AE report highlights benefits and drawbacks of inertia

Pension savers in the UK feel more positive and protected in saving for retirement due to auto-enrolment (AE), although people are also paying less attention to their future finances as result, according to new research.

The white paper, produced by the University of Edinburgh Business School and commissioned by Aegon UK, investigated the impact of AE on individuals’ attitudes towards money and mindset 10 years on from the introduction of the policy.

It found that 73 per cent of those auto-enrolled felt positive about the fact that money was being allocated from their salary to save for the future without having to take any positive action.

While 50 per cent said AE has had no impact on their savings habits, 78 per cent stated it made them feel better protected and more resilient to later life events.

More than three-quarters (76 per cent) of respondents acknowledged that saving for later life was important, with 47 per cent agreeing that they felt more positive about retirement due to being auto-enrolled into a workplace pension.

The white paper also highlighted the importance of the employer’s role in AE, with 75 per cent of employees stating that they would pay more into their pension if their employer matched their contributions and 13 per cent saying employer contributions of above the legal minimum was one of the most attractive benefits when looking for a new job.

However, while the positive effect of inertia was evident in the report, it also found that it was a ‘double-edged sword’.

Nearly half (45 per cent) of respondents said they paid less attention to their pension savings as it happens automatically, with this trend especially apparent among younger people, as 71 per cent of Generation Z and 53 per cent of Millennials stating this was true for them.

Furthermore, the bias towards the status quo was holding people back from saving more and making conscious and active decisions about planning for later life, according to the report.

Almost half (48 per cent) of auto-enrolled workers said that they would be less inclined to take any action on their pension saving because it is taken care of for them through AE.

“Reaching the 10-year mark is a key milestone for AE and while we know that over 10 million people are now saving through the initiative, we set out to get under the skin and beyond the numbers,” commented Aegon head of pensions, Kate Smith.

“Our new white paper shows that overall, more people are saving for retirement and feel positive that contributions to their pension comes off their salary without them having to do anything.

“The flipside of this is that we are seeing an emerging generation of ‘go with the flow’ savers who are failing to actively engage with their savings and planning for later life. The first 10 years of AE has focused on getting more money into pensions. The next 10 must also focus on improving financial mindset.”

University of Edinburgh Business School professor of financial services marketing and consumption, and author of the report, Professor Tina Harrison, added: “Our analysis shows the crucial role that inertia has played in driving the success of AE but work is now needed to drive active engagement and decision making.

“One of the most interesting parts of our report highlights the impact that AE has had on different groups of individuals and we explored this through focus groups. This spotlighted where the opportunity exists to further increase pension participation through a combination of policy developments and greater collaboration between government, industry and employers.

“We hope that this report will influence greater participation and broader engagement in pensions and saving, forming a helpful starting point to set up what engagement means and looks like to bring about tangible behaviour change.”

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