Angela Merkel’s Christian Democrats may be consistently ahead in the polls and occupational pensions are not likely to play any role at all in the forthcoming German parliamentary elections. Yet as we report in this issue, there is a flutter of interest in auto-enrolment into workplace pensions on the part of the Social Democratic Party.
And Ireland, following an OECD report, is likely to adopt auto-enrolment to boost its private pension coverage.
Prof. Bert Rürup, a Social Democrat and former economic ‘wise man’ for the German government, is the likely propagator of the auto-enrolment idea in Germany. He had the ear of Adair Turner, the architect of the UK’s auto-enrolment pensions programme, when Turner headed the UK Pensions Commission from 2002-06. Prof. Rürup also lent his name, by general useage rather than deliberate intention, to a form of supplementary pension provision in Germany and is known for his opinions on the subject.
Given this interest, the UK’s experiences with auto-enrolment will be very important, and the collective behaviour of millions of lower-paid workers will be closely noted.
In fact, the first experiences of auto-enrolment in the UK have been rather more positive than some headlines have led the public to believe. Some parts of the press noted that up to 50% of participants opted out in one tranche of the pilot programme. In reality, the company involved, RBS, already has a generous occupational pension scheme, so it was surprising that so many stayed in.
According to Tim Jones, CEO of NEST, the default provider of auto-enrolment for the low paid in the UK, the organisation is quietly confident of an opt-out rate of between 15-20%. Its initial research has concluded that clear communication is vital and that lower-paid workers, acutely aware of the importance of budgeting, appreciate the step up to regular pension savings that auto-enrolment offers.
Good pension ideas are rarely cross-fertilised between countries, so it is encouraging that auto-enrolment has the ear of policymakers outside the UK, even if widespread adoption may be some time away.
Ireland looks like a dead-cert for implementation of the idea following the OECD’s report. And it would work well in Germany, where enthusiasm for private Riester pension provision is waning but where few, including unions or employers, yet sing the praises of occupational provision.
Other countries would do well to consider the idea, since funded pensions will become even more crucial in Europe and elsewhere as populations age and governments look to cut spending on social security and state pensions.