Plans 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 has tabled a motion in the House of Commons today (January 5) to extend automatic enrolment in this way.
The proposal looks to boost the pension pots of 18-22 year olds and those who either work part-time jobs or receive low pay.
Under current rules these individuals miss out on pension contributions because auto-enrolment does not kick in until people are earning over £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 last decade in the UK but sadly millions of hard-working British people aren’t benefitting 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 today by think tank Onward, which suggests the proposals could add £2.77trn to Britain’s retirement savings over the working lifetime of the current workforce.
The report estimates 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 a working lifetime - a 60 per cent increase in their workplace pension savings.
In addition, younger workers could save an extra £20,267 upon retirement, on average, 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 suggested these changes should be made via a phased approach, which would mean people will not benefit from auto-enrolment for several years.
The report suggests 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 per week).
In 2024, the qualifying earnings limit would be reduced from £120 a week to £100 and down to £50 from 2025. In 2026 the qualifying earnings limit should be removed completely.
The report states: “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.”