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

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

Automatically enrolling employees into defined contribution schemes has become a common way of encouraging workplace-based saving for retirement, thereby addressing concerns about financial preparedness for retirement. Evidence shows that auto-enrolment increases the number of employees contributing to a pension over their life. However, the efficacy of auto-enrolment must be measured more broadly than focusing on retirement contributions alone. Pensions in the UK are illiquid until the age of 55, meaning that contributing to a pension is a trade-off between retirement wealth and liquid financial wealth. Analysis of Nest administrative data, carried out during COVID-19, suggests that people continue their pension contributions even during times of financial distress (increased borrowing, decreased wages, or substitution away from other savings).

The research team will use two data sets, Nest administrative data and the Understanding Society longitudinal study, to investigate the impact of auto-enrolment on balances in other asset accounts, including retirement saving and other assets held elsewhere. The staggered rollout of auto-enrolment, which creates a natural experiment in length of exposure to the automatic enrolment policy, will allow the research team to make inferences about its impact on overall financial wellbeing. The Understanding Society study, which includes data collected during COVID-19, will allow for analysis on the impact of the pandemic on household finances and decision-making.

The research team have four key aims:

1. Provide evidence on the effectiveness of UK’s auto-enrolment policy to inform future public policy decision-making.
2. Inform public debates and decisions which are likely to benefit the UK economy, society, and quality of life.
3. Challenge existing research on the effectiveness of the policy on consumer financial outcomes and highlight the unintended effects on individual financial health.
4. Improve our understanding of the financial behaviours of individuals and the long-term consequences of behavioural interventions and public policies.

The dissemination activities will target key stakeholders: policymakers and public bodies, media, industry, think tanks, academics, consumer groups, and employers. A publicly available report will summarise the findings and their implications, alongside multiple journal articles. A launch event will be held and individuals from each of the target audiences will be invited. Blogposts and a digital campaign will share updates throughout the project. The research team will directly inform the public policy debate through the work of Nest and the Department for Work and Pensions.