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16 May 2023
by Steve Watson

How a new Bill could be a game changer for young pension savers

With the door set to be opened to new pension rules, employers should make sure that younger employees understand the benefits

How potential changes to auto-enrolment could boost pensions.jpg 1


A Private Members’ Bill expected to receive Royal Assent sometime this year will not only open the way to more employees being auto-enrolled, but also get more money into people’s pensions and make admin easier for payroll departments.

While the Bill on its own doesn’t make these changes, it is expected that changes will be quickly announced and could be effective from as early as April 2024.

Widening the net

Most people would accept that timing is one of the most important factors when saving for retirement – the earlier you start the better. It’s also about adopting good financial habits – if you start paying into a pension from your first day of work, you’re more likely to be a saver for life.

So, given the above, it’s always been a bit baffling why there was ever a minimum age specified in the auto-enrolment regulations – it goes against common sense. But some common sense, at least in this one area, now seems to be prevailing.

At the moment, only employees aged 22 and above are auto-enrolled. It could be argued that anyone younger has the option to join, so they’re not being excluded. But this flawed argument goes against the fundamental principle of auto-enrolment, which is that when it comes to pensions inertia prevails, regardless of age. People just don’t voluntarily join pensions regardless of age.

For some industries, like retail, that rely on younger employees, this can mean that a large part of the workforce, through no fault of their own, are excluded from pensions.

Hopefully, the minimum age requirement will soon be reduced to 18 or perhaps could disappear altogether. It will mean higher costs for employers, depending on their workforce demographics, but it means that most younger employees will be in a pension unless they don’t want to be. With current opt-out rates really low, this should mean as much as 90% of the workforce, rather than just eligible jobholders, paying into pensions.

If and when this change comes in, employers shouldn’t just rely on the standard auto-enrolment processes and communications. They need to make a noise about it. Return on investment for the employer is about engagement, and engagement starts with great communications.

Don’t let the new, young pension members become part of the nearly 50% employee group that see pensions as just another tax, a deduction with no perceived benefit. If this is their view, it’s mostly down to a lack of communication and articulation of value.

Less complexity and more money into pensions

As well as lowering the minimum age requirement, it is expected that the lower earnings limit will also be abolished, putting more money into people’s pensions.

Removing the lower earnings limit means that employees in minimum contribution schemes will be saving from the first pound earned and for most employees it’ll be easier to understand how their contributions have been calculated.

Complexity is a massive barrier to engagement with pensions and so anything that simplifies it has to be a good. Recent Cushon research reveals that nearly 50% of people want pensions to be easier to understand and more than 50% want them explained in plain English with no jargon.

Although these potential changes are welcome, it shouldn’t be viewed by the government as the end of much-needed reform. Many part time workers, many of whom are women, are still excluded from auto-enrolment due to the £10k earnings trigger. For fairness and equality in pensions, this trigger should be removed.

In the meantime, the government should make the changes outlined in the Bill as soon as possible, which will be a great start to making pensions fairer for all.

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