The UK government is considering changes to the pension system that could significantly boost the retirement savings of young workers. Under the proposed reforms, employers would be required to enroll employees from age 18 and contribute to their pension from the first £1 of earnings. Currently, only two in ten workers aged 16 to 21 have a workplace pension, largely due to legislation that excludes workers under 22 and those earning less than £10,000 from automatic enrolment benefits.
PensionBee’s calculations show that an 18-year-old student earning around £5,500 annually could save approximately £450 per year through combined employer and personal contributions if they opt in.
boosting young workers’ pension savings
Over three years, including two years of study and one year of part-time work, these contributions could grow to £2,034 by age 22.
By retirement age of 68, this could add £4,748 to their pension pot, assuming a 0.7% annual management fee, 5% annual investment growth, and 2.5% inflation. Becky O’Connor, the Director of Public Affairs at PensionBee, said: “Reforms to auto-enrolment have the power to enhance millions of young people’s financial futures and lay the foundation for a more secure retirement, raising overall pension awareness for younger generations.
However, O’Connor expressed concern about the lack of a clear timeline for implementing these changes. She added: “The absence of a clear timeline for implementing these reforms means those students and other young lower earners who want to make pension contributions will continue to miss out, just like their predecessors.”
These insights underscore the importance of implementing the proposed changes promptly.
By extending auto-enrolment to younger workers, the Government could significantly improve the financial futures of student workers and other young adults, setting them on a path towards a more secure retirement.
