Does Pension Automatic Enrollment Increase Debt? Evidence from a Large-Scale Natural Experiment

Abstract

Does automatic enrollment into retirement saving increase household debt?We study the randomized roll-out of automatic enrollment pensions to ~160,000 employers in the United Kingdom with 2-29 employees.We find that the additional savings generated through automatic enrollment are partially offset by increases in unsecured debt.Over the first 41 months after enrollment, each additional month increases the average automatically enrolled employee's pension savings by £33-£39, unsecured debt (such as personal loans and bank overdrafts) by £7, the likelihood of having a mortgage by 0.05 percentage points, and mortgage balances by £120.Automatic enrollment causes loan defaults to fall and credit scores to rise modestly.

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