Pensions automatic enrolment: learning from a success story
As Matthew Hancock holds up automatic enrolment as potential solution for social care funding, CSW meets the team behind DWP's pensions automatic enrolments programme to find out the secrets behind their success
The Automatic Enrolment Programme has a pretty simple aim: to increase the number of people saving for retirement, and how much they save. With six months to go until the roll-out is due to complete, it has already comfortably exceeded all its targets, and the team is setting its sights on the next steps.
CSW caught up with two of the project’s leadership team – Charlotte Clark, director private pensions and arms’-length bodies relationships at DWP, and programme director Fiona Walker – to find out what has gone into making this a major project success story.
The programme began in 2007, though the policy traces its roots back to the 2005 pension commission, which recommended a number of changes including automatically opting employees into employer-provided pension schemes. This, says Clark, provided a “really good blueprint” for the project, as the commission had “spent a lot of time really thinking about the problem, but perhaps even more importantly, building a consensus around what the issues were, which gave us a very clear framework”.
Walker adds that the benefit of this commission was also that it helped build political support, which has given the project stability of purpose despite being overseen by ministers form all three of the major parties.
While the political leadership has changed, the programme has not had the sort of turnover at the level of officials that can hamper other major projects. “I remember at one programme board meeting looking around and thinking I could probably add up almost 50 years on this programme around this table,” Clark says, “and there weren’t more than seven or eight people around the table. A lot of people have committed to making sure this is a success.” She describes auto enrolment as a ‘boomerang project’ as many people return to it even if they move to a different job for a while. Clark herself spent four years as head of auto enrolment from 2005 to 2009, returning to the DWP and the programme in 2014 after a stint at the Treasury, while Walker headed auto enrolment from 2010 to 2013 and returned to it after a year at the Money Advice Service.
‘Absolutely no optimism’
From the clear framework created by the Pensions Commission, a team made up of civil servants alongside financial services and pensions industry professionals built a “robust plan”, Clark says, built on strong debate and cautious assumptions. “Famously as a programme we outperform all of our objectives,” she says,” That’s because there was absolutely no optimism in any of our assumptions…we had some fairly difficult discussions very early on as to what you could deliver on what was actually doable rather than sitting together in a room and hoping we were right.”
Clark also points to another critical decision made in those early days: the fact that NEST chose to make the enrolment service digital by default so that it would be affordable to the taxpayer.
“That is something that we take for granted now,” says Clark, but it prompted much scepticism when the discussions were first happening back in 2008. So one of her lessons for future programmes she works on, she says, will be to ask what the equivalent decision would be. “What would be that decision which appears to be very brave, but actually in retrospect was, of course, the right answer? How do you challenge yourself to make those big decisions?”
She has two suggestions on why NEST was able to make that big decision – firstly, the fact that it was a big programme and required different thinking but also, importantly, the people doing that thinking were “from lots of different places”.
“If we had only employed people from the pensions industry, I think they would have told us the way that its currently done,” she says, rather than having experts from other industries suggesting an alternative model.
"It's about an entire industry, and providing the right place for each employer and each person to wind up in, so you need to keep the dialogue open with all of those different partners."
Working with an entire industry
The robust early discussions also mean that there is now a strong relationship between the three key deliveries partners – DWP, The Pensions Regulator and state-owned pensions provider NEST. “There's a great amount of trust, but that was due to an awful lot of investment very early on, a lot of time and a lot of very difficult discussions about risks wherever risks lay, how we were going to make project decisions,” says Clark. A key example was how to roll the programme out – one partner wanted to start with large employers, while the other wanted to start with small employers to avoid dealing with volumes of individual savers at the start.
Walker adds that the team has also made a conscious effort both to partner with and learn from the wider delivery architecture such as payroll providers and employers. “This isn't just about NEST providing a pension to everybody,” she says. It's about an entire industry, and providing the right place for each employer and each person to wind up in, so you need to keep the dialogue open with all of those different partners.”
This has resulted in changes to the policy, she says, to ensure it will be workable. “There have been occasions when, in the detail of the policy design, practitioners have come to us and said, for example, ‘This particular way you calculating a PAYE reference period doesn't quite work with our software’. Because we have the relationships with that really broad delivery chain, we've been able to sit down and listen to them.”
Despite the success so far, the project has been rated amber for most of its years in the Government Major Projects Portfolio, moving up to amber-green (meaning that “successful delivery appears probable, but risks must be handled so they do not become major issues”) in its most recent assessment. This reflects the fact that the project was “slightly ahead of the curve”, as Clark puts it, both in terms of the policy aim itself, and the fact that the team was working with behavioural economics and nudge techniques that were not as widely used when ity began its work.
This meant they were working with a much smaller evidence base than is now available and didn’t have concrete data showing, for example, how many people were likely to opt-out of a default saving system. This created uncertainty, which informed the ratings as the team went along.
As the roll-out has progressed, the team has been able to incorporate lessons from the first phases into subsequent stages, but the team has been conscious about the need to ‘reset’ its approach for new sets of employers , reflecting the fact that smaller firms will act differently to larger ones.
“We committed to give [small employers] as good a service as we have managed to get the large employers,” says Clark. “By the time we finished the large employers, most of our critical success factors were met. So it did feel like as a project we could have a bit of an easy ride if we wanted to when it came to the small employers but there is a passion within the team to make sure that people have good retirements, that they have an opportunity to save.”
"There was always a possibility that we couldn't actually deal with the demand that was coming our way and other people didn't pick it up...but that's not what happened.”
As they moved into the final stage, the uncertainty grew since they were moving into the most challenging group – small and micro employers. There were questions about how these employers would respond to the regulation, says Clark, and whether there was capacity in the industry to provide pensions for all their employers . It was this capacity question that largely influenced the decision to stay amber green rather than moving to green.
“If every single small and micro employer turned up at NEST… there was always a possibility that we couldn't actually deal with the demand that was coming our way and other people didn't pick it up,” Clark says. “But that's not what happened.”
The final stretch
Alongside the roll-out to micro employers, the team carried out a programme review called ‘Maintaining the Momentum’, looking at how workplace pensions could continue to meet individual and employer needs and remain affordable and sustainable for the future.
Clark says she must “sing Fiona’s praises” when reflecting on what has been achieved. “Last year was a really difficult year for us: we had by far our largest challenge in terms of roll-out – we must have done 800,000 employers – and we ran an independent review on what the future looks like.”
Running the two events together is “probably not what we would have ideally planned”, she says, “and certainly we wouldn't have put an election in the middle of it”. Nevertheless the fact that the same team ran both the roll-out and policy review together does have benefits.
“I think we're really lucky in private pensions that [policy and delivery] go hand-in-hand: what you're delivering now doesn't mean that you stop looking to the future and how we can improve it…There's a bit of a cost to people's work life balance though,” says Clark.
Walker gives credit to the flexibility of the team to support each other in times of extra demand, and says this attitude stems from that clear purpose, which is one of the key factors in the project’s success.
“The programme has a really clear objective and because we are clearly tracking progress towards it, and we've got a lot of momentum and success under our belt, it really helps to raise people's aspirations,” she says.
“So people really are very focused on thinking: ‘We've made huge strides, what's the bigger prize and how can we capture that?’ And that's an incredibly motivating thing. People feel very proud of the kind of contribution that they've made the really positive social change that we've seen through this programme.”