The government is planning to reduce the minimum age that employers must enrol eligible staff into a workplace pension scheme, from 22 to 18 years.
Pension secretary David Gauke announced that as well as lowering the auto-enrolment age, annual reviews of the trigger point for automatic enrolment will be introduced. The government will also explore the use of technology to encourage the UK's 4.8 million self-employed people to save for retirement.
The government has also proposed that contributions are calculated as a proportion of all earnings up to £45,000 (the threshold of the higher rate of tax). This would replace the current system in which contributions are calculated as a proportion of earnings between £5,876 and £45,000. The aim is to better support those with multiple jobs.
The proposals will cost employers an estimated extra £1.4 billion a year, and the government an extra £600 million in tax relief a year. Ministers say lowering the minimum age will affect about 900,000 young people.
David Finch, senior policy analyst at the Resolution Foundation, said the measures were welcome. “Auto-enrolment has been a huge success, reversing decades of declining pension saving especially for women and low earners, so the government is right to expand its reach,” he said.
“The proposal to lower the age threshold is welcome, as are moves to include more low earners. Exploring how the self-employed can be encouraged to save is also important but these good intentions should be swiftly converted into concrete proposals given that 15% of the workforce is now self-employed."
Malcolm McLean, senior consultant at Barnett Waddingham, said the measures were overdue.
“It is rather disappointing that the government does not seem willing to contemplate bringing in any of the changes until the mid-2020s,” he said. “This is presumably partly motivated by a desire not to upset the apple cart until the current contribution increases, planned for April 2018 and April 2019, have been successfully implemented and given time to settle down.
“I sense there is already a certain jitteriness about how these planned increases will play out, with both workers and employers, and what impact they will have on the very good opt-out rates to date.”
Finch added that getting this right could lead to positive outcomes for younger savers. “Our research has shown that if the government gets auto enrolment right, Millennial workers can defy widespread pessimism about their retirement outlook and enjoy similar levels of retirement living standards to pensioners today,” he said.
“But a lot depends on the ramping up of auto-enrolment over the next few years, which is particularly difficult because big increases in the amount people will be required to save are taking place against a tough backdrop of anaemic wage growth.”
