The U.K. government is considering an automatic-enrollment system to encourage employee retirement savings, Minister for Pensions Stephen Timms said at a National Association of Pension Funds conference today in London. "Our own case study research has shown auto enrollment to be effective," he said, adding that it would boost contributions to defined contribution pension plans by simplifying the process for employees while reducing administrative costs for employers.
The idea will be addressed as part of a more comprehensive set of pension reforms to be proposed later this month by the government's pensions commission, led by Adair Turner, vice chairman of Merrill Lynch Europe. A separate study by Fidelity International indicated that automatic enrollment could increase the number of employees joining defined contribution plans by more than 40%.
In the United States, automatic enrollment can increase 401(k) participation up to 90%, compared with 25% to 43% for plans without automatic enrollment, according to the same study.
According to 2005 NAPF annual survey, released at the conference, 58% of U.K. retirement plans surveyed are accepting new members. In the private sector, only 43% of those surveyed remain open. In the past year alone, 37 of the plan sponsors surveyed froze their plans, and another 80 employers said they would do so within the next five years.