A Private Members’ Bill to help millions save more into their pension and start saving sooner has cleared Parliament and been granted Royal Assent. The changes reduce the minimum age for being automatically enrolled into a pension from 22 to 18 and remove the lower qualifying earnings threshold to enable pension saving from the first pound of earnings.
Auto-enrolment was designed to get more people saving for their retirement, meaning all employers must provide a workplace pension scheme for employees.
As things stand, the current criteria for an employer being required to automatically enrol an employee into a pension is:
• They’re classed as a ‘worker’
• They’re aged between 22 and State Pension age
• They earn at least £10,000 per year
• They usually work in the UK
For workers who do not meet the above criteria, it is still possible to request to join an employer’s pension scheme, however, an employer doesn’t currently need to contribute to an employee’s pension on earnings at or below:
• £120 per week
• £480 over 4 weeks
• £520 per month
The new laws will reduce the minimum age from 22 to 18, which will result in a huge difference to the retirement pots of young people. It is estimated that an additional 4 years of funding for an 18 year old could increase their pension pot by over £45,000.
These changes will also mean that all workers will be entitled to employer contributions and for those with earnings above £10,000, it is expected that they will eventually receive an additional £500 pa in total pension contributions.
The new measures are projected to raise total pension contributions by c£2billion each tax year.
The Department for Work and Pensions (DWP) has yet to comment on the timescales to implement these changes and is expected to launch a consultation on the plans. Despite the benefits to workers, this may have an adverse effect on businesses as costs will increase.
Funding for retirement is one of the most important objectives for most of our clients. If you would like to speak to a member of our team about the above, please do not hesitate to get in touch.