Boosting UK investment with opt-out savings

If we introduced an additional investment scheme whereby people put 3% of their wages or salary into a passive private investment scheme (but could opt out), it would add to investment and growth. 

Participation would be high because defaults work. UK auto-enrolment (AE) shows participation above 85% and over 22m people saving, driven more by defaults than by incentives. A parallel opt-out 3% scheme would be likely to see a similar take-up. 

A passive fund would not necessarily add much to UK investment because a global tracker would mostly buy non-UK assets. But a bias toward UK investment could be introduced.

If this sat inside workplace benefits, we would likely want charges to be at or below the 0.75% default charge cap used in auto-enrolment schemes. 

This scheme would be additional to pensions, not a rival. It could be deliveredthrough existing AE/DC plans as an auto-escalation step, starting at 1% a year to reach 3% with an opt-out. This avoids cannibalizing pension saving and uses existing payroll and governance. 

A fixed cash top-up would be cheaper to give than an NI rate cut. Flat money bonuses, such as £100 per year to those who stick with the extra 3%, are cheaper, more progressive, and empirically more salient than a percentage NI or tax relief. Evidence suggests financial incentives shift saving at the margin, but defaults do most of the heavy lifting, so the incentive should be kept simple and capped

As proposed, such a scheme would be good at boosting saving, but would need intervention to steer money to UK investment. The best route would build on AE, auto-escalate, contributions alongside pensions, and to allow a prudent, value-for-money UK growth element (Mansion House-style). That aligns behaviour with the growth objective, leverages existing governance, and avoids a costly new NI carve-out.

A major advantage of such a scheme is that it would make people less reliant on the state for their needs when they become older. These funds, taking average wages and realistic interest rates, could yield a nest-egg of £750,000 over contributions from the age of 20 to 70.

The problem would be that future predatory Chancellors and an acquisitive Treasury would find some ways to seize some of these sums for themselves, so it would be helpful if some kind of constitutional protection could prevent that.

Madsen Pirie