Employees are keen to save more for the long term but need clear communication and guidance to help them, according to research from Standard Life.
The report, developed with academics from the University of Edinburgh found that auto-enrolment could create an additional six million people saving, adding £12.5bn annually to retirement savings by 2017.
It also concludes that with the right communications, opt out rates could be as low as 18 per cent.
Furthermore, 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
The research found almost a third (31 per cent) of employees surveyed who plan to stay enrolled would be willing to pay more than the basic 4 per cent contribution rate and would also be willing to increase their contributions automatically whenever they receive a pay rise, and 48 per cent said they would find it easy to save an additional £50 a month right now if they had to.
On the back of the report Standard is calling for a number of initiatives to be considered by UK Government to maximise the positive impact of auto-enrolment. The provider is calling on policy makers and industry to develop guidelines for auto-enrolment communications that create a greater propensity to save – to be applied widely and consistently.
It wants the government to agree a set of fact-based messages to be used in communications around retirement savings and in financial education for the next three years, citing the success of the “5 a day” campaign as an excellent example of this.
It also wants a requirement to send 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.
And it wants the use of the word ’pension’ to be reserved only for the State Pension, which would only be one component of people’s retirement income. David Nish, chief executive of Standard Life, says: ” 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% 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.”