A scheme to encourage millions more people to save for their later years has celebrated its first anniversary. Vicky Shaw looks at its successes so far, and what more needs to be done

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 ten 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 that 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.

“If we decide to change and that doesn’t work out well, then we blame ourselves and others may blame us,” he says.

“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.”

However, he cautions that some people may just stick with the scheme they are signed up to and not do anything else, even though their pension by itself may not be enough to ensure a comfortable retirement.

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 (OFT) 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 watchdog advised the Government to look at improving the transparency and comparability of different pension schemes, to make it easier for employers to make the right choice.

One general issue raised by the OFT is that it is the employer, not the worker, who decides which pension scheme they will place their employees into – but the interests of employers and their employees do not always match.

The OFT suggested that many employers lack the necessary understanding to make good judgments about the value of pension schemes, and their focus may be on driving down their own administrative costs.

Meanwhile, most employees do not understand or engage with their pensions.

The Association of British Insurers and the Pensions Regulator are working to improve the scrutiny of schemes and make sure people are getting good value.

Encouragingly, studies carried out during the first year of auto-enrolment have found that the young in particular are becoming more switched on to retirement saving.