Retirement Saving
Britain’s Informed Choice Program: Empowering Individuals to Make Real and Informed Choices on Working and Saving for Retirement
A Conversation with Helen Dean and Janet Hill of the UK Department of Work and Pensions / News Release
October 21, 2004
AARP Global Aging Program Idea Exchange Series
Washington, D.C.
On October 21, 2004 Helen Dean and Janet Hill from the UK’s Department of Work and Pensions (DWP) came to AARP’s Global Aging Program Idea Exchange to discuss Britain’s Informed Choice Program.
Ms. Dean and Ms. Hill jointly run the Informed Choice Program in the UK. This program aims to bring about a cultural change in regard to saving for retirement by improving access to information about retirement saving, and building the financial knowledge of people in the UK. The Informed Choice Program is working with employers to improve people’s access to pensions as well as increasing private pension participation rates, where work-based pensions are available.
Ms. Dean is responsible for the components of the Informed Choice program relating to improving employee participation rates and access to retirement savings products through the workplace. This includes components of work looking at:
- The use of information and advice to encourage workplace pension saving
- The effectiveness of different kinds of ‘joining’ techniques such as automatic enrollment as a way of increasing scheme participation
- Delivery of combined pension forecasts as a matter of routine to people who are members of their workplace pension scheme
- Better workplace information about pensions
- Addressing the special requirements of small businesses and self employed people in relation to pensions
Ms. Hill is responsible for components of the Informed Choice program that provide the relevant information and tools for people to make choices and building the financial capability of people in the UK so that they can best make use of this information and these tools.
Ms. Hill began the presentation with background information on the British pension system. According to Ms. Hill, the UK – like the USA – has a three pillar pension system. The first pillar, with the state as a foundation providing a basic standard of living, consists of contributory Basic State Pension and income-related Pension Credit. The Basic State Pension is a contributory scheme, funded on a pay as you go basis from compulsory National Insurance contributions levied on both employers and employees.
The Basic State Pension is a flat rate benefit payable to qualifying men at the age of 65 and women at the age of 60 – although the pension age for women will increase to 65 by 2020. People with less than the maximum years contributions receive a pro rata reduced Basic State Pension.
Ms. Hill said that the UK has a long history of voluntary second and third pillars – and there are very generous tax allowances to encourage them. 60 percent of people, in fact, are paying into either an occupational or personal pension.
The UK Government has three broad objectives with respect to pensions. The first is to combat pensioner poverty – both now and in the future. The second is to maintain budgetary sustainability. The third and final objective is to help individuals and their employers meet their aspirations in retirement by making sufficient provisions for their retirement. The Informed Choice program, according to Ms. Hill, was created to help realize the third point.
Ms. Hill gave some idea about the size of the issue by highlighting the dependency ratio of pensioners to workers that is expected to rise in the UK. Aligning the state pension age by 2020 will delay any increases in the dependency ratio. However it will increase substantially after that to around 45 percent by 2050 and 50 percent by 2060.
The Informed Choice Program estimates that at least 3 million people in the UK are seriously under-saving for their retirement, while another 5 to 10 million people should seriously consider either saving more or working longer, in order to sufficiently save for their retirement. Therefore, the UK faces a huge challenge in promoting individual responsibility and raising the awareness and appreciation of pension provisions. In short, Informed Choice was created to affect real behavioral change, a shift in attitudes and behaviors so that people actively and regularly plan for their retirement.
The Informed Choice Program itself is based around three steps. The first is improving financial education and raising people’s awareness of their pension options. The second is ensuring that everyone has access to high-quality, accurate and timely pension information. The final step is helping people make the most of existing pension provisions.
Helen Dean spoke to the goals of the Informed Choice Program. According to Ms. Dean, the DWP sets out to maximize membership in employer pension schemes through workplace information pilots. She stated that the workplace is the best place to encourage a relationship between the individual and his or her pension.
The Informed Choice Program workplace information pilots have been set-up with 200 participating employers. Employers were picked based on their ability to encourage pension participation, auto-enrollment systems for employee pensions, and unique or different "techniques" to encourage employee participation.
The long-term question for the Informed Choice Program and the pilot employer programs is, "Will the employee save more and increase contributions to his or her pension?" The short answer, according to Ms. Dean, is that there is no immediate evidence suggesting the change has occurred and there are no quick-fixes to changing the hearts and minds of individuals towards pension participation.
Over time, the Informed Choice Program will work to gather more information on techniques that work. They will focus on behavioral techniques, education, information advice and encouragement. The key to the success of the program, according to Ms. Dean and Ms. Hill, is a real partnership between government, pension providers, NGOs, and employers.