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Defined Contribution

NEST participation exceeds expectations; women saving more than men – report

Women enrolled in the 2.7 billion ($3.6 billion) U.K. multiemployer defined contribution plan National Employment Savings Trust, London, save at a higher rate compared to male counterparts, according to a first report by Vanguard Group that studied NEST's participants.

The average retirement balance for female participants constituted 76% of the balance for male participants, but was driven by lower average earnings. However, when adjusting for earnings, women have higher median contributions and higher median account balances in all but the highest earnings band, where the difference was negligible, said the report.

Some 99% of NEST's participants are invested fully in the default target-date investment strategy. Some 49% of assets were invested in equities, 24% in investment-grade bonds, 13% in property, 8% in credit and 6% in short-term reserves, the report said. Activity around switching options was low, with fewer than 1% of participants changing investment options in 2017.

Opt-out rates were significantly lower than expected, both during the staging enrollment and ongoing enrollment phases, with 92% of eligible employees enrolled in NEST, the report said. However, reasons for opting out cited by participants were affordability or other sources of retirement income.

"Opt-out rates have proved to be significantly lower than many commentators feared," said William Allport, senior retirement strategist at Vanguard, in a news release. "Moreover, few of those that did opt out said they planned to rely on the state pension, strongly suggesting that the importance of private saving for retirement is increasingly understood."

William Sandbrook, executive director at NEST Insight, added in the release: "Auto enrollment is still in its infancy, but has the potential to materially improve the quality of life for retirees, particularly those on low incomes. It is very difficult to make predictions this far out, but the projections used in this report suggest that a typical low-income 22-year-old might generate an income of 3,000 per year in retirement, in addition to their state pension. That equates to a 55% replacement ratio, a really meaningful lift for a low-income retired household."