National Employment Savings Trust Corp. uses behavioral economics to enroll members in its defined contribution plan — and keep them enrolled.
Mark Fawcett, chief investment officer of NEST, the U.K.'s £475 million ($738 million) national defined contribution system, told attendees at Pensions & Investments' Global Future of Retirement Conference in New York on Monday that the plan uses such behavioral economics tools as inertia, social proofing and empowerment to keep participants in the retirement program.
NEST automatically enrolls participants, but it offers an opt-out feature.
Mr. Fawcett said when members express interest in opting out of the plan, they are asked why. If the answer is because they don't think they can afford it, they are encouraged to try it out for a while. They also are asked if they're “happy to walk away from money” from their employer.
“We gently discourage them from opting out,” Mr. Fawcett said. “We want to make it physically easy to opt out, but emotionally difficult.”
Currently, the opt-out rate for the plan is 8%. “That's the power of inertia,” he said.
Mr. Fawcett said that behavioral economics “can be a powerful tool if used correctly.” The goal is to use these tools to encourage people to not only start saving, but also to keep saving.
However, he said NEST executives are very careful to not go too far in using such tools: “We must not abuse our influence.”