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Pension auto enrolment to be extended to 18-year-olds

Workers between 18 and 22 will be automatically enrolled in pension schemes.

A bill to extend pension auto-enrolment to those aged 18 and over and remove a lower earning threshold immediately received Royal Assent after passing its third reading yesterday (18 September).

Kate Smith, head of pensions at pension provider Aegon, said the bill will allow more people to financially prepare for retirement and help close the gender pension gap.

Read more: Pension auto-enrolment at 18 supported by young adults

Women have on average £123,000 less in their pension pots, and since women on average live longer than men, they require an extra £85,000 in retirement, according to pension provider Scottish Widows.

Speaking to HR magazine, Smith said: “Today is a momentous day in the journey of auto-enrolment and for pension savers, especially for low earners and younger workers. 

“The bill will, in time, widen the scope of automatic enrolment bringing in those aged between 18 and 22, so pension saving becomes the norm for younger employers and the extra four years of saving may help to close the gender pensions gap.”

Lowering the age of auto enrolment is supported by most young people aged 11 to 27 (86%), according to a study from pensions provider, NOW:Pensions.

The bill will also remove the lower earning threshold of £10,000. 

Previous research from the Pension Lifetime Savings Association (PLSA) identified groups who are low earners, but had other factors that would make saving for retirement affordable, such as living with a partner or spouse who earns more.

The research indicated that removing the threshold for these groups could improve retirement outcomes by 7%-13% for nearly 3 million people.

Read more: Workers in London and east of England save more in pensions than anywhere else in the country

Smith said the bill needs to be implemented on a phased basis to give workers and employers time to adjust.

She said: “The next step is to implement the changes, and the expectation is that the government will consult on an implementation plan imminently. 

“We believe this should be carried out over two to three years starting no later than April 2025 on a phased basis so that employers and employees can get used to the increased contributions.”