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One Problem With The Best Solution Anyone Has For Getting People to Save Money

The Huffington Post The Huffington Post 17/03/2016 Ben Walsh

Automatically enrolling employees into retirement accounts is a small, initially almost unnoticeable change, but it's proving  successful in achieving its main goal of getting people to save.

The United Kingdom has phased in a law requiring companies to auto-enroll workers in retirement schemes, and  90 percent of employees keep their plan, rather than opt out.

A new report from investor watchdog Share Action shows that success has created a new challenge: ensuring there is proper oversight of how companies invest workers' money. The charity found that the largest auto-enrollment retirement plan provided scored a dismal average of just 24 out of 80 on governance and responsible investing.

One company The Huffington Post contacted, NOW Pensions, has a very good reason for its low score: how the retirement plans disclose what stocks they own and how they vote on corporate issues at those companies was a big part of the score. A spokesperson told HuffPost that it's funds are invested in equity index futures that have no voting rights.

Elsewhere, Royal London requires all it's fund managers to sign the United National Principles on Responsible Investing, Lorna Blyth, the company's investment strategy manager, told HuffPost. A spokeswoman for Standard Life said it continuously looks for ways to improve and pointed out that only one company, Aviva, scored higher than it. A spokeswoman for L&G said they already provided strong governance and would continue its dialogue with Share Action. Paul Todd, NEST's director of Investment Development and Delivery, said the report had praised the company but there was still work to do. Todd  noted that Share Action uses NEST for its internal auto-enrollment plan. The other companies that Share Action scored did not return requests for comment.

Auto-enrollment has gained support in recent years because as the number of people with traditional pensions continues to shrink, saving money in individual retirement accounts becomes increasingly more important. But many people find saving for retirement to be an overwhelming swirl of information and emotion. So why not just automatically sign people up? Then if they decide they really don’t want to save they can opt out.

That idea is rooted in what economist Richard Thaler calls a “nudge.” It’s a small change in how a choice is presented that has an outsized result. President Barack Obama signed an executive order that  essentially requires the federal government to use the tactic -- and it’s the law in the U.K. For the past four years, British employers have been required to auto-enroll their employees in retirement plans that are similar to 401(k)s in the U.S. (The requirement was phased in starting with the biggest companies.) 

Share Action’s report shows that while the auto-enrollment law is succeeding in getting people to save more, there is still significant work to be done to ensure that workers' saved money is being invested according to best practices of governance, sustainability, and human rights. There is a “ serious gulf in performance between the best and worst when it comes to managing conflicts of interest, good governance and responsible stewardship of assets, ” said Share Actions chief executive Catherine Howarth in a statement. For example, one provider, Aviva, has a detailed policy describing how it deals with the single issue of climate change. Yet another, The People’s Pension, simply has a four-sentence policy that hands over all responsibility to individual asset managers.

That’s far from best in class oversight, particularly given that workers are being automatically enrolled to invest in such plans.

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