A new report detailing new research into the measures that need to be taken by Government, employers and industry to ensure the plan for pension auto-enrolment is a success and makes it easier for more people to save enough for their long term future.

According to the report, carried out by Standard Life and developed with academics from the University of Edinburgh, people want to save more, but need clear communication and guidance to help them. On the back of the report Standard Life is calling for a number of initiatives to be considered by UK Government to maximise the positive impact of auto-enrolment.

The key findings of the report are:

• Auto-enrolment could create an additional six million people saving, adding £12.5bn annually to retirement savings by 2017
• With the right communications, opt out rates could be as low as 18 percent.
• Possible extensions to auto-enrolment could each see employees saving an extra £13bn-14bn annually by 2025, doubling the impact of next year’s reforms
• Almost a third (31 percent) of employees surveyed who plan to stay enrolled would be willing to pay more than the basic four percent contribution rate and would also be willing to increase their contributions automatically whenever they receive a pay rise
• 48 percent of employees surveyed said they would find it easy to save an additional £50 a month right now if they had to.

David Nish, Chief Executive of Standard Life, said: “Standard Life fully supports auto-enrolment into workplace pensions which we believe offers a unique opportunity to put in place an affordable and sustainable pension system for millions of people working in the UK. We believe that auto-enrolment can help re-introduce a savings culture in the UK and be an important first step in bridging the savings gap.

“The ‘Keep on Nudging” Report makes some practical recommendations which can help make auto-enrolment a resounding success. It may seem obvious, but carefully designed communication is essential in achieving results. By presenting information about auto-enrolment that is clear and effective, which provides a clear picture of the value of employer contributions and the tax advantages, our research found that 82 percent of people would remain enrolled in their pension scheme. This is a hugely encouraging finding.

“The current economic climate presents many challenges. Yet our research found that the majority of people are still keen to prioritise saving, particularly when they are helped to understand what it means to them, both now and in the future. This is just a first step however, and our report also highlights two potential extensions to auto-enrolment. Each of these could add £13-£14bn in retirement savings annually by 2025, over and above the £12.5bn we expect from auto-enrolment alone, and as such are worthy of further investigation. “I believe that, working together, employers, the long-term savings industry and government can realise the full potential of auto-enrolment.” Details of the report

Keep on Nudging was developed in partnership with Professor Dr. Ed Hopkins and Dr. Tatiana Kornienko, behavioural economists at The University of Edinburgh. Its aim was to identify how to maximise the potential of workplace savings to help those on low to medium incomes (the squeezed middle) to save for retirement. The research is based on a survey of over 600 employees nationwide, all earning between £18k-45k a year – the “squeezed middle”.

The key finding from the report indicated that when information is presented clearly and effectively, 82 percent of employees who would be auto-enrolled would not opt out. Of those who would opt out, a fifth said they save in other ways, through property for example. Interestingly, over a third of those who would remain enrolled suggested they could be encouraged to save more. More surprising was that over 70 percent of all respondents said they would not find it difficult to save an additional £50 a month if they had to, with 48 percent saying it would be easy to do so.

The research also investigated two high impact extensions that could build on the principles of auto-enrolment and boost savings rates further: Auto-escalation of pension contributions, where an employee is enrolled at the four percent default rate and this contribution level increases by 0.5 percent automatically each time they have a pay rise. Only four percent of people who currently have some form of pension savings said they would opt-out.

Auto-enrolment into workplace ISAs, where employees are auto-enrolled into both a workplace pension and a workplace ISA (investing two percent of income). When this was tested, only a minor increase (three percent) in opt outs occurred.

On the back of the report Standard Life is calling on policy makers and industry to:

1: Develop guidelines for auto-enrolment communications that create a greater propensity to save – to be applied widely and consistently.
2: Agree a set of fact-based messages to be used in communications around retirement savings and in financial education for the next three years. The success of the “5 a day” campaign is an excellent example of this.
3: Consider sending a letter to everyone on their 30th birthday, with education and guidance on retirement planning, as this seems to be a pivotal moment in a person’s attitude to long term saving.
4: Reserve the use of the word ‘pension’ for the State Pension, which would only be one component of people’s retirement income.
5: Start working on the design of the next step in auto-enrolment now, so that changes may be implemented quickly after the 2017 review.