Our research shows that pre-retirees with an adviser or financial plan are five to ten times more likely to feel ready for retirement. Not surprisingly, the percentage of advised households is highly correlated with wealth, and at-risk households remain largely in the dark: only 17 percent have a financial plan. Employer-provided retirement advice for non-executive employees. Financial-wellness education programs are often geared to new or younger employees, while personalized retirement advice for older non-executive employees is scarce.
While digital or remote retirement planning can and should exist outside of the workplace, employer-provided advice is a natural way to reach more at-risk households who depend on the workplace for the accumulation phase. At retirement, households need simple conversion products and experiences to help convert retiree balances into new cash flows: Curated annuities with institutional pricing offered at retirement. Similar to what federal employees receive through the Thrift Savings Plan, companies can offer a seamless annuitization experience to convert retirement savings into guaranteed income.
This can help many employees nearing and at retirement—for example, by leveraging default architecture in the plan to automatically convert a portion of the balance into an annuity structure leading up to retirement. In fact, recent changes to Department of Labor laws 6 6. Provisions of the law include raising the minimum age for required minimum distributions, allowing IRA contributions after age In our research, guaranteed-income products had a strong appeal, especially to the at-risk segment.
This renders digital and technology innovations critical for democratizing these offerings. At-risk and on-the-line households will likely have little to no money to spare in retirement. For them, digital management tools that prompt tax-optimized withdrawals from various retirement accounts, including k , IRA, brokerage, and savings accounts, can create substantial value. A paycheck-like experience, where a retiree receives a monthly payment, also can help people stay on track while reducing the risk of underconsumption.
In addition, retirees will still need to stay invested for two decades on average, so retirement robos can add value through appropriate asset allocation. Ideally, these tools would evolve to provide retirees with a single view into their balance sheet and cash flow statements to give them greater confidence in their plan.
Ecosystem partnerships can help retirees manage spending In addition to product development, financial services providers may find attractive opportunities to build or join a marketplace for addressing a holistic set of retirement needs—for example, healthcare, senior living, insurance, and transportation—and helping retirees optimize spending to meet those needs.
Increasingly, clients may look to retirement services providers to help manage spending across a range of needs. Holistic advice. Traditional retirement firms—including asset managers, insurers, wealth managers, and banks—can provide holistic advice that goes beyond financial transactions and planning.
Footnote 7 The groups are shown in Table 2. These groups are determined by rules of the roll-out and aggregate together employers who face the same obligation to enrol targeted employees automatically when they are observed in each April. In each year from to , there are some employers who have passed their staging date, but are not 3 months past their staging date, which means that they could have introduced automatic enrolment but they might not have because they might have postponed its introduction.
Table 2 Roll-out of automatic enrolment obligations by employer size. Full size table Given this roll-out, Eq. This is the usual common trends assumption which says that, in the absence of the reform, affected and unaffected employees would see their pension participation and contribution rates change in the same way. We also control for a vector of characteristics of employees and the employers they work for, X. The full list of covariates is found in Appendix Table Figure 2 provides graphical evidence for the effect of automatic enrolment on the pension participation rate of private sector employees who meet the conditions for auto-enrolment.
Footnote 9 Each series represents employees working for private sector employers of different sizes. Prior to the introduction of automatic enrolment between and , the participation rates of each group move in a similar way, although, on average, employees working for larger employers have higher participation rates than those working for smaller employers. This suggests that—at least prior to the reform—our common trends assumption needed for identification of a causal effect is valid.
Note: Square data points indicate periods when employers were at least 3 months past their staging date and therefore had to enrol their targeted employees automatically. Full size image In Fig. Unsurprisingly, partially affected groups denoted by circles in Fig. The primary outcomes of interest are the effects of automatic enrolment on the probability of participation in a workplace pension scheme and on the level and distribution of pension contributions. We estimate the effect on the probability of pension participation using a linear probability model and a probit model, and the effect on contribution rates both mean and whether below different thresholds using ordinary least squares OLS.
The models are estimated on data from April to April , therefore including two years and in which nobody was affected by automatic enrolment and three years in which progressively more employees are enrolled automatically. Our sample size of targeted private sector employees in employers with five or more employees from to is ,, working for 64, employers.
There are a small number of employees with missing pension contributions, so the sample size for the effect on pension contributions is slightly smaller at , In all our results, we therefore cluster our standard errors at the employer level. We show the number of clusters employers as well as the number of observations employees underlying each regression in the Results section. Results Effect of automatic enrolment on participation of a workplace pension Table 3 reports the results of estimating the effect of automatic enrolment on the proportion of employees who are members of a workplace pension, using Eq.
