Automating saving through payroll: UK experiments
Exploring the Future of Automatic Enrolment Beyond Pension Schemes
For the past decade, automatic enrolment in pension schemes has proven to be a game-changer for employee retirement savings. This success begs the question: can similar methods be applied to other areas of employee benefits?
The National Bureau for Economic Research (NBER) sought to answer this by analysing data from two large UK studies on payroll contributions for short-term savings.
Key Insights from the NBER Studies
Study One
In the first study, conducted across two firms, employees were randomly assigned to one of three groups: automatically enrolled, opted-out, or given an active choice in participating in a short-term savings programme.
Study Two
The second study focused on a company that initially offered a short-term savings scheme on an opt-in basis and later switched to an opt-out model for new hires.
Results
Both studies revealed that automatic enrolment participation rates were approximately 48 percentage points higher than opt-in enrolment rates. Additionally, it was noted that a contribution rate of around 2% of gross pay is a level that a significant share of workers are willing to accept.
The Broader Implications
Given these findings, it might be time to rethink how we use automatic enrolment beyond just pension schemes. Benefits and schemes are a crucial part of recruitment and retention strategies. Expanding automatic enrolment could enhance employee financial security and overall well-being.
Potential Areas for Expansion
Short-term Savings Programmes: As demonstrated by the studies, automatic enrolment can significantly boost participation in short-term savings, helping employees build emergency funds.
Health Savings Accounts (HSAs): Automatically enrolling employees in HSAs could better prepare them for medical expenses, particularly in countries with high out-of-pocket healthcare costs.
Employee Share Purchase Plans (ESPPs): Increasing participation in ESPPs through automatic enrolment could help employees benefit more from company share options.
Charitable Giving Programmes: Automatic enrolment in workplace charitable giving programmes could make it easier for employees to contribute to causes they care about.
Wellness Programmes: Automatically enrolling employees in wellness programmes, such as gym memberships or mental health support services, could improve overall health and productivity.
Considerations
While expanding automatic enrolment holds potential, several factors need to be considered:
Employee Autonomy: It's important to strike a balance between encouraging participation and respecting employee choice, ensuring easy opt-out options.
Communication: Clear communication about the benefits and terms of automatic enrolment programmes is essential.
Administrative Costs: Employers need to consider the costs associated with implementing and maintaining these programmes.
Customisation: Offering customisable options within automatic enrolment programmes can cater to diverse employee needs and preferences.
Conclusion
The success of automatic enrolment in pension schemes and the promising results from the NBER studies on short-term savings suggest that similar strategies could be effectively applied to other employee benefits. Employers and policymakers should explore these opportunities, ensuring that employees' autonomy and preferences are respected. Expanding automatic enrolment could lead to more comprehensive and effective benefits programmes, ultimately enhancing recruitment, retention, and overall employee satisfaction.