the experiences others have had around the world, and indeed many of these shared insights influenced the design of the Nest pension scheme. How the UK Saves, and the broader work of Nest Insight, is our chance to give something back and share research that can now be similarly useful to others. We hope that this report will be of interest to those around the world who seek to use similar approaches to tackle similar challenges of populations under-served by traditional retirement provision.
If you’re yet to read the report, it’s well worth setting some time aside. The analysis of the report spans hundreds of millions of individual data points, making it one of the most extensive studies of retirement savings published in the UK.
Five key highlights from How the UK Saves
The report highlights a number of themes and trends. These are my top five take-aways:
1. Nest is fulfilling its mission, helping millions save for a more comfortable retirement
The data shows that Nest has achieved a high level of coverage across the whole of the UK, with members from across all industry sectors. In particular, the scheme is helping many lower and moderate earners to save for retirement, who were previously at risk of inadequate provision.
With auto enrolment still in its infancy, and initial contribution levels deliberately kept low, it’s not surprising that at present average account balances are relatively modest. However as people continue to save, and minimum contributions are gradually increased over time, these balances can be expected to grow rapidly.
If we take a look at projections, they indicate that a typical low income 22-year-old might generate an annual retirement income of £3,000 in today’s money when they come to retire. For those on lower and moderate incomes, who might otherwise expect to rely solely on the State Pension, and who would probably not be saving but for auto enrolment, this represents a very meaningful uplift in their retirement income and quality of life in retirement.
2. Opt-outs remain low
The number of people opting out of auto enrolment has been unexpectedly low across the country, exceeding many commentators’ expectations prior to 2012. This is also reflected amongst the Nest membership, with ongoing opt-out levels of just 6 per cent. And, even amongst those who did opt-out, their reasons for doing so reveal something positive. Very few of those who did opt-out said they planned to rely on the State Pension which strongly suggests that the importance of private saving for retirement is increasingly understood.
3. Data so far suggests re-enrolment is effective
Whilst the amount of data on re-enrolment is relatively small, due to it being a three year cycle, the figures so far are interesting. All of these workers initially chose to opt-out of the Nest pension scheme, or ceased contributing. Yet, three years later, we estimate that 87 per cent of these re-enrolled workers stayed in.
This statistic underscores the effectiveness of the three year mandatory rule in encouraging those who opt-out, or cease contributing, to resume saving in the pension scheme. The data suggests that for many, the drivers of opting out on any given occasion are temporary and circumstantial rather than any systematic objection to retirement saving.
4. A relatively high number of savers opted-in
The finding that more than 250,000 people chose to opt into the scheme voluntarily is really encouraging, particularly as this group tended to be young, female and with very low incomes, and may not have previously been saving for retirement.
5. Women are saving more into Nest than men
While men have more money saved for retirement than women on average, this largely reflects that average female earnings are lower than men’s. When we adjust for earnings however, the data reveals that women tend to contribute more than men and have higher balances. Women earning £10,000-£14,000 a year for example contributed 26 per cent more, and had balances 20 per cent higher, than men on the same earnings.
Over time we hope that this annual publication will build to provide a rich and detailed understanding of how auto enrolment is working for our population of largely low to moderate income savers. Vanguard and Nest Insight share the aim of expanding this project in future years, including other UK pension providers so we can build up an even bigger, more representative picture of how the UK saves.
Will Sandbrook, executive director of Nest Insight
The full report is available here.
If you’d like to find out more about this project, or are interesting in getting involved, please contact: