Interactive Investor

Auto-enrolment expansion could give £40K retirement boost to young workers

8th March 2023 09:23

by Alice Guy from interactive investor

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However, older workers still miss out on £25,000 of pension saving.

  • £40,000 pension boost for young worker by 68-years-old, from four years of extra pension contributions
  • £56,000 pension boost for young worker by 68-years-old, from four years of extra pension contributions (if pension based on 100% of income)

Interactive investor welcomes government plans to expand pension auto-enrolment rules to include younger workers aged 18 to 22

Many young people start work at 18 rather than attending university. The higher education entry rate among UK 18-year-olds increased from 24.7% in 2006 to 30.7% in 2015 and peaked at 38.2% in 2021. It fell back to 37.5%, its second-highest ever level, in 2022.

Interactive investor calculations show that a young worker on an average salary could boost their pension pot by an amazing £40,000 due to the proposed expansion of pension auto-enrolment rules to 18- to 22-year-olds by the time they reach state pension age. This is because the extra four years of contributions (totalling £5,172) would have another 46 years to grow and benefit from investment compounding, assuming they retire at the state pension age (likely to be at least 68 years old by the time they retire). These figures assume they contribute 5% of their salary into their pension, and their employer contributes 3% of their salary.

If an 18-year-old works for an employer that makes pension contributions on their whole income, four years of extra pension contributions could give a £56,546 boost to their pension pot by the time they reach retirement age. Current rules mandate pension contributions for all earnings over £6,240, but some employers choose to make pension contributions on all earnings.

Additional pension wealth with change in auto-enrolment rules

Monthly earnings

Yearly income

Annual pension contributions

Investment after 4 years

Investment after 8 years

Investment after 46 years

Workers Aged 18 to 22

Pension contributions on full salary






Pension contributions on salary over qualifying earnings threshold






Workers Aged 67 to 74

Pension contributions on full salary





Pension contributions on salary over qualifying earnings threshold





Assumptions: median full-time monthly earnings using ONS data, 2% increase in pension contributions, 5% employee contributions, 3% employers contributions, 5%  investment growth, 0.5% fees.

Interactive investor would also welcome a reduction in the earnings trigger so that more part time or lower earners can start to build their pension wealth. There is also no reason why students working in part-time jobs shouldn’t also be set up in company pension schemes, now that the auto-enrolment infrastructure is established and the roll-out is complete, so reducing qualifying earnings would be a huge help too.

Interactive investor has long promoted the importance of schoolchildren learning about personal finance – this extends to education on long-term investing in the form of pensions. Introducing auto-enrolment for the youngest workers would help change the culture around pensions to something that’s relevant for young people even straight out of school. 

Alice Guy Head of Pensions and Savings at Interactive investor says: “Auto-enrolment has been a roaring success and many younger workers can look forward to a comfortable retirement due to long years of pension contributions. Expanding auto-enrolment to younger workers would make it easier for them to save enough for retirement.

“We know that on average, those who go to university earn slightly more over their lifetime than non-graduates, so expanding pension saving to younger workers who have started work straight from school could help to narrow the gap in terms of retirement income. It would also give students an extra long-term retirement boost from any part-time earnings.

“Like brushing our teeth or combing our hair, it’s easy to get into good habits if we start young. And it’s also easier to get used to pension saving if it starts straight away when we start working. There’s a danger that suddenly starting pension contributions will be difficult for someone who’s 22, has already been working for four years and got used to having that extra income.

“But it’s not just younger workers who need more flexible pension rules. Many older workers are currently struggling to achieve an adequate retirement income. Many poorer pensioners didn’t have access to workplace pensions, as auto-enrolment rules were only introduced around 10 years ago, and are left relying on the state pension.”

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