News that younger workers will be included in pension auto-enrolment has been more welcomed than ever. Statistics show an increasing number of young adults opting to start work at 18 rather than heading to university. With minimum auto-enrolment age rules being lowered from 22 to 18, the additional four years will grant savers thousands more for their pension pots – but older workers are still missing out, experts warn.
Alice Guy, head of pensions and savings at interactive investor, said: “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.”
The DWP’s analysis on future pension incomes found 38 percent of workers are not currently saving enough for retirement – but this under-saving is concentrated in the age group between 43 and 58, otherwise referred to as Generation X.
As much as 66 percent of those retiring in the 2030s with a defined contribution pension are thought to be “undersaving”.
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While investment firms are calling on the Government to improve pension conditions for older workers, such as boosting money purchase allowances and working faster to launch the pensions dashboard to help people keep better track, the new auto-enrolment plans demonstrate some progress.
Ms Guy said: “Auto-enrolment has been a roaring success and many younger workers can look forward to a comfortable retirement due to long years of pensions contributions.
“Expanding auto-enrolment to younger workers would make it easier for them to save enough for retirement.”
Interactive investor calculations show that, with a lower minimum age to be auto-enrolled, a young worker on an average salary could boost their pension pot by a staggering £40,000 by the time they reach state pension age.
According to the firm, this is because the extra four years of contributions (totalling £5,172) would have another 46 years the grow and benefit from investment compounding, assuming they retire at the state pension age (which is likely to be at least 68 years old by the time they retire).
These figures assume they contribute five percent of their salary into their pension, while their employer contributes three percent 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.
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They said: “There is also no reason why students working part-time jobs shouldn’t also be set up in company pension schemes, now that the auto-enrolment infrastructure is established and the rollout is complete, so reducing qualifying earnings would be a huge help too.”
Ms Guy added: “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.”
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