Our preferred specification is specification 2, which estimates the effect by ordinary least squares OLS , controlling for the characteristics of employees X. We find that automatic enrolment substantially increases the proportion of employees participating in a workplace pension, by 36 percentage points. Table 3 Effect of automatic enrolment on pension participation rates of targeted private sector employees. Full size table The alternative specifications in Table 3 show that this result is robust to estimating the model using a probit model specifications 3 and 4 rather than OLS as shown in specifications 1 and 2 and to not controlling for control variables X specifications 1 and 3.
We test the validity of this empirical strategy using a placebo test, in which we imagine that automatic enrolment had been introduced in exactly the same way, but 3 years earlier. We then estimate the same Eq. The results of this test are shown in Appendix Table We find that there is no evidence of any effect, with the tiny point estimate of 0.
However, the increase in participation in workplace pensions caused by automatic enrolment is heterogeneous, which is not surprising because, prior to automatic enrolment, different groups of workers had very different participation rates. Table 4 shows the effect of automatic enrolment on different subgroups. These are the results of estimating Eq.
Overall, it shows that those groups that had the lowest pre-reform pension participation rates see the largest impact of automatic enrolment, but that those groups with the highest pre-automatic enrolment participation rates still have the highest rates after its introduction. Table 4 Effect of automatic enrolment on pension participation rates of different subgroups.
Full size table Table 4 also shows that there is a larger effect for people with low job tenure than for those with high job tenure—increasing the participation rate by almost 54 percentage points for those in their first year with an employer, compared with 27 percentage points for those with 5 or more years with the employer.
Before automatic enrolment, job tenure is highly correlated with pension participation, and while there is still a positive relationship after automatic enrolment, it is much less pronounced. We also divide the sample into quartiles of the weekly earnings distribution in each year restricting only to targeted private sector employees and look at the effect on each quartile. Consistent with this is the fact that those from lower occupational classes see a larger increase in pension participation as a result of automatic enrolment than do those from higher occupational classes results not reported in the table.
There is a slightly larger impact for women than for men although not statistically significantly different. The table also shows that the effects of automatic enrolment were much greater in industries that, prior to the reform i. For those targeted employees working in industries in the lowest third of pension participation, the effect of auto-enrolment was to boost pension participation by 62 percentage points, an impact that is even higher than the increase for those with the lowest earnings or shortest job tenure.
In comparison, the effect of automatic enrolment for those from high-participation industries was 15 percentage points. The results of this are shown in Table 5. It shows that there was an increase in the mean employee contribution rate by 0. The effect on employer contribution rates was larger, at 0. The effect on the mean total contribution rate was 1. Consistent with the findings in Table 4 , we find that the increases in total contributions are largest in the groups such as those with low earnings and younger employees that had lower contributions prior to the reform.
Table 5 Effect of automatic enrolment on mean employee, employer and total contribution rates to workplace pensions among targeted employees. Full size table Because the mean contribution rate includes zeros and is affected by some high contribution rates generally from Defined Benefit schemes , it is potentially more interesting to estimate the impact on the distribution of contribution rates.
We do this by creating a set of dichotomous variables taking the value one if the individual is contributing strictly more than a certain share of earnings, and zero otherwise. This is done separately for employee, employer and total contributions. The impact of automatic enrolment on these outcomes is estimated using Eq.
Note: Each of the data points at each 0. The grey dashed lines show the simulated impact on contribution rates had the entire increase in pension participation occurred at the minimum default contribution rates as specified by government and had no-one else changed their pension saving in response to the reform.
Note: As Fig. Full size image In addition, on each figure in a grey dashed line, we show the simulated impact of automatic enrolment on the distribution of pension contributions if every employee brought into a pension scheme as a result of automatic enrolment was enrolled with minimum default contributions as specified by the government and if there was no other change in response to the policy.
Comparing the estimated impact of automatic enrolment the solid black lines with this simulated effect allows us to say to what extent employees are making or receiving higher pension contributions than the minimum defaults as a result of automatic enrolment. There are very large increases in the proportion with low positive contribution rates, on both the employee and employer side.
Figure 3 shows that there is an increase of As shown in Fig. However, by comparing the black lines to the simulated grey lines, Figs. On the employee side, this means that individuals are not responding to the default minimum by reducing their contributions towards it, as is found by Madrian and Shea Instead, there is an increase in the proportion making contributions that are much higher than the minimum.
This is an important result, because one of the concerns with the introduction of automatic enrolment is the fact that it has in some settings led to some people saving less, prompting calls for other policies such as auto-escalation see Benartzi and Thaler Although our results do not rule out this behaviour, they show that if it is present then the lower saving is more than outweighed by the effect of employers and employees starting to contribute more than the minimum.
