Auto enrolment will be extended to younger workers as bill is granted Royal Assent

The extension to automatic enrolment is expected to become law, following its third reading in the House of Lords this afternoon.

The pensions industry has welcomed the extension to the Automatic Enrolment bill which will extend pensions automatic enrolmentto those employed under the age of 22.

Jon Greer, head of retirement policy at Quilter said the move signifies the government's intent to bolster the future financial security of younger workers.

Greer said the inclusion of provisions concerning the lower qualifying earnings threshold for automatic enrolment also emphasised a commitment to ensuring that even those at the more modest end of the earning scale are not left behind.

He said: “There is no doubt that these reforms are needed to adapt pension policy to the evolving needs of the workforce and an ageing population that may end up needing to lean on a pension for decades.”

 “In fact data out today, about the number of people living to over 100 shows that it has increased 127-fold over the past century.”

Normalising pension saving

“These people have half their life to save to support themselves in retirement for a third of their life. This is no mean feat and the government need to be doing everything they can to help people save as much for retirement as possible.

Greer said proposed changes in the bill, especially the ability to include younger employees in the automatic enrolment scheme, reflected the government’s desire to “normalise pension saving or young adults enabling them to start saving from the beginning of their working lives”.

He added:  “There is no doubt that the government moving towards adopting some of the recommendations of the 2017 automatic enrolment review is a good thing as while the policy has had runaway success it must evolve to stay relevant.”

Royal Assent

The third hearing of the extension of automatic enrolment (No. 2) bill, in the House of Lords means it is one stage before Royal Assent, after then it will become law.

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association said: “If passed, it will be an important step forward in achieving adequate, fair and affordable pensions for everyone. This bill will provide the legislative footing to extend AE so a greater number of savers will have incomes, sufficient to meet their retirement goals.

“By making it a legal requirement for workers under 18 to be automatically enrolled and removing the lower earnings limit(LEL), millions of people will get a better pension when they retire.

People said for savers to reach an adequate income in retirement, further increases were still needed over the next decade so that AE increases from the eight per cent pension contribution today to around 12 per cent in the early 2030s – split 50/50 between employers and employees.

Boosting pension savings by £159,000

Alice Guy, head of pensions and savings at interactive investor said the changes seem small, but would be life-changing for many workers, making it much easier to save enough for retirement, especially for poorer workers.

She said: “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.

Guy claimed the changes will make it easier for workers to achieve a reasonable retirement income and could boost retirement savings by around £159k for someone earning £20,000 at age 18 and contributing the minimum amounts to their pension until age 66.

She said 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 contributions from your employer are basically free money so what’s not to like," Alice Guy, interactive investor

“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 eight per cent, which is not enough for most people to achieve a comfortable retirement.”

Phil Brown, director of policy at People’s Partnership, provider of The People’s Pension, said: “As an organisation which has long called for improvements to automatic enrolment, this is great news for a generation of savers, meaning that younger workers will be able to save for longer, potentially allowing earlier retirement than would otherwise have been possible.

“Making pension savings count from the first pound earned will significantly increase the proportion of earnings saved, particularly for those with lower earnings. It’s important that this happens at a time when earnings are rising faster than inflation so that people do not face a choice between stopping saving and being able to afford to live as they do now.

“Looking ahead, the Department for Work and Pensions need to review the adequacy of UK pension saving and start setting targets for what they think the combination of automatic enrolment contributions and the state pension should achieve. People need to know what sort of lifestyle they can expect in retirement from the two main pillars of our pension system.”

Patrick Luthi, chief executive of NOW: Pensions, said the news may pass unnoticed in the majority of workplaces. "But it will ultimately become a cause for celebration for thousands of workers who stand to benefit, particularly the youngest generation who can get a head-start on their retirement savings journey.

 “We’ve been long standing partners with Debate Mate, an online debating platform for students aged 6 to 16 and believe the earlier children begin to have positive relationship with money, savings, and budgeting, the more likely it is to have a positive impact on their financial futures."

"Our recent research showed 86 per cent of over 1,000 young adults (aged 11-27 years) supported the Government’s proposal to reduce the age of automatic enrolment from 22 to 18."