Auto enrolment can help people’s finances beyond pension savings, although nuance is needed in any consideration of raising auto enrolment minimum contribution levels in the future, analysis from Nest has found.

The research showed that auto enrolment can impact other areas of people’s finances, revealing that after being automatically enrolled people’s credit scores showed a positive increase over time and their likelihood of defaulting on debts decreased.

To conduct the analysis, Nest Insight worked with the University of Nottingham and Experian to generate a dataset that matched up people’s pension and credit records, in order to explore the interaction between auto enrolment and other areas of people’s finances, while preserving people’s data privacy.

"Interestingly", the data showed that people were also slightly more likely to take out a mortgage, which Nest highlighted as suggestion that being automatically enrolled may have encouraged some to take another step on their financial journeys.

However, the analysis showed that during the early phases of the auto-enrolment rollout, there was an average increase of £7 per month in existing overdrafts or loans.

Whilst this may have been a short-term effect as people adjusted to the cost of their pension contributions, Nest admitted that the evidence does suggest a need for nuance in any consideration of raising auto-enrolment minimum contribution levels in the future.

Commenting on the findings, Nest Insight analysis director, Matthew Blakstad, said: “More recently there have been calls on the government to increase minimum auto enrolment contribution levels.

"This research therefore provides a timely reminder of just how interconnected people's finances are.

“Whilst the initial increase in debt that some savers experienced is small, the research highlights the need to take into account the potential impact on people’s wider financial lives when considering any changes to auto enrolment.

"If contribution rates were to increase, it may be that an additional ‘safety valve’, particularly for those on lower earnings, could help protect people against potentially negative outcomes.

"One option could be to introduce an emergency savings component to the workplace auto enrolment system.

“Our own trials of emergency savings are showing how this can work in the real world. We’re excited to see the positive impact that greater take-up of these approaches will make.”

Adding to this, University of Nottingham professor of economics, John Gathergood, said: "By linking pension data with data on other aspects of individual finances, we have been able to statistically quantify the effect of automatic enrolment on individual debt.

“The results from this study suggest that automatic enrolment may have quite complex effects on individual finances, affecting creditworthiness, mortgage decisions and unsecured borrowing.

"This research is valuable because it informs current policy debates over future contribution rates, while also helping to build a picture of the medium-term impact of automatic enrolment.”

The research was made possible with the support of the BlackRock Foundation and the Money and Pensions Service, and enabled by Nest Insight's emergency savings programme, which is also supported by JPMorgan Chase.

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