Pension auto-enrolment changes could give £159K boost to young workers
Alice Guy, our head of pensions and savings, comments on the new rules.
18th September 2023 11:59
by Alice Guy from interactive investor
Interactive investor welcomes the expansion of pension auto-enrolment rules to all workers:
- New rules will expand pension contributions to workers aged 18- to 22-years-old
- Pension contributions will now be due on all income up to £50,270, rather than income above £6,240
- Someone earning £20,000 at age 18 and paying into their pension until they reach age 66, could get a retirement boost of £159,000 from the changes
- Someone earning £30,000 at age 18 and paying into their pension until they reach age 66, could get a retirement boost of £199,000
- interactive investor have been calling for this change since the launch of our first Great British Retirement Survey in 2019
Alice Guy, Head of Pensions and Savings, interactive investor says: “The changes seem small, but they could be life-changing for many workers, making it much easier to save enough for retirement, especially for poorer workers. It’s great news that pension auto-enrolment rules will now include the youngest workers, as well as including all earnings up to £50,270. interactive investor have been calling for this change since the launch of our first Great British Retirement Survey in 2019.
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“The changes will make it easier for workers to achieve a reasonable retirement income and could boost retirement savings by around £159,000 for someone earning £20,000 at age 18 and contributing the minimum amounts to their pension until age 66. Their retirement savings will be boosted by an extra four years’ contributions and their own and employers’ contributions being based on their whole salary. Pension pots are currently far too low for most workers and won’t be enough for a comfortable retirement, so anything the government can do to boost retirement savings is good news. Pension contributions from your employer are basically free money, so what’s not to like!
“The changes are particularly good news for women and poorer workers, who often struggle to save enough for retirement. Poorer workers are disproportionately affected by the current system that excludes lower earnings from automatic pension contributions.
“However, the changes are only one step in the right direction. It’s important to bear in mind that you may need to save more than the minimum pension amounts to achieve a comfortable retirement. In the future, policy makers need to consider increasing auto-enrolment percentages above the current rate of 8%, which is not enough for most people to achieve a comfortable retirement.”
Income | £20,000 | £30,000 | ||
Monthly pension contribution | Potential pension pot after 40/44 years | Monthly pension contribution | Potential pension pot after 40/44 years | |
With £6,240 lower earnings limit and starts at age 22 | £57 | £187,000 | £99 | £321,000 |
With no lower earnings limit and starts at age 18 | £83 | £346,000 | £125 | £520,000 |
Difference | £25 | £159,000 | £26 | £199,000 |
Assumptions: 5% investment performance net of fees, contributions from age 18 or age 22, 5% employee contributions and 3% employer contributions on eligible earnings, 2% annual increase on contributions.
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