Why Is It So Hard To Save? U.K. Shows It Doesn't Have To Be Millions of workers in the U.K. who thought they couldn't afford it are saving thanks to a law that automatically enrolls them in a retirement plan. It tricks their brains into doing the right thing.
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Why Is It So Hard To Save? U.K. Shows It Doesn't Have To Be

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Why Is It So Hard To Save? U.K. Shows It Doesn't Have To Be

Why Is It So Hard To Save? U.K. Shows It Doesn't Have To Be

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An historic change is taking place in England. A new law requires that from now on, all employers automatically enroll workers in retirement savings plans, or pensions. As part of our series Your Money and Your Life, NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: One day not so long ago, the phone rang on Tim Jones's desk. He's a successful bank executive in London, so he's a pretty busy guy.

TIM JONES: I got a call from a headhunter. And they said, don't hang up, Tim, it's pensions. And I laughed and said, look, I am going to hang up because pensions are very dull. And he said, you won't think so after you've been to see me.

ARNOLD: The headhunter told Jones that the government wanted him to run an investment fund but on a massive scale, an investment fund for the working population of England.

JONES: How often do you get a chance to build something from scratch that will only work if it does a really great job of helping millions of people and hundreds of thousands of employers create a great retirement savings solution?

ARNOLD: So the U.K. had passed this auto enrollment system for all companies. Workers pay into what's basically like a 401(k) plan. But they needed a good low-cost investment fund to handle the money so employers would have a smart, safe way for their workers to invest. This fund - if it worked - was basically going to help an entire nation of people to build wealth.

JONES: I thought, wow, this is going to be hard but a huge amount of fun. I was sold.

ARNOLD: And Jones went on to create the National Employment Savings Trust. It's a nonprofit, now managing investments for millions of workers in the U.K. One reason that Jones said that savings is hard is that a lot of working-class people think that they just can't afford to save. At an outdoor market in London, 30-year-old Garfield Bloomfield is selling vegetables. And he smiles at me like I'm making a joke when I ask him if he's saving for retirement yet.

GARFIELD BLOOMFIELD: I'm not really saving for the future. I would like to save for the future obviously, but at the moment, I'm just working to get by really.

ARNOLD: Psychologists and behavioral economists say that there are all kinds of reasons that people don't start saving for retirement until it's too late. And some of them are very good reasons.

BLOOMFIELD: My wife is not working at the moment because she decided to go back into studies. so I'm not really saving towards the future.

ARNOLD: Because you're just not making enough to have any extra...

BLOOMFIELD: Not making enough, and I've got kids to take care of, so it's like, yeah.

ARNOLD: Of course, in the U.S. wages have been stagnant. A lot of people here, too, feel like they're just scraping by. But here's the thing. If you take someone like Bloomfield and enroll him automatically in a retirement savings plan - that is, he doesn't do anything at all, but money starts coming out of his paycheck - the odds are that he'll keep saving even though right now he thinks he can't afford it. And because of the new law, Bloomfield's employer soon will have to do just that. Charlotte Clark is the top government official for retirement savings in the U.K. She met me at the market here and explained that over the past year or so, a lot of workers have already been enrolled.

CHARLOTTE CLARK: We still got another couple of years to roll out to all employers. So we still got some way to go. But we've got 5 million people saving.

ARNOLD: And this is the kind of amazing thing - right? - that people can opt out if they want. They could say no, no, no, give me all my money, thank you very much. But when you sign people up, you've been finding that they actually stick with it.

CLARK: Yeah, we're seeing over 90 percent of people sticking with it. So that's 9 out of 10 people are deciding that this is the right thing for them.

ARNOLD: And Clark says an even higher percentage of lower income workers stick with it. It's made very clear to them that if they opt out, they're losing free money from their employer. Workers start just by putting in 2 percent of their salary into a retirement account. Employers match a portion of that, and the total with the employer match increases over time to at least 8 percent. Clark said she's especially happy about the lower income workers.

CLARK: Yeah, if we look around, what do we see? You know, people who are working for relatively small businesses - we've got a pork pie shop sign just behind you. I don't think anyone's ever made too much of a fortune kind of selling pork pies.

ARNOLD: But if all goes well, even a pork pie salesman will have a nice nest egg to help with retirement in 20 or 30 years. In the U.S., more companies are starting to auto enroll employees on their own. And at least a few members of Congress are interested in a law like the U.K.'s. Chris Arnold. NPR News, London.

MONTAGNE: And for tips on how to save and invest in a smart way, check out our series Your Money and Your Life at npr.org.

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