On the go: Proposals that would see working 18-year-olds and low earners automatically save into a pension are being put before parliament this week.
Conservative MP Richard Holden tabled a motion in the House of Commons on Wednesday to extend auto-enrolment in this way.
The proposal looks to boost the pension pots of 18 to 22-year-olds and those who either work part-time or receive low pay.
This is in line with the auto-enrolment review, which was conducted in 2017 and recommended a number of improvements to the government’s flagship policy to be implemented by the mid-2020s, including the lowering of the minimum age and changing the way pension contributions are calculated.
Under current rules, these individuals miss out on pension contributions because auto-enrolment does not kick in until people are earning more than £10,000 a year and are over the age of 22.
Holden said: “Auto-enrolment has been one of the massive hidden triumphs of the past decade in the UK, but sadly millions of hardworking British people aren’t benefiting because they’re under 22 or simply not working enough hours.
“Nothing could show clearer intent towards long-term levelling up than ensuring that everyone who works hard will see a safer and more secure retirement.”
The proposals draw upon the findings from a report published on Wednesday by think tank Onward, which suggested that the proposals could add £2.77tn to the UK’s retirement savings over the working lifetime of the current workforce.
The report estimated that abolishing the £10,000 earnings trigger and the £6,240 lower earnings limit for pension contributions, alongside reducing the age threshold, could see a full-time worker on the national living wage gain an extra £93,989 over their working lifetime — a 60 per cent increase in their workplace pension savings.
In addition, younger workers could save an extra £20,267 on average upon retirement, and a worker with two part-time jobs, each paying £190 a week, could see their pension savings triple to £297,600.
But the think tank has proposed that these changes should be made via a phased approach, which would mean people will not benefit from auto-enrolment for several years.
The report suggested that in 2023 the earnings trigger and age limit should be abolished, but pension contributions should still only be paid on earnings above £6,240 (£120 a week).
In 2024, the qualifying earnings limit would be reduced from £120 a week to £100, and down to £50 a week from 2025. In 2026, the qualifying earnings limit should be removed completely.
The report stated: “The roadmap that we propose above strikes the right balance between giving employers advance notice and ample time to plan on the one hand, and minimising the costs of delay for younger and lower-income workers on the other hand.”
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “The minimum age of 22 doesn’t work in a world where many young people choose not to go to university. There is no reason someone starting work at 18 shouldn’t be paying into a pension and every reason they should — the benefits of compound growth over the years for them are significant.
“Equally, part-time earners below the £10,000 threshold with an employer would benefit from being auto-enrolled, even though they may find it harder to manage the loss of income in the here and now, because otherwise they will be dependent on the state pension when they retire.”
But she added: “Being auto-enrolled at work doesn’t guarantee you a good retirement, if that system is based on stock market returns that don’t deliver the expected amount. There are still big disparities in the retirement standards between those retiring on a defined contribution pension and those with far more generous, old-style defined benefit schemes.
“So not only does auto-enrolment need to be expanded to help those who are currently excluded, including the self-employed — the elephant in the room when it comes to pension provision — the contribution levels also need to be ‘levelled up’. Step one is getting more people in on the pensions act; step two is making sure it delivers something worthwhile.”
This article originally appeared on FTAdviser.com
