Reforms in United Kingdom Offer Guidance for U.S. Policy

Retirement reforms being implemented in the UK through 2018 represent an important testing ground for government-backed savings efforts. 

Faced with a daunting retirement savings shortfall, U.K. policymakers instituted a series of reforms that has expanded retirement plan coverage for workers, and a new issue brief offers a detailed analysis for U.S. policymakers about the initiatives.

“The United Kingdom’s New Retirement Savings Program,” an issue brief from the National Institute on Retirement Security (NIRS), co-authored by John A. Turner, director of the Pension Policy Center, and Jennifer Erin Brown, NIRS manager of research, explains that the U.K. reforms require all employers to automatically enroll their employees in a retirement savings account. Also, employers are required to contribute to the retirement plan if an employee participates, although individuals can opt-out. The U.K. also sponsors its own retirement plan—the National Employment Savings Trust (NEST)—so all employers are able to offer their employees a plan.

The new reforms are being phased in over time and will be fully implemented by 2018. During the remainder of 2016 and in 2017, U.K. employers with 30 or fewer employees will enroll their employees in a plan. Already, the U.K. has expanded coverage by six million workers. A total increase in coverage of nine million workers is expected when the program is fully implemented in 2017.

“U.S. policymakers would be wise to examine the reforms the U.K. has implemented. We have a deep and serious retirement savings shortfall in the U.S., and legislative efforts that attempted to move the needle on retirement savings and coverage have failed,” says Brown.

“Ten years ago, Congress clarified that employers could use automatic enrollment features to nudge employees to save for retirement. But sadly, the rate of retirement plan coverage is lower today than it was in 2006,” says Diane Oakley, NIRS executive director. “The experience across the pond is proof for policymakers of the power of auto-enrollment when it’s working at full capacity. In fact, many U.S states that are taking steps to help working Americans have a financial stability in retirement are considering similar automatic enrollment practices.”

The issue brief may be downloaded from here.