The Government has announced that it plans to extend the auto-enrolment pensions regime to workers aged between 18 and 21 from the mid-2020s onwards. At present, companies are only obliged to provide a contributory pension for their staff once they reach the age of 22.
It is estimated that the change will benefit some 900,000 young people across the UK. Pension experts have estimated that starting pension saving at age 18 could boost an individual’s final pension pot by up to £60,000.
It will remain the case that anyone earning less than £10,000 per annum does not need to be included in a workplace pension scheme, but the new Government proposals will also scrap the lower earnings limit. Currently, contributions are based only on the portion of a person’s salary that falls between the lower and upper National Insurance contribution limits, but under the new regime, workers of all ages will see their contributions calculated from the very first pound they earn.
As of today, anyone who works in the UK, earns at least £10,000 per year and is aged between 22 and 65 must be automatically enrolled by their employer into an occupational pension scheme. Any individual not wishing to be a member of the scheme must actively opt out by informing their employer, and latest data suggests less than 10% of UK workers have chosen to opt out.
Employees who join the scheme must contribute at least 1% of their earnings, with the employer adding another 1%. By April 2019, the minimum contributions will rise to 5% for employees and 3% for employers, although 20% of the employee contribution is effectively made by the Government in the form of tax relief.
David Gauke MP, the Secretary of State for Work and Pensions, said:
“For an entire generation of people, workplace pension saving is the new normal. And my mission now is to make sure the next generation of younger workers have the same opportunities.
“We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.
“We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement.”