One reason for this could be the fact that employers are enrolling their employees automatically into schemes with much higher employer contribution rates than the minimum and that they also have higher minimum employee contributions. This also shows that the results are not simply explained by employers choosing to move straight to the long-run minimum contribution rates.
Overall, Fig. Overall, therefore, most of the increase in workplace pension contributions comes from very small contributions around the current default minimums, but automatic enrolment also led to considerable increases well above those government minimums. One group where employers might have been particularly likely to have reduced their pension contributions in response to automatic enrolment is with newly hired employees.
This is true even when looking at those who might be most likely to receive lower employer contributions—employees aged 22—29, earning less than median earnings, who have worked for their employer for less than a year. Footnote 11 Furthermore, it is notable that this increase in the proportion of employees with contributions in excess of the minimums is not limited only to large employers that have historically provided employees with pensions. The results of this are shown in Appendix Table This shows that the effect on pension participation is larger in the group of small employers 41 percentage points than in the largest employers 30 percentage points.
This is mostly as a result of smaller employers having lower pre-reform participation rates and, to a lesser extent, lower participation under automatic enrolment among these employers. However, the effect on the probability of having higher levels of contributions e. This implies two things. First, of those who are brought into a pension by automatic enrolment, a greater percentage of those working for small employers end up on low contributions.
Second, it also shows the increase in the probability of having contributions well in excess of the minimums is not limited to the largest employers, but is something that occurs among smaller employers too. Effects of automatic enrolment on non-targeted employees Automatic enrolment potentially has impacts on those who are not targeted for automatic enrolment, for three main reasons. First, as described in Sect. They may want to do so even if they did not want to prior to automatic enrolment as peer effects have been shown to influence pension plan participation Duflo and Saez , so increased participation of targeted workers might encourage non-targeted workers to ask their employers to enrol them in a scheme.
Second, employers automatically enrol employees when they are targeted and employees could continue to participate even if they are no longer formally in the targeted group. Although this is not a possible mechanism for some groups of non-targeted employees—specifically those who have not yet worked for the employer for 3 months and those who are aged under 22—it may be important for those who have variable earnings and are automatically enrolled because at some point they earn over the earnings threshold.
Third, employers can decide to enrol automatically employees who are not targeted for automatic enrolment under the legislation. There are a number of reasons that employers might do this, such as a paternalistic desire to provide pensions to all staff, including low earners, or to reduce the administrative burden of monitoring whether staff do or do not earn over the earnings threshold in each pay period. Table 6 shows the effect on different non-targeted groups, by estimating Eq. For the first four rows of the table, we select those who are non-targeted for only one reason such as being too young, but who would otherwise be targeted.
The last row includes employees non-targeted for automatic enrolment for any reason. Table 6 shows that there are significant spillover effects of automatic enrolment onto groups that are not targeted for automatic enrolment under the government rules. Auto-enrolment increases participation rates by 20 percentage points for people who have not yet worked for their employer for 3 months and by 28 percentage points for those earning under the earnings threshold.
The spillovers on those aged above and below the age cut-offs are smaller, but still sizeable, with auto-enrolment increasing pension participation by 6 percentage points for individuals who are aged under 22 and by 9 percentage points for those over the state pension age.
Footnote 12 Table 6 Effect of automatic enrolment on pension participation rates of private sector employees who are not targeted for automatic enrolment. Full size table The fact that there are large spillover effects of automatic enrolment on the pension participation rates of non-targeted workers is both interesting and important, even though we cannot distinguish the exact mechanism that is causing it at the moment.
If it is that these employees are asking to participate, it cannot be that procrastination was causing them not to enrol previously. However, it could be because the decision is now less complex, because of the endorsement factor or in order to receive the employer contribution.
Given that there is evidence of employees not enrolling in pension schemes even when there are no mandatory employee contributions see Benartzi and Thaler , it might be unlikely that employees asking to participate is the major driver of this impact.
On the other hand, it could be that employers are choosing to enrol their non-targeted employees automatically into a pension scheme, even though this will come at some cost to the employer. This would be more evidence of employers choosing to pay more in pension remuneration than is mandated by the legislation introducing automatic enrolment.
Having said this, it is unlikely that this is simply the result of paternalistic employers automatically enrolling employees that they do not have to into pension schemes because they believe it is good for their employees. Conclusion With concerns about undersaving for retirement across the developed world, there is intense interest amongst economists and policymakers regarding policies that can boost saving for retirement.
