Automatic enrolment  

Auto-enrolment extended to younger people

Auto-enrolment extended to younger people

The government is lowering the age for auto-enrolment of workers into workplace pension schemes from 22 to 18-years-old, and changing the way pension contributions are calculated.

These are some of the measures to be introduced by mid-2020, according to the auto-enrolment review published today (17 December) by the Department for Work & Pensions (DWP).

Lowering the age threshold will bring 900,000 more workers into saving an additional £800m through a workplace pension.

David Gauke, secretary of state for work and pensions, said: "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."

Workplace pension contributions will be calculated from the first pound earned, instead of the £10,000 lower earnings limit.

This will bring an extra £2.6m into pension saving, according to the DWP, improving incentives for people in multiple jobs to opt-in and simplifying the way employers assess their workforces and calculate contributions.

Introduced in 2012, auto-enrolment has now reached nine million people, with opt-out rates of less than 10 per cent.

Regarding self-employed workers, which was one of the biggest themes under this review, the government is going to test a series of 'targeted interventions' to explore how technology can be used to increase their pension saving, the DWP review stated.

These will include working with organisations who act as 'touch points' for the 4.8 million self-employed people, such as banks and those who contract labour.

Pensions minister Guy Opperman recently confessed “there is no simple solution” for including self-employed people in auto-enrolment.

The lower earning trigger will remain the same for 2018 to 2019, and from now onwards will be subject to annual review.

The contribution levels – which will increase to 5 per cent in 2018 and 9 per cent in 2019 – will be reviewed after the last increase has been completed, the DWP stated.

Sir Steve Webb, director of policy at Royal London and former pensions minister, said there are some great ideas in the review, such as lowering the minimum age and the changes in the pension calculations.

However, "the proposed pace of change is shockingly lethargic," he argued.

He said: "Talking about having reforms in place by the mid-2020s risks leaving a whole generation of workers behind. 

"Those who never got to join a final salary pension and who have only recently come into pensions through automatic enrolment need urgent action to help them build up a decent pension pot. 

"This pedestrian pace of reform risks creating a ‘lost generation’ of people in their late forties and fifties who will simply be unable to afford to retire."