The age at which workers will be automatically enrolled into a workplace pension would be lowered to 18 under plans that have been backed by the government.
Last week, MPs backed a private members’ bill that would reduce the pensions auto-enrolment age from 22 to 18 and abolish the lower earnings limit, which the government has said would encourage employees to start saving for their retirement earlier in their careers.
The lower qualifying earnings limit, the point at which an individual’s employer must start to calculate pension contributions, is currently £6,240, while the auto-enrolment threshold is £10,000.
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Jonathan Gullis, who brought forward the Pensions (Extension of Automatic Enrolment) (No. 2) Bill, said: “Auto-enrolment of pensions will benefit scores of young people in all four corners of the country.
“With all the evidence of the huge positive impact it can have, it is a no-brainer that we now need to extend auto-enrolment to those aged 18 and above.”
Minister for pensions, Laura Trott, said: “We know that these widely supported measures will make a meaningful difference to people’s pension saving over the years ahead.
“Doing this will see the government deliver on our commitment to help grow the economy and support the hard-working people of this country, particularly groups such as women, young people and lower earners who have historically found it harder to save for retirement.”
The Pensions (Extension of Automatic Enrolment) (No. 2) Bill has passed its second reading in the House of Commons. It has to go through several more stages in the Commons, and further scrutiny by the House of Lords, before being written into law.
If passed, the bill will not result in any immediate change to pension auto-enrolment rules, but would give the Secretary of State powers to amend the age limit and lower qualifying earnings limit. The government will be required to consult on any changes.
More than 10.8 million people have been automatically enrolled and pension participation in the private sector for eligible employees has increased from 41% in 2012 to 86% in 2021, according to Department for Work and Pensions analysis of future pension incomes.
However, 38% of working people are currently “undersaving” for retirement when measured against a percentage of pre-retirement earnings an individual would need to replace to meet an adequate income in retirement. This rises to 55% of people in the top earnings band, compared with 14% in the lower earnings band.
Separately, chancellor Jeremy Hunt is expected to announce reforms to pension tax rules for older workers in his Budget on 15 March, as part of an effort to keep over-50s in the workplace.
The British Medical Association has blamed the number of senior doctors leaving the NHS on pension tax rules, and Hunt is expected to raise the £40,000 annual allowance for pension savings, it has been reported.