Younger workers and lower earners are set to receive a boost to their retirement savings in the future after a Private Member’s Bill ensuring the removal of the lower earnings limit and reducing the age of employees being auto enrolled to 18, received Royal Assent.
According to the Government, the changes could see the average earner’s pension increase by nearly 50% if saving across their entire career, while a minimum wage earner could see their pension pot increase by over 85%.
What’s not clear is when or how the changes will be implemented. The DWP is set to launch a consultation on that in the coming months, while there are calls to go even further and reduce the auto enrolment starting age to 16.
Aegon, one of Wren Sterling’s workplace pension partners, expects implementation to come in on a phased basis, starting from April 2025.
Paul Mitchell, Director of Corporate Solutions at Wren Sterling said: “As ever, there are two sides to this coin. For those who will be swept up in the changes, it will be a positive thing for their retirement savings. However, it will be a net reduction in their take-home pay, so it’s vital that employers take the time to explain the benefits of auto enrolment to avoid dissatisfaction and opt-outs..
“Furthermore, this will require additional budget to be set aside by employers to pay for an increase in employer contributions, especially where the Employer uses Qualifying Earnings as its definition of Pensionable Pay; so it’s important to start planning for that now. Those likely to be particularly impacted are sectors where low pay and a young workforce are common, such as retail and hospitality.”
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