This paper has studied the first nationwide introduction of automatic enrolment in which employers are obliged to enrol employees into a workplace pension scheme, which employees can then choose to leave if they wish. We provide the first assessment of the impact of automatic enrolment that allows for changes in employer behaviour in response to the policy in a context where those employers did not choose to introduce automatic enrolment, but instead were obliged to do it.
This kind of impact cannot be identified when automatic enrolment is introduced voluntarily by some large employers, such as was studied in Madrian and Shea and Choi et al. We exploit the gradual roll-out by employer size of the obligation in the UK for employers to enrol their targeted employees automatically into a pension between and to estimate the effect of automatic enrolment on saving in a workplace pension by private sector employees using a difference-in-differences methodology.
We find that the introduction of automatic enrolment substantially increases the probability of participation in a workplace pension scheme, by 36 percentage points. This is similar to the levels of coverage delivered by automatic enrolment found in Madrian and Shea and Choi et al. The largest effects on pension participation we find are for those with the lowest participation rates prior to automatic enrolment: those in their 20s, lower-paid employees, those who have joined their employer more recently, and those employed in industries with low pre-reform rates of pension participation.
We also find important new evidence that the policy has led to large increases in the participation rate of employees who are not targeted for automatic enrolment, by 18 percentage points on average, likely driven by employers deciding to enrol non-targeted employees automatically as well as targeted employees.
These increases in pension participation have led to large increases in saving in a workplace pension by employees targeted for automatic enrolment, on average increasing the total workplace pension contribution rate expressed as a percentage of earnings by 1. This effect is large in part because a large fraction of employers are making employer contributions above the minimum mandated under the automatic enrolment legislation.
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Thrift Savings PlanBITSHARES ETHEREUM MINIMUM WITHDRAW
Whilst a trustee will never be the same kind of animal as an IGC, it should be possible to introduce similar features between the two. However, there are a number of areas where the current proposals would not achieve parity as between trust and contract-based arrangements. For example, the duties of trustees include a reference to certain knowledge and competencies which are necessary to run the scheme, but there is currently no equivalent express duty upon IGCs. It may be that such a result could be achieved in other ways, perhaps under the proposed new FCA rules, but this is not clear from these proposals.
Accreditation of administrators could be a useful tool for trustees and IGCs, facilitating their selection of an administrator that meets minimum governance standards. We consider that there are also a number of other pensions industry initiatives in train that will help trustees and IGCs ensure that their scheme is being administered to a good standard.
Master trusts Given the large volumes of members that master trusts are expected to attract, it is crucial that such schemes maintain high standards of governance. In addition, the code is well supplemented by the new master trust assurance framework, which aims to help trustees demonstrate to potential and existing customers employers that their schemes meet high standards. As such, it would be reasonable to adopt similar requirements regarding independence of membership as for contract-based governance.
However, master trusts give rise to specific issues which need to be taken into account. Member representation, for example, may not be straightforward in every case, given that a typical master trust can ultimately expect to provide benefits for members from a large and diverse range of employers.
It will be important that any detailed requirements for member representation are both proportionate and efficient. In our experience, it can be very valuable to have trustees with significant background knowledge of a scheme. Application to corporate trustee boards We agree with the proposed application of the independence standards to those master trusts which have a corporate trustee board and to those which are unincorporated.
Where an independent trustee firm is appointed as the corporate trustee, there may need to be some further consideration around the proposal to limit the number of terms that can be served. The majority of individuals, including the chair, of the governing body must be independent of the pension provider and, to address potential conflicts of interest, the boards of master trusts will face extra requirements to demonstrate their independence.
The governing body must consider the design and net performance of default investment strategies; standards of administration; charges borne by scheme members; and costs incurred through investment of pension assets. The governing body must have, or have access to, all of the resources, knowledge and competencies necessary to properly run the scheme. The chair of the governing body must produce an annual report explaining how the scheme has performed against the quality requirements.
Implementation of the new standards will impact on how many trust and contract-based schemes are governed from April The FCA will be responsible for formulating the detail around requirements for contract-based schemes, although proposed terms of reference for IGCs are already included in the Paper. The new requirements will include a duty upon IGCs to act in the interests of members and to report on how they take into account member input, in accordance with the OFT report.
New disclosure requirements will require: Providers of workplace DC schemes to disclose full information on all charges and costs in a standardised and comparable format to trustees and IGCs. Providers and trustees to provide information, in a standardised comparable format, about charges and costs to employers before the employer selects a scheme and then annually.
Providers and trustees to provide information about charges to new and prospective scheme members, and headline charges and costs annually, in their annual benefit statement.
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Workplace Pension For Employers
