Hundreds of thousands of 18-year-olds to be enrolled for workplace pensions under new recommendations

A landmark workplace savings drive is to be extended to 18-year-olds, under recommendations set to be published by the Department for Work and Pensions (DWP).

Approximately 900,000 young people could contribute to a workplace pension for the first time under plans contained in the review, which looks at how to build on the success of automatic enrolment into workplace pensions.

At present, automatic enrolment applies to workers who aged between 22 and state pension age, and earning above a certain threshold – but under the recommendations, the eligible age would be lowered by four years.

David Gauke, Secretary of State for Work and Pensions, said: “We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.

“We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement.”

The rollout of auto-enrolment started in 2012, and more than 9 million people have now been placed into a workplace pension.

Take-up of the scheme so far suggests a strong appetite for saving – particularly among younger people.

The review, due to be published on Monday, estimates that there are still about 12 million people under-saving for their retirement, representing 38 per cent of the working age population. Of this 12 million, 6 million are deemed “mild under-savers”.

It is estimated the changes outlined in the review will deliver an additional £3.8bn of pension contributions, taking the total to £24bn per year.

The Government plans to work towards introducing the reforms in the mid-2020s in partnership with employers and the pensions industry.

The review’s recommendations, which will now be progressed and legislated for, will also see workplace pension contributions calculated from the first pound earned, rather than from a lower earnings limit, bringing an extra £2.6bn into pension saving.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “Starting from age 18 instead of waiting until 22, and allowing contributions to apply from the first pound earned, will transform people’s retirement prospects.

“Not only does this mean retiring with more income, it means having greater control over leaving work. These measures mean someone with average earnings could increase their pension pot at retirement by over £60,000.”

The Government will also test out ways to support pension saving among the 4.8 million self-employed people.

The earnings trigger at which auto-enrolment kicks in for employees will remain at £10,000 for 2018/19, subject to annual reviews.

It has previously been announced that contribution levels into workplace pensions, which include the combined amounts coming from employers and employees, will be raised over the coming years. Contribution levels will be reviewed after the minimum rate rises to 8 per cent in 2019.

A former Pensions Minister welcomed the planned reforms, but said the proposed pace of change should be faster.

Sir Steve Webb, director of policy at Royal London, said: “There are some great ideas in this review, including starting pension saving at age 18 and making sure that every pound that you earn is pensionable.

“But the proposed pace of change is shockingly lethargic. Talking about having reforms in place by the mid-2020s risks leaving a whole generation of workers behind.”

Darren Philp, policy director at The People’s Pension, welcomed the plans: “The earlier people start saving, the more investment growth can do the heavy lifting for them in saving for their retirement. It also kick-starts the savings habit from an earlier age.”

He continued: “As well as widening access to pensions, this review signals that pension contribution levels will be reviewed after the implementation of the 8 per cent contribution rate in 2019.

“For many people, we know that saving 8 per cent of their salary won’t be enough, and what we need is a real and urgent debate as to what the right level needs to be in the future.”

Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association (PLSA), said: “The PLSA has long argued that automatic enrolment should cover more people and that contributions should rise, ideally to 12 per cent over the next decade.

“The new measures plus the commitment to review contributions after 2019 marks real progress, and we look forward to supporting the Government in implementing the policy.”

PA