The impact of pension auto-enrolment and COVID-19 on saving behaviours

This project explored the impact of pension auto-enrolment and COVID-19 on saving behaviours.

Why is this important?

Automatic enrolment into workplace pensions is a strong policy intervention designed to address shortfalls in retirement saving among the working age population. A broad evidence base has established that the policy substantially increases pension participation rates, leading to higher average saving within the pension. However, it is possible that the effect of automatic enrolment in generating new saving within the pension might be offset by less saving elsewhere within the individual’s finances.

What did it involve?

The research team focused on how pension automatic enrolment affects other forms of saving. The project used new data on the savings behaviour of individuals with automatic enrolment pensions, obtained by linking data from the UK’s largest household survey, Understanding Society, with pension records from Nest, the UK’s largest workplace automatic enrolment pension provider. Using this matched sample, a comparison was made between the savings behaviours of Nest pension automatic enrolees and the working age population observed in the linked sample.

Key findings included:

• Nest pension savers typically have slightly lower income, have lower levels of education, and are less likely to own a home (outright or via a mortgage) compared to the representative sample of the in-employment working age population.
• More than half of Nest enrolees have no stock of non-pension financial savings (54%). In addition, more than half of Nest enrolees are not contributing to any new non-pension financial saving (55.9%).
• Estimates show no statistically significant effect of automatic enrolment on active monthly non-pension saving, or on the likelihood of contributing to a self-invested personal pension.

Policy implications:

• Automatic enrolment, via reducing take home pay of individuals post-enrolment, may disproportionately affect the finances of individuals more constrained in their household finances – in particular lower income, higher debt. Future policies should consider the interconnectedness of savings, spending and borrowing behaviours.
• Individuals with no non-pension savings might be better served by accruing a stock of liquid short-term savings, alongside a stock of illiquid long-term savings. So-called “sidecar savings” products or other forms of emergency saving mechanism would facilitate the building of liquid savings alongside illiquid long-term pension savings.
• The depth of possible analysis in the UK is currently limited by the availability of large-scale data sets. The UK (as for the US) does not have a “wealth file” provider analogous to the credit file provider, so there is no pre-collated source of individual or household wealth portfolio data available for researchers