The U.K.’s Ambitious New Retirement Savings Initiative


 

Publication Date: March 2014

Publisher: Center for Retirement Research at Boston College

Author(s): Steven A. Sass

Research Area:

Keywords: retirement savings; United Kingdom; myRA

Type: Report

Coverage: United States Great Britain

Abstract:

The United Kingdom is rolling out a broad retirement savings initiative with an objective similar to President Obama’s recently announced “myRA” program. Both aim to encourage retirement saving among workers who do not currently participate in employer plans, typically those with average to low incomes. Both also steer new participants initially into low-risk investments. The U.K. initiative, however, is far more ambitious. It requires all employers to “auto-enroll” their uncovered workers, with the right to “opt out.” And the government created a new non-profit entity, the National Employment Savings Trust (NEST), to provide employers with high-quality, low-cost plans.

This brief reviews the U.K. initiative to date. The first section discusses the creation of the employer mandate. The second section reviews the development of NEST. The third section explores two issues that merit further consideration – the design of NEST’s default Target Date Funds and the government’s efforts to limit NEST’s market reach. The final section concludes that the U.K. initiative reflects the best contemporary thinking on the design of 401(k)/IRA-type retirement savings plans, but its success in addressing a critical national retirement income challenge remains untested.