Automatic pension saving to begin at 18

Every adult British worker will begin saving into a workplace pension unless they opt out

Workers over 22 are automatically enrolled in the workplace pension scheme
(Image credit: Christopher Furlong/Getty Images)

Every British worker aged 18 or over will automatically begin paying into a workplace pension scheme, under new plans unveiled by the government.

Under current rules, employers must enrol staff earning over £10,000 and aged 22 and over into a pension, but ministers now hope to lower the minimum age to 18 by the middle of the next decade. The change could affect almost a million young people.

First introduced in 2012, the system automatically diverts a slice of a worker’s pay packet into a savings pot, topped up by their employer and government contribution - unless the worker opts out.

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The total minimum contribution is currently set at 2% of earnings (0.8% from the worker, 1% from an employer, and 0.2% as tax relief from the government) but this is set to rise to 8% of earnings by April 2019. The BBC says the system “has been credited with ensuring more prepare for older age, but it means extra costs for employers”.

Extending automatic enrolment is estimated to cost employers an extra £1.4bn a year, and the government an extra £600m a year in tax relief.

Work and Pensions Secretary David Gauke said there had been “greater saving for pensions” since automatic enrolment came into effect but admitted increases in contributions from next year “might put people off”, even though “the evidence is that opt-out rates have been lower than people predicted”.

Iona Bain, founder of the Young Money blog, said the move was inadequate and would not solve a long-term pension crisis for the young.

She said school leavers were facing a “storm of financial pressures” and should have the same National Living Wage as those aged 25 and over if they were expected to contribute into a pension.

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