We weren’t quite sure how to process the information when it was first reported in 2017, and haven’t hit upon any new insight in the time since, but the World Economic Forum’s prediction of a $224 trillion retirement funding shortfall certainly got our attention.
The almost comical, Austin Powers-size ridiculousness of the number makes it tough to take seriously, but without a doubt, pundits and policymakers across the globe are concerned about retirement readiness in the age of exploding populations and longer lifespans.
Part of the angst is driven by a lack of coverage in employer-based defined contribution plans, something many state-based plans currently in the works or recently rolled out have sought to address; Illinois, California, and Oregon to name a few.
CRR report
But the United Kingdom is kicking it up a notch, and recently launched a nationwide auto-enrollment program of all private sector workers not covered by a plan. While the efficacy of doing so in a country with a population size of the United States is debatable, lessons can be learned about participant behavior and results, about which the Center for Retirement Research at Boston College now reports.
“Auto-enrollment can be either a ‘single shot’ policy or involve automatically re-enrolling workers who opt out initially, which means that a worker who leaves their retirement plan will be re-enrolled at certain points, though they can always choose to leave again,” CRR explains. “The United Kingdom chose to require re-enrollment every three years, in addition to whenever an employee moves to a new employer.”
In the wake of instituting its opt-out initiative, CRR finds that “participation rates have jumped to around 90 percent at medium and large employers and 70 percent at small employers.”
The UK’s policy reform overall has led to an “enormous increase in the share of private sector employees who are saving in a workplace retirement plan.
“The participation rate more than doubled: from 32 percent in 2012 to 67 percent in 2017,” and while most of the increase is among workers making the minimum default contribution, “the share contributing at higher rates has also risen significantly.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
