by Rob Hosking
In a feature on pensions, the Economist points to increasing evidence that automatic enrolment into workplace schemes, with the ability to opt out, is a fruitful policy.
“New Zealand is leading the way,” the story says – a quote you can be sure was used by Finance Minister Michael Cullen in his press release yesterday.
The method uses principles of behavioural finance, a branch of economics that draws on lessons from psychology and other ‘soft’ social sciences.
“People are not always rational, especially when it comes to saving. Although they may want to save for old age, they never get around to it because they lack the self control to put their good intentions into effect in the short term,” the story argues.
One US firm that switched from “opt in” to “opt out” for its 401K plan saw enrolments rise from 49% of new employees to 86%.
And the Economist says the United Kingdom may soon follow New Zealand’s example.
Some questions remain about this approach. It is not clear whether individuals will respond to a national policy in the same way they do to company plans. Other drawbacks are that companies tend to pick low risk plans and a low contribution rate because they want to avoid blame if investments go wrong.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
| « Govt may help super schemes join KiwiSaver | NZ Super Fund goes for index management » |
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