It’s been over 10 years since auto-enrolment was introduced, helping more than 10 million people to start making pension savings for the first time. At the core of auto-enrolment is behavioural economic theory. It seeks to harness the impacts of our behavioural inertia, or our tendency to favour “the low cost of doing nothing”, for good. The idea is that most people will not make an active decision to opt out of a pension plan having been automatically enrolled. Given the surge in savings since the introduction of auto-enrolment, the theory appears to hold in practice when it comes to pensions.

Behavioural inertia is present in our lives all the time, and we may not even realise it. How many times have you resolved to exercise more, but have fallen back into your same old routine? Taking action and scheduling in sessions with a personal trainer or another intervention to break your daily habits might just get you over that first barrier caused by inertia. This is exactly what auto-enrolment has done for pension savers.

But, while auto-enrolment has successfully kick started the pensions savings journey for millions of people, inertia may still be preventing savers from making the most of employer pension plans or in some cases even saving enough to cover their future financial needs in retirement. Savers may be slowly increasing their savings, but not necessarily racing towards their dream retirements.

This is because a raft of behavioural biases, and  a lack of awareness, are stopping them from actively considering what contribution levels, investments and retirement age might be right for them post-enrolment.

What is stopping savers from making decisions?

• The default effect - when savers are given a choice between several options, there’s a tendency for them to favour the default option regardless of its suitability for them as an individual.
• Additionally, the status quo bias means that post-enrolment, members may prefer their selections to stay the same even if their circumstances (or other external factors) change.

These biases, and many others also related to inertia, mean that people often fail to actively engage from the start, and from that point are unlikely to recognise that their original default plan of action is no longer appropriate for changing circumstances. Inertia means savers are often set up for indecision and inaction, even when a wide range of resources and information are made available.

What are the potential impacts of inertia post-enrolment?

1. Members not contributing enough for their future needs. The auto-enrolment minimum contribution rate totals 8% - 4% less than the Pensions and Lifetime Savings Association suggests for a ‘comfortable’ retirement. Research from Nest Insight shows that 2 in 5 surveyed didn't know that they can choose how much they can pay into their pension and that 1 in 3 thought automatic-enrolment minimum contribution rates are a recommended level of saving with 68% staying at the default rate.
2. Members not actively considering their investment choices. Especially as members get closer to retirement, it’s important they take a more active approach to consider whether their investments are right for their future plans. This will mean they need to think about what level of risk they’re prepared to take and what type(s) of benefits they would like to access, as well as how these fit in with their other sources of savings and future income. A default option may be very well designed but individuals will have different circumstances and preferences.
3. Members not re-considering their choices over time as their circumstances change. For example, those who have taken career breaks or started saving for retirement later in their careers may have a savings gap to make up. These members should be thinking about what actions they can take to make up this gap so that it doesn’t affect their level of income in retirement. They may want to consider saving more or retiring later.

Can we help savers to overcome these biases?

So how can we engage members to actively consider their choices throughout their savings journey? Simple, impactful and well-timed proactive member communications are a start. The type of messaging and content used in communications can also make a big difference in how successful they are in raising awareness and spurring action.

• We’ve found that targeted reminders for members in different circumstances can be really helpful in getting them to take action and change their choices when they need to. Between 50% and 60% of our LCP Horizon email “nudge” communications about savings are opened within the first 30 minutes of being received. About 1/3rd of people who open these emails go on to increase their savings level.
• People like stories and tend to follow trends. Let your members know how many other people have signed up to the pensions website or are contributing more than the default. They might just do the same as their peers.
• Make your processes and procedures as simple as possible and communicate these clearly and often. We find a simple ‘call to action’ email with a direct link works very well.
• Give members tools and empower them to set their own goals. According to MoneyHelper people who set savings goals are more successful in saving than those who don’t.

These are just some ways to kickstart member engagement and encourage your members to actively consider their own position and take action. It’s all too easy in the world of auto-enrolment for members to think there are no decisions to make, but the sooner members understand what they need to do the better. Consistently engaging members throughout their savings journey is a great way to do this.

A decade on from the introduction of auto-enrolment, we believe now is the right time to help members take the next step. Let’s get more members overcoming inertia and moving closer towards their dream retirement.

LCP’s communications team can help companies and trustees with your employee and member communications, from strategy, drafting, and design to modelling and technology. Behavioural insights are at the heart of our approach . Get in touch with an expert today.