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Pensions policy shows the power of defaults

25th Sep 2013

The past year has seen one of the biggest changes to pension schemes in recent times. Starting with the largest employers, workers are now being automatically enrolled in a scheme when they join a company. In other words, now people have to make a decision to leave their employer’s scheme, rather than to join it. When it was first considered, this policy was seen as a trailblazer – and a test-bed – for the use of behavioural economics in government. It offered a clear example of how simply changing the default option could make it easier for people to save for the future. However, although there is strong experimental evidence behind this policy, there has been no indication of whether it works in the real world – until now. Last month saw the release of the figures from the first year of auto-enrolment, covering 1.9m workers in large companies. They show that the opt-out rate was just 9%, much lower than many people had predicted. As a result, the participation rate rose from 36% to 71% in those companies who previously required employees to make an active choice. This means that 400,000 more people are now enrolled in a pension scheme so far. Given that default options are present in most policies, we’re looking to build on this result in our work with other departments.