Considerations for automatic enrolment: Impact of enrolling individuals automatically – Auto-enrolment has proved successful in increasing Plan providers can adopt automatic enrolment to simply participations rates, but the approach relies upon enrol employees into plans. This tactic avoids burdensome an individual’s inertia. This comes with the risk that paperwork and individuals making proactive financial participants are not engaged in retirement planning and decisions. While some systems are mandatory, many will be less likely to take the time to understand and pair auto-enrolment with an opt-out feature to ensure appreciate the benefits they are entitled to, potentially the individual retains the choice to participate. Adopting leading to poor decisions down the line. automatic enrolment is estimated to increase retirement income by 33% when compared to voluntary enrolment, – Plan providers must ensure individuals are not given assuming individuals reduce consumption to fund a false sense of security when they are automatically contributions to a retirement savings plan. enrolled in a retirement savings plan. Individuals need to understand that they may need to contribute additional Impact of increasing contributions automatically savings, in addition to the default contribution rate, to meet their expectations for retirement income. Taking this a step further, systems can build in automatic increases that gradually raise savings levels (“optimized – Automatic techniques have the most impact when automatic enrolment”). This increase could be a percentage individuals are engaged and understand the need to pre-programmed to increase after a certain number of save. Pairing auto-enrolment techniques with financial years or perhaps tied to life events or promotions and pay education will help individuals make better decisions and increases. start saving earlier and at higher contribution rates, with reduced plan leakage. Behavioural economics studies show that individuals often make poor decisions when the outcome has an immediate – Attention should be paid to the source of the additional effect on their lives, for example what to eat for lunch, savings; auto-enrolment is effective when additional whether to exercise and, more importantly, how much to savings come from reduced consumption and are not save today. However, some studies show that people are funded by an increase in consumer debt. better at making sensible decisions for future events, largely because those decisions do not have an immediate effect. Figure 6: Wealth at retirement can be 70% higher when using automatic techniques coupled with leakage prevention 9 Source: Employee Benefit Research Institute (EBRI) analysis, Retirement Security Projection Model® MULTIPLES OF EARNINGS AT RETIREMENT (e.g. account balance/wage at retirement) 9 8 9% All three higher techniques 7 18% higher combined increase 6 wealth at 33% higher retirement 5 by 70% 4 3 2 1 0 Voluntary enrolment Automatic enrolment Optimized automatic Optimized automatic enrolment enrolment with no leakage 12 How We Can Save (for) Our Future