The puzzle over how to strengthen retirement security isn’t only an American problem, according to a report from the U.S. Government Accountability Office.   

The research, “Retirement Security: Recent Efforts by Other Countries to Expand Plan Coverage and Facilitate Savings,” examines retirement plans in five selected countries—Canada (at the federal level and the province of Quebec), Lithuania, the Netherlands, New Zealand and the United Kingdom—and informs policymakers of the strategies used to increase retirement plan coverage, recommendations from knowledgeable stakeholders and comparability to the U.S.

“This report describes the views of international retirement representatives on policy options and trade-offs from account-based retirement savings reforms in other countries, intended to improve retirement security,” the report states. “These include automatic enrollment of employees in retirement savings plans [and] financial incentives for employees to contribute.”

The report examines retirement plans in countries that use automatic enrollment to boost participation. In other words, most of the plans require eligible employers to auto-enroll some workers unless they explicitly opt out. According to the report, some self-employed and part-time employees not auto-enrolled remain difficult to cover, but countries can boost participation with shorter opt-out periods.  

“Other countries also face challenges ensuring their population’s retirement security and have begun to address these issues with various reforms to their retirement account systems, and to defined contribution retirement savings plans, in particular,” the report says.

The research was compiled at the request of Representative Richard Neal, D-Massachusetts, chairman of the House Committee on Ways and Means.

“Neal asked to review recent policy initiatives from other countries that may help provide information to domestic policymakers as lawmakers mull over ways to strengthen retirement security,” the report states.

Auto-Enrollment Overseas

The report highlights significant differences in how auto-enrollment is used by the countries studied.

Since 2012, the Canada Pooled Pension Registered Pension Plan has encouraged all employers to auto-enroll some employees. The Lithuania Pension Accumulation Plan, beginning in 2019, required the government to auto-enroll all eligible employees. New Zealand’s KiwiSaver required all employers to auto-enroll new eligible employees starting in 2007. The Quebec Voluntary Retirement Savings Plan has required some employers to auto-enroll all eligible employees since 2016. Finally, the U.K.’s Qualifying Workplace Pension Plans– the National Employment Savings Trust, or NEST—required all employers to enroll all eligible employees starting in 2012.

The plans with auto-enrollment also offer incentives for participation by providing some tax benefits to employees, either upon contributing or when withdrawing funds at retirement, the report says. Every plan studied also requires or otherwise offers incentives for employer contributions, which “can encourage employee participation and bolster retirement savings,” the research explains.

“However, lower-income workers may not realize some tax benefits, and the self-employed do not receive the incentives that come with employer contributions,” the report adds.

New Zealand representatives told the GAO that using auto-enrollment for KiwiSaver has had a major impact on participation. For example, more than 90% of participants remain in the plan once enrolled, according to the report. In the U.K., the NEST program has achieved similar results, as representatives explained that auto-enrollment has covered 10 million workers who were previously without a retirement benefit.

The NEST Insight annual research report for 2021 showed that NEST started with a total of 1.1 million enrolled workers in 2013 to 2014, and has grown to 14.8 million enrollments by 2020 to 2021, according to the GAO report.

Quebec officials told the GAO that requiring employers with more than 10 employees to enroll their workers in a workplace retirement plan has boosted the number of participants enrolled. Since the province adapted auto-enrollment in 2016, nearly 39,000 employers who did not previously offer a retirement benefit to workers have been required to offer the Voluntary Retirement Savings plan, according to the report.    

“In contrast, officials from Canada—where employers are not required to offer a Pooled Registered Pension Plan (PRPP)—said that uptake of PRPPs has been limited. In addition, even when employers choose to implement automatic enrollment, they may choose which groups of employees they enroll,” the report states.

A GAO spokesperson says countries’ adoption of auto-enrollment reflects lessons learned in how to engage with workers on retirement planning.

“Insights from behavioral economics have helped plan sponsors design strategies to help individuals reach their financial goals,” the spokesperson says. “Such strategies include auto-enrollment, auto-escalation and target-date funds. These strategies recognize the realities of human psychology, including procrastination and inertia, as well as difficulty in processing complex information, and steer individuals in directions designed to increase their financial well-being.”

The plans nearly all selected default contribution rates between 3% and 5% of a worker’s salary, retirement representatives said to GAO. The default contribution rate for Lithuania’s plan is 3%; New Zealand, 3%; Quebec, 4%; and the U.K., 5%. Canada does not use a single default contribuiton. 

Opt-Out Windows

The report says each country uses a different number of days for employees to choose to opt out of contributing. It notes that the time available to decide can drive participant behavior, and suggests that longer opt-out windows may lead to higher numbers of workers leaving the plan.

“Of the three types of retirement savings plans for which opt-out data were provided, information from the respective plan officials suggests that the plan with the longest opt-out window had the highest opt-out rate,” the report states. “Specifically, the UK’s NEST has an opt-out window of 1 month, and New Zealand’s KiwiSaver has a window of 42 days; each had recent opt-out rates of around 10%. Lithuania’s Pension Accumulation Plan has an opt-out window of 150 days and an opt-out rate of 39%.”

GAO researchers noted that the report is not an endorsement of any policy. “GAO reporting on these reforms does not signify endorsement of any particular reform,” the report states.