Changes are occurring on both the defined contribution and defined benefit side globally, from new plans that have been introduced to capture non-enrolled workers, to new payout calculations that account for longer life expectancies of plan participants, speakers detailed at Pensions & Investments' Global Future of Retirement conference.
The National Employment Savings Trust Corp., London, in 2012 began auto enrolling U.K. workers without a retirement plan in defined contribution plans, said Mark Fawcett, chief investment officer.
NEST, the U.K.'s £475 million ($738 million) national defined contribution system, uses behavioral economics to persuade workers to remain in the plan, which offers an opt-out feature, Mr. Fawcett said.
“Are you happy to lose out on money from your employer?” one of its e-mails asks, noting that employees who contribute to the pension plan receive free money from their employer in the form of matching contributions.
Another e-mail, citing the plan's low deductions, tries to reassure participants that the plan won't put a big dent in their budget.
Only 8% of participants opt out, he said. NEST originally anticipated an opt-out rate of 20% to 30%.
But Mr. Fawcett also noted it was important to not go too far with a message, and consider the ethics of using behavioral economics.
NEST's target-date funds, chosen by more than 98% of participants, also take less investment risk when people are in their 20s than when they are older.
“This goes against all conventional wisdom,” Mr. Fawcett said.
“When your pot is very small and when you're 22 years old and know very little about the world, it doesn't matter how much risk you take, because your pot is too small. It really matters when you're 35, 45 and 55.”
But younger people are especially disturbed by excessive volatility, he said.
Mr. Fawcett said the plan is covering 2 million workers, but that number is expected to double as more workers become eligible.
Under the law that created NEST, the plan is enrolling workers gradually, with largest firms the first to participate.
He said by 2017, NEST and other private pension schemes that compete with it for those without pension benefits should be covering about 11 million employees.