Interactive Investor

Call to lower auto-enrolment minimum age to boost pension participation

20th April 2022 12:08

Rebecca O'Connor from interactive investor

interactive investor comments on ONS workplace pension data.

The Office for National Statistics this morning published data on workplace pension participation up to April 2021, including the first year of the pandemic.

  • 79% of workers – 22.6 million people – have a workplace pension, a slight rise on the previous year. There was a slight rise in defined benefit pension participation last year as the government employed more people to deal with the pandemic
  • Only two in 10 workers aged 16 to 21 have a workplace pension, compared with 8 in 10 over age 22 – the minimum auto-enrolment age
  • Low earners in the private sector with income between £100 and £199 a week are least likely to be paying into a pension (the earnings trigger is £10,000)
  • There remains a big gap between public and private sector pension participation – and values. Among workers up to state pension age, the participation rate in the public sector was 10 percentage points higher, the ONS found. The average values of pensions are around six times higher in the public sector. 

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “If we want more people to be less dependent on the state pension in retirement, it would help if the boundaries around auto-enrolment participation are relaxed.

“The disparities between public and private sector pension provision must also be urgently addressed. There is significant pension inequality between employees who are employed by the public sector with defined benefit schemes and those with defined contribution schemes in the private sector. This is already apparent among current retirees, who have vastly different living standards depending on who they used to be employed by.

“The public/private pension inequality will continue to be a troubling feature of retirement for millions of current workers. Those in the private sector who are auto-enrolled and therefore assume their retirement will be OK may be unpleasantly surprised, not just by how little they end up with, but also by just how far behind their ex-public sector friends they are.

“Unfortunately, auto-enrolment on its own will not make this gap go away. There are a number of measures to consider: higher employer contributions as well as removing the auto-enrolment minimum age and threshold, could help. So could people choosing higher growth investment plans for their pension than they do currently. Interactive investor research, also published today, found that more than a third of people – 36% - say they have a low-risk pension. A low-risk plan is unlikely to generate the growth needed to build a big enough pot for a comfortable retirement later on.

“While it is often going to be harder for people on low incomes to put money away for the future, some low earners may be able to tolerate the loss of some cash now in exchange for a decent retirement later. These could be low earners with multiple jobs, those with higher-earning partners or those younger workers who are still living at home to save money on living costs, for example.

“Given the huge difficulties many will face surviving on the state pension in decades to come, it makes sense to auto-enrol more younger people and lower income earners now. If they are struggling, they still have the option to opt out and re-join when it feels more appropriate. The benefits for investment growth of contributions early in working life are worth having.

“The minimum age set at 22 assumes someone starts a career after having gone to university – which may not be an accurate assumption. A career could start at 18 for someone who does not go to university. It doesn’t seem right that these young non-graduate workers should miss out on four years of pension contributions.

“The soon-to-be introduced Pensions Dashboards will also make it easier for younger people, who may end up with many pension pots from temporary jobs, to keep track of them.”


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