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Private sector HR failing to support young workers with their pensions

Young workers aged between 16 to 21 in the private sector are participating in workplace pension schemes at a much lower rate than their public sector counterparts.

Office of National Statistics (ONS) data showed that during April 2021, just 20.4% of private sector workers in the age bracket participate in workplace pension schemes, compared to 82.3% for the public sector.

The minimum age requirement for workers to be entitled to automatic enrolment to pension schemes is 22. However, workers below that age retain an opt-in option which would require their employer to make a mandatory pension contribution.

Young workers' pensions:

Why HR needs to support young employees’ pension plans

Young people may opt out of auto-enrolment

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

Mark Pemberthy, principal and benefits consulting leader at HR consultancy Buck, said that the obligation for employers to opt-in to pension schemes has caused the gap between private and public sector participation.

Speaking to HR magazine, he said: "In the public sector, the defined benefit pension scheme is a significant part of the overall reward package and, as a result, employers generally enrol all employees into the workplace pension scheme from day one of employment, irrespective of age.

“In contrast, most employers in the private sector follow automatic enrolment rules. It is this subtle difference that has an enormous impact on pension participation rates."

For those aged 22 years to state pension age (65 and over), the number of public sector employees with a pension was on average 14% higher than those in the private sector.

Across both private and public sector, automatic pension enrolment has had a significant impact on uptake. In April 2021 79% of UK employers were enrolled in a pension scheme, compared to just 47% before it was introduced.

Workplace pension provider Now Pensions is lobbying government to lower the age of automatic enrolment from 22 to 18. Samantha Gould, the company's head of campaigns, said the scheme has been a great success at getting employees to save for the future.

Speaking to HR magazine, she added: "However, our research shows that there are still millions of people who do not meet the eligibility criteria (a minimum earning of £10,000 per annum) and are effectively ‘locked out’ from workplace pension saving as a result.

"The quicker we can get people saving as soon as they enter the workforce, the longer they have for their savings to grow and to secure a decent level of income that they can enjoy in their retirement. Compound interest is, after all, the eighth wonder of the world.”

Katherine Easter, chief people officer at the Pension Protection Fund, urged HR professionals to give young workers detailed information about pension plans.

She told HR magazine: HR needs to invest time in helping people understand the detail, including the portability of pensions throughout their career. Important moves to simplify pension communications and language and introduce pension dashboards in the future will all help build knowledge and understanding.

"It's always been harder to engage those at the very start of their career in the importance of early pension saving, particularly if they're on lower incomes or a zero hours contract, more common in the private sector - good communication about the options and benefits on offer is important."