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Auto-enrolment of pensions benefits millions but it’s not enough for retirement

Yesterday (5 January) Conservative MP Richard Holden put forward a Private Member’s Bill to extend pensions auto-enrolment to 18-year-olds and those in part-time or low-paid work.

Though auto-enrolment currently benefits over 10 million workers in the UK, many fear it will not enough to live off when they retire.

A 2021 poll by financial services company WEALTH at Work found that more than two in five (41%) knew they are not saving enough for a comfortable retirement.

The latest ONS figures also show that in 2020 full-time employees were 1.5 times more likely to have a pension than part-time employees.

Pete Hykin, co-founder at pensions provider Penfold, said: “Auto-enrolment is undoubtedly one of the best initiatives the pensions industry has seen and yet almost a decade on from its introduction, people are still not saving enough for retirement, and little has been done by most of the industry to increase engagement among savers.

“Many employees still don’t benefit from the initiative because they either don’t earn enough or they’re too young. This doesn’t seem fair.”

Further reading:

Pensions still number one employee benefit

Sustainability or value? Navigating the pensions maze

What HR should know about the Pensions Schemes Bill 2021

Currently, employees have to be aged 22 and over and earn £10,000 or more each year to be auto-enrolled into a workplace pension.

Holden argues that even a small contribution could make all the difference to pension pots.

Writing for The Times he suggested paying into a pension regularly every week between the ages of 18 and 22 could contribute up to £25,000 to a person’s overall pension pot.

Hykin added: “Having access to a workplace pension is something everyone should benefit from, so this new bill to extend auto-enrolment to younger and part-time workers is a great first step in the right direction.”

The Pensions and Lifetime Savings Association (PLSA) has backed Holden’s bill calling for a removal of the Lower Earnings Limit (LEL) on auto-enrolment.

It has also recommended the current 8% minimum contribution level should be increased to 12% by 2030, split 50/50 between employers and employees.

However, it has said further analysis may be necessary to ensure that removing the £10,000 earnings threshold will benefit households at all income levels.

Nigel Peaple, director of policy and advocacy at the PLSA, said: “Combined with the new State Pension, automatic enrolment ensures that many more people can meet some of the costs of later life.

“Some groups, however, are not currently within the scope of the automatic enrolment regime […] Unless more money is set aside for the purpose of retirement, future generations will find that their incomes will be insufficient to meet their retirement goals.”

The PLSA is also raising awareness for its Retirement Living Standards to give people have a better understanding of their savings.

Under these standards, the average single person living outside of London would need a minimum of £10,900 per year in retirement. To live moderately they would need £20,800 per year, and to live comfortably they would need £33,600.

A Department for Work and Pensions review on auto-enrolment in 2017 recommended that the age for auto-enrolment should be reduced from 22 to 18 but it has not yet taken action on its recommendation.