What Real People Taught Us About Expanding Access to Workplace Savings in the US
More Brand Stories
When US Rep. Richard Neal announced sweeping legislation late last year1 to expand access to workplace savings, he talked about the “retirement savings crisis” facing many Americans. As the Massachusetts congressman tells it, the perfect storm of paltry savings rates, longer life spans and lower investment returns has made it more important than ever to get ordinary men and women saving earlier.
It’s a watershed moment in many ways, but what’s been left unsaid is the genesis of this new approach. Years in the making, the bill — the Automatic Retirement Plan Act — was actually inspired by a partnership established 3,600 miles away from Washington, D.C., in the United Kingdom. The UK first mandated workplace savings in 2012, and The People’s Pension — a large, not-for-profit, multi-employer defined contribution (DC) plan — now helps 3 million British citizens save for retirement. The People’s Pension brought in State Street Global Advisors to manage citizens’ assets based on a belief that the indexing pioneer’s focus on understanding the hopes and fears of their savers, track record of innovation, and cultural alignment made the firm a good fit.
The Science of Human Behavior
As the principal asset manager for The People’s Pension, State Street Global Advisors wanted to better understand people’s savings and retirement consumption behaviours — and in 2015 it undertook a sophisticated longitudinal study,2 co-sponsored by The People’s Pension, that involved an in-depth examination of the challenges and behaviours of around 100 people over the course of a year. Study participants were asked to blog and record short videos as they wrestled with their transition to retirement.“
Over time we really got to love the people in this study,” says Nigel Aston, global head of DC proposition and strategy. “In the process, you learn not only how people feel about their savings, you also get a much richer picture of how we make decisions and what actually spurs us to action.”
They found some surprising conclusions. For one, despite a historic industry focus on regulated financial advice, people were getting their insights from very different places. Nigel points to one blog post gathered during the study in which a man describes a retirement “brainstorming session with the lads in the pub.” Nigel adds, “The study also showed that fear of not saving enough is less motivating than previously believed.” And while the study found people exhibit very different behaviours as consumers — how they spend their money — “As savers, we tend to be more similar to one another than we might imagine,” Nigel says.
The most important conclusions forced State Street Global Advisors to take a hard look in the mirror. “Our industry often tries to funnel people into decisions 10 or 15 years before they retire,” Nigel says. “Our research showed we need to be responsive to the changes that happen during our lifetimes, even after retirement — marriage, bereavement, employment changes, health issues. As a result, we’d recommend a ‘keep your options open’ approach with asset allocation and income options that,” as Nigel puts it, are “flexible enough to adapt to those changes in life circumstances over time.”
Tackling Retirement at Scale
With private sector employee participation in retirement plans in the UK soaring by 20 percent in less than two years,3 State Street Global Advisors began to wonder whether some of the insights learned “across the pond” could benefit another market: the United States, which is beset by low savings rates and serious gaps in access to employer-sponsored retirement savings programs, but with little political appetite for a European-style mandated program.
Even still, Melissa Kahn, who heads up retirement policy strategy in the American market, believes a pragmatic approach might work in the US — particularly one focused on small businesses, which policymakers support and where half of all workers do not have access to a savings plan. “The 401(k) is hardly perfect,” she says. “But we can’t let the perfect be the enemy of the good.”
From Inertia to Action State Street Global Advisors began a full-fledged retirement education campaign targeted at policymakers, including a 2016 open letter to Congress penned by then CEO Ron O’Hanley urging workplace retirement savings coverage for all Americans and an extended series of meetings with members of Congress on both sides of the aisle. The legislation introduced by Rep. Neal, the ranking member of the House Committee on Ways and Means, requires private employers to auto-enroll all workers in a retirement plan. Thanks to a combination of automation and default investment solutions similar to those in the UK, and an array of tax credits and incentives to encourage small businesses to offer affordable savings plans, Melissa believes that Neal’s bill has growing support. More important, it is helping change the tenor of discussions inside the Capital Beltway.
“It’s not unlike what we learned about inertia in our studies of human behavior in the UK,” she says. “When you change the conversation from one of fear and inaction to one about education and what is achievable, new things become possible.” Even in today’s fractious political environment? Melissa laughs and adds, “Particularly in this environment.”
1 ‘‘Automatic Retirement Plan Act of 2017,” introduced in the US House of Representatives by Congressman Richard Neal on November 29, 2017
2 The State Street Global Advisors Global Retirement Survey Report, September 2015
3 “Official statistics on workplace pension participation and savings trends of eligible employees: 2004–2014,” Department for Work and Pensions, October 2015
For use in Australia. Issued by State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”). Registered office: Level 17, 420 George Street, Sydney, NSW 2000, Australia T: +612 9240 7600 Web: ssga.com. This communication is directed at institutional and wholesale clients only. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) are not entitled to rely on this communication.
For use in EMEA. The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the European Communities (Markets in Financial Instruments) Regulations 2007. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2004/39/EC) and it should not be relied on as such. This communication is directed at professional clients (this includes eligible counterparties) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication.
For use in Switzerland. The information provided does not constitute investment advice as such term is defined under applicable Swiss regulation and it should not be relied on as such. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information. This communication is directed at qualified investors (as defined by FINMA) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
The views expressed in this material are the views of State Street Global Advisors through the period 5/15/18 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The trademarks and service marks referenced herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. Investing involves risk including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.
© 2019 State Street Corporation.
All Rights Reserved.
2132359.1.1.GBL.RTL Exp. Date: 5/31/2020