A group of major British insurance firms and pension funds have called on the government to extend the UK’s pension auto-enrollment terms to include young and low-wage workers.
The group sent a letter to Rishi Sunak yesterday to call on the government to “level up pensions for everyone” by abolishing the “lower earnings limit and reducing the age at which people benefit from auto-enrolment to 18 years old” to unleash more investment in the UK economy.
Aviva, Hargreaves Lansdown, Legal and General, Standard Life, Now: Pensions, the Association of British Insurers and centre-right think tank Onward are among the letter’s signatories.
The government told employers in 2012 that they must automatically enroll all eligible workers onto their workplace pension schemes. However, only workers aged 22 and older, who earn more than £10,000 a year, are automatically enrolled.
Workers must earn at least £6,240 to be allowed to take part in employer pension schemes at all.
Across the whole lifetime of the UK’s current workforce, lowering the thresholds could lead to additional pensions savings of up to £2.77 trillion, according to Onward.
The group’s letter to Sunak said the proposed reforms “would help individuals and their families to save for the future, and generate billions in capital for pension funds to deploy towards infrastructure, housing and other investments central to the government’s economic ambitions”.
Critics of the current rules say dropping the age and earnings thresholds, to ensure more workers are eligible for auto-enrolment, would boost workers’ pensions and free up billions for investment in the UK economy.
Critics also say the thresholds prevent young, low-paid, and part-time workers from building up their pension pots, as they claim lowering the thresholds could boost the average worker’s final pension by almost £94,000.
Pete Glancy, Head of Policy at Scottish Widows, said: “It’s important for young adults to start saving as soon as they can for later life, and we would support a reduction in the auto-enrolment age from 22 to 18.”
“We have calculated that this could increase the size of a pension pot for younger workers by around 15 per cent when they reach retirement.”
A government spokesperson said: “Automatic enrolment has succeeded in transforming pension saving, with more than 10m workers enrolled into a workplace pension to date and an additional £28bn saved in 2020 compared to 2012.
“The government’s ambition for the future of automatic enrolment will enable people to save more and to start saving earlier by abolishing the Lower Earnings Limit for contributions and reducing the age for being automatically enrolled to 18 in the mid-2020s, benefiting younger people, low-paid and part-time workers as they will receive contributions from their employer from the first pound earned.
“We want to make sure that these changes are made in a way and at a time that is affordable, balancing the needs of savers, employers and taxpayers.”