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Managing my money for young adults
Managing my money for young adults

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8 Auto enrolment onto a pension scheme

This is an image of people at work in a factory.
Figure 6

A major development in pensions occurred in 2012 with the start of the government’s ‘automatic enrolment’ scheme for pensions, which meant employers offering a workplace pension scheme to their employees and automatically enrolling them onto the scheme.

Large employers started first and others followed, with all employers involved by 2018.

If employees do not want to be enrolled onto the pension scheme offered by their employers they have to take action to opt out. The prospect is that, for many, inertia will result in them becoming, and remaining, enrolled in a workplace pension scheme.

Automatic enrolment is an important initiative to get people to contribute to a pension plan, and the encouraging news to date is that the majority of people enrolled automatically onto workplace pension schemes are not opting out of enrolment.

Activity 5  Action and inertia

Timing: Allow about 5 minutes

What’s the reasoning, do you think, behind workplace pensions requiring employees to make a decision to opt out if they don’t want to join the scheme?

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The intention is that the need to take action to opt out will mean that the only a small proportion of those automatically enrolled will leave the scheme. The majority will, perhaps through nothing else but inertia – a tendency to do nothing rather than to do something – stay enrolled in the scheme. Staying enrolled will boost the chances that a sufficient pension income will be available on retirement. The tactic is proving successful: so far only 20% of those in workplace pension schemes have opted out. Most have stayed enrolled.