Huge pension rule shake up including age change coming for millions of workers – will you save more? | The Sun

MILLIONS could save more in retirement after a big shakeup of pension rules is set go ahead.

The government has today confirmed that two key changes to auto enrolment in pensions schemes are moving forward.

The proposals would lower the age at which people are automatically placed in a workplace pension to 18.

Currently, employers must automatically enrol workers into a pension scheme and make contributions if they are aged between 22 and the state pension age and earn at least £10,000 a year.

As it stands, workers can still opt in to their work's pension scheme at 18 but it isn't automatic.

The lower earnings limit, at £6,240, is the minimum level of an enrolled worker’s earnings on which they and their employer have to pay contributions.


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Removing the lower earnings limit could help to bring more lower earners and people working part-time jobs into automatic enrolment.

The two reforms are expected to increase total pension contributions by £2billion per year or by £45billion over 30 years, according to the finance experts at AJ Bell.

The changes are likely still a way off a they will need to be passed into official UK law first, but a public consultation is set to be published later this year.

The proposals will give the Secretary of State powers to amend the age limit and lower the qualifying earnings limit for automatic enrolment.

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Tom Selby, head of retirement policy at AJ Bell, comments: “Six years after an independent report backed the idea of expanding automatic enrolment, the government is finally getting the wheels in motion.

"The proposal to ditch the lower earnings limit, currently set at £6,240, so the first pound of earnings counts for both a matched contribution and tax relief, should help more people build bigger retirement pots over their careers.

“Similarly, lowering the age at which someone first qualifies for auto-enrolment from 22 to 18 will be a significant step in helping millions of young people benefit from the magic of compound growth."

Mr Selby regarded both changes as "good news for savers" but pointed out that there are still significant risks.

He added: “Most obviously, ratcheting up contributions during a cost of living crisis could be the straw that breaks the camel’s back for some savers, who might decide they simply cannot afford to put money to one side for retirement.

“Businesses could also push back against the idea of committing more cash to their employees’ pensions given the pressures they are facing at the moment."

Because of this, the expert does not expect the changes to come in while inflation is still high.

Looking ahead, Mr Selby also said that once the reforms have been brought in, the government will need to think about how to increase pension contributions even more.

That's because an 8% contribution rate "simply won’t deliver" close enough to the standard of living they are hoping for in retirement.

One option, according to the finance pro, could be to scale up contributions as people’s salaries increase, a system which is known as "save more tomorrow".

Addressing low savings rates among the self-employed is another issue that needs to be addressed.

Mr Selby said: "While auto enrolment has been successful in dramatically increasing the number of people saving something for retirement, it is still only a job half done.

"Whether the reforms are ultimately viewed as a success will depend largely on what happens next.”

The Sun has contacted the DWP for comment.

What is auto-enrolment?

Auto-enrolment is when you're automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.

Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.

The only exception is if you're under the age of 22 or earn under £10,000, in which case you have to ask to opt in.

A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.

Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you're putting away is less than it sounds.

For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.

While opting out of a workplace pension would increase your monthly salary, it's best to only do this as a last resort, as you'll have less in later life.

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Meanwhile, a typical earner’s pension pot could increase by more than £1,000 a year under radical new plans.

Plus, here's a little-known trick that could boost your state pension by £614 every year in retirement.

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