Opt-out rather than opt-in is key to success of UK scheme

Nest Pensions’ Helen Dean has been in the island to talk to States members about her experiences in setting up the UK scheme ahead of the debate in November on the introduction of Your Island Pension (Yip) – Guernsey’s equivalent, which will be operated by Sovereign Pension Services.

Mrs Dean has been involved with the national UK pension scheme in one form or another for more than 20 years.

She started out as an adviser on pensions to the UK government when she helped develop the auto-enrolment policy, saw it become law, and then designed and built the national pension scheme itself, which is provided by Nest.

The launch of Yip was originally discussed by the States in May, but debate was deferred after a successful sursis led by Deputy Carl Meerveld, who persuaded members that it was best to wait until after the tax review had been prepared before discussing the proposed scheme.

Mrs Dean echoed the comment made by Employment & Social Security president Peter Roffey during the debate that there was never a good time in which to introduce a scheme like this.

‘I think it’s an interesting time to be trying to launch something,’ she said. ‘We launched our automatic enrolment policy just after the global financial crisis.’

It was the enrolment policy that was key in getting people signed up, she said, and followed a decision to make the scheme opt-out rather than opt-in.

It was particularly important in getting younger people onto a scheme.

‘Automatic enrolment has been an absolute revelation because opt out rates are about 8% overall, but among young people, it’s more like 4% or 5%,’ said Mrs Dean.

‘So it is an incredibly powerful way to get young people to start saving.’

The UK brought in its scheme after it was realised that between 8m. and 10m. people were not saving enough for retirement and this was at a time when some employers were actually getting out of pensions, and where companies were offering them, few employees were opting in.

The solution was to get people to save more and after looking at the Australian model, where it was compulsory for all employees to be on the scheme, it was felt more politically acceptable to go for the opt-in model.

Another major task was getting employers on board, with some, particularly those with only a handful of staff, concerned more about the administration of the scheme than the costs.

‘We built an employer consensus in the end,’ said Mrs Dean.

‘They needed a few things to be reassured about and one was that the contributions their contributions would be phased in over time.

‘Over time, as we rolled out, small employers began to realise that there wasn’t a big admin burden here, that effectively they could see pensions as part of payroll. We would do the pensions administration, all they had to do was get their payroll sorted.’

The scheme has been a huge success, with Nest currently having 11m. members and assets of just under £26bn 10 years after the scheme launched.

‘We’re growing at about 5.7 billion a year. So it’s grown really big. It’s just been very successful.’