The Government retirement savings revolution designed to get up to nine million more workers into pension schemes has just passed its one-year milestone.
So far, an extra 1.6 million people have begun putting aside more cash for their later years amid efforts to head off a looming retirement savings crisis.
Because people are living longer but many are failing to plan how they will fund a comfortable old age during what could be 20 or 30 years after they stop working.
If the automatic enrolment scheme had an end of first year school report, it might read something like this:
• Levels of people remaining in the scheme - Excellent, has surpassed expectations.
• Making clear to people how fees and charges will affect the eventual size of their retirement pot - Must try harder.
So far, fewer than one in 10 workers are dropping out of auto-enrolment, a rate much lower than industry expectations. There are probably several reasons for this. The rollout of the programme started with bigger companies, which tend to have the most experience of pensions and of explaining their benefits.
Another explanation, put forward recently by Government-backed pension scheme Nest, is that tough economic conditions have made us all more “stoic” and switched on to the idea of saving for the future.
Behaviour experts also have some interesting suggestions for the reasons behind the unexpectedly high uptake.
Nick Chater, a professor of behavioural science at Warwick University’s Business School, believes the fact that people are required to act in order not to be part of a pension scheme is “very powerful”.
He says: “If it requires attention and effort to opt out of a scheme, many of us will stick with it, either because we don’t even consider changing, or it seems too complicated.”
Mr Chater suggests people may also stay in a pension due to “fear of regret and blame” – if we stick with the default option and it doesn’t work out well, we can blame the Government.
Mr Chater added: “If we decide to change and that doesn’t work out well, then we blame ourselves and others may blame us.
“A third reason is that we tend to assume, often reasonably, that the default option is right for most people - otherwise it wouldn’t have been chosen as the default.”
Confidence in pension saving is vital if the successes seen so far are to continue over the next four years of the Government scheme.
But a recent report from the Office of Fair Trading raised new concerns that the old-age savings revolution could be in danger of turning into a retirement rip-off for some. The OFT carried out an investigation into whether enough competition is being injected into the pensions market to benefit new savers. It found that up to £40bn of pension savings could already be in schemes which are delivering poor value or are at risk of doing so.
The Association of British Insurers (ABI) and the Pensions Regulator are working to improve the scrutiny of schemes and make sure people are getting good value.
Yvonne Brown, head of savings, retirement and social care at the ABI, says pension charges are “at their lowest ever level” and the industry is evolving “to deliver what consumers need and expect”.
The first year of the scheme has fired up debate and brightened the spotlight on the pensions industry, which is a positive step as how comfortable our retirement turns out to be financially will ultimately depend on our own decisions.