Context:

The 2008 Pensions Act required employers to enrol all eligible employees in a workplace pension scheme. Between April 2013 and April 2018, minimum contributions from enrolled employees were at least two per cent, including at least one per cent from the employer. From 2018, minimum contributions increased to five per cent, including at least two per cent from the employer.

The National Employment Savings Trust (NEST) is one of the UK’s largest multi-employer pension plans, with a membership of almost eight million across over 800,000 employees. Small firms dominate NEST-employer relationships, with 98 per cent of employers having fewer than 50 employees. These employers are UK-wide, and span all industry types. Nearly half of all NEST members are below the age of 35, while almost half have annual earnings of less than £20,000.

The study:

This 2019 report from Vanguard and Nest Insight represents the second publication in this series. The report evaluates the behaviour of employers and members who engaged with NEST between April 1st 2013 and March 31st 2019. The statistics used in this report are derived from various time periods within these six years.

Member wages are computed using information provided by employers on pensionable pay each time a pension contribution is made. The analysis then uses this information to approximate gross pay, which includes the addition of the lower earnings threshold for contributions (£6,032 in 2018/19).

Key findings:

• More than nine-in-ten (92%) active members of NEST are enrolled automatically in a pension scheme.
• While just 8% of members have actively enrolled in NEST, this still represents more than a quarter of a million individuals. Many of these people are on very low incomes and may not have previously saved for retirement at all. Some of the dominant demographics in this group include women, those earning below £10,000, and those under the age of 25.
• Opt-out rates are just 7%, with little impact resulting from the rise in minimum contributions in 2018. Reasons for opting out among younger members typically include affordability or distrust of pensions, while older members cited existing pensions or other sources of retirement income. Few stated that they planned to rely on the State Pension in retirement.
• About five-in-six (84%) employers enrolled members at the statutory minimum of 5% (as of March 2019), with very small employers dominating the companies enrolling workers at higher rates.
• As of March 2019, less than 1% of NEST employers had 250 or more workers, but these firms employed 36% of NEST members.
• The average median account balance for females was £327 compared to £415 for males, due to the gender pay gap. However, after adjusting for earnings and continuous contributions, the differences are negligible.
• Total assets currently invested in NEST equate to £5.7 billion. These assets are allocated 48% to equities, 23% to bonds, and 10% to property with the rest split between growth credit, commodities and money markets.
• The most recent figures show that 98% of members are enrolled in NEST’s default investment scheme. Only 1% of members had switched their investment options in the previous 12 months (to March 2019).
• The median estimated rate of return for members on a five-year annualised basis was 9.5%, as of March 2019.
• Since the launch of NEST, around a quarter of participants have registered to access their account online. Members are increasingly using tablets and mobile devices to access their accounts, which is now the dominant method of interacting with NEST, with ‘webchat’ becoming increasingly popular.
• The report concludes by identifying a number of research areas that the authors feel need tackling in the near future, including:
• Ongoing studies of differences in retirement income driven by gender, age, industry and income;
  • Deeper understanding of those outside auto-enrolment who voluntarily opt in;
  • How members interact with their NEST account digitally;
  • Deeper understanding of the reasons leading to people opting out.

Points to consider:

• The report gives little detail of the methodologies or confidence levels related to individual findings. However, as the report utilises mainly descriptive statistics from management information, we can have a reasonable degree of confidence that these figures are represented accurately.

• The report gives little detail of the methodologies or confidence levels related to individual findings. However, as the report utilises mainly descriptive statistics from management information, we can have a reasonable degree of confidence that these figures are represented accurately.

• The results of this research can be seen as a reasonably robust snapshot of drivers and patterns concerning automatic enrolment in the UK, and are representative of the UK population’s involvement with NEST pensions.