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Almost half of working-age adults are not paying into a private or workplace pension, the government revealed this week. This headline caught my attention while browsing the BBC News website the other day, and it really made me think!
This is an awful lot of people imperiling their future lives, and with the UK’s pension auto-enrollment system, now in its tenth year of operation, seeming to be pretty successful, it would suggest people are actively going out of their way to opt out of the system.
For you Yankees, auto-enrollment was a landmark UK policy, and it has helped bring millions more of the local population into pension saving. But I feel the “almost half” figure reveals that significant challenges remain in ensuring widespread financial security in retirement. It’s a difficult issue that transcends national borders and most likely has some lessons for your own US Secure Act 2.0. There’s no easy answer without touching on economics, psychology, and social policy.
What are the implications of not looking out for your future self? I can think of a few. Future poverty for one: A large section of the population facing retirement with only social security could lead to high levels of poverty and financial hardship in old age. This poverty can strip individuals of choice and dignity, leading to isolation, poor mental and physical health, and an inability to participate fully in society. It can mean cutting back on essentials like heating, food, or social activities. Not a good outcome, in my opinion.
Retirees with limited disposable income contribute less to the economy through consumer spending, with the knock-on effects impacting businesses and possible economic growth. A larger, less affluent retired population relying on a smaller working population can create tensions and hinder future economic dynamism. I know that within the HumbleDollar community I’m preaching to the choir, but it’s still worth pointing these challenges out.
Can the US Secure Act, which makes auto-enrollment mandatory for many people starting in 2025, learn any lessons from the UK Pension Auto-Enrollment Act? The UK’s “almost half” figure makes me think that even with a strong auto-enrollment system, a significant portion of the population might still opt out. Could this suggest that simply making it a default isn’t a magic bullet? Similar challenges related to financial literacy, immediate financial pressures, and behavioral thinking that lead people to opt out in the UK will probably apply in the US. The Secure Act might need to consider accompanying measures to educate and encourage participation beyond just the default. I’m obviously not a US citizen, but this seems like a good start.
What other lessons can we learn? Just like the UK’s issue with self-employed and multiple jobholders, your version has its own exclusions (e.g., plans established before a certain date, very small employers, governmental plans). These gaps will still leave millions without auto-enrollment. Even for those who stay enrolled, the default contribution rates might not be sufficient for a comfortable retirement. The UK faces this challenge, and the US will too. I think review of contribution rates and encouragement for higher savings are helpful. The UK is now in its tenth year and is reviewing its policy. The US will also need strong mechanisms to monitor the effectiveness of the Secure Act, identify persistent challenges, and be prepared to adapt policies over time.
I hope you don’t mind me “sticking my nose in” and sharing my thoughts around your new Secure Act, and I apologize for any mistakes due to this Brit’s possible lack of understanding around Secure Act 2.0. But I think the UK’s situation is a good case study. I believe that while auto-enrollment is a good first step, it’s not the end of the road. The implications of a large segment of any population not saving adequately for retirement are profound, affecting individuals, families, and the broader social and economic fabric. Both the UK and the US must continue to grapple with these complexities to secure the financial futures of their citizens.
What is really sad is that we need laws to get people to save for their own future. When I managed 401k plans we had people who would not enroll because they didn’t want “the Company” using their money.
Some of these union guys were earning tens of thousands in overtime -literally – and thus lost 3% of their total pay by not contributing.
When auto-enrolment became mandatory in the UK, and I was communicating with staff about the principles and what I was doing to comply with the law, I admit to being slightly unprofessional and unprincipled by obfuscating around the wording I used to highlight they could opt-out. It seemed to work as nobody chose to.
Auto-enrollment is definitely a good start and most studies have shown its been very successful in getting default self-provision working. But personal financial literacy is still a massive problem with many people not taking bigger equity risks with their savings and conflicting messages from successive governments and the personal finance industry (who of course remain self-serving in their pronouncements).
It might only take another Global Financial Crisis or bond market meltdown to destabilise the whole thing and that is certainly not impossible when the great AI bubble bursts or tech vulnerabilities get targeted by bad actor states.
Mark, thanks for this thoughtful analysis. I agree. I have commented previously that I think it’s sad that some people can recite in great detail the statistics of their favorite sports team, but can’t figure out how to balance a checkbook. Financial literacy seems to be a challenge for both our countries.
Also, I don’t mind you “sticking your nose in” at all. I have observed that people from other countries know way more about the U.S. than Americans know about other countries. I wonder why this is.
My feeling is I think people outside the US often understand your issues better because American global influence means your decisions impact us directly. I suppose just like other nations would have had an imperative to understand the Roman Empire in ancient times so we do today with the U.S. Economically, politically and culturally to get a feel of what you’re up to next and help us mitigate against any risks and spot opportunities so to speak. We also tend to consume a broader range of international news sources giving us multiple perspectives beyond just US domestic coverage. Many countries emphasize world affairs in education encouraging a natural curiosity about global players like the US. Frankly the US can seem quite self-contained and inward looking from an outsider perspective so I’m guessing there’s less inherent pressure for Americans to dive deep into other nations’ issues. But that’s just the view of one Irish barbarian on the edge of a mighty empire 😂
One thing I noticed when I moved to the US from the UK was an extreme lack of foreign news coverage. However, that was 1975, and the situation has improved, although coverage still tends to be concentrated on a few areas. I also noticed that the public school system in my area had limited coverage of world history, and apparently omitted geography entirely.
My husband and both our sons were/are huge history buffs and I’ve always been into geography, pulling out my National Geographic Atlas to find places mentioned in books and articles or checking to see where friends and family have moved. It’s shocking when I hear people, from acquaintances to top government officials, reveal their complete lack of knowledge about both history (world and U. S.) and geography.
I do enjoy BBC World News on public television. Hopefully I can continue watching…
I just upped my monthly contribution to my local public radio station. I will also make QCDs to both public radio and TV. The pledge drive the radio station (WUNC) just held raised a cool one million, but that generosity may not last.
I guess that big lump of land between the Atlantic and Pacific seaboards is pretty much enough to be getting on with for some folks 😉
In practice it will mean very little since auto enrollment was already a trend in such plans and there is no requirement to offer a plan in any case. We have a long way to go.