Thousands more workers, particularly younger employees and those on low incomes, are set to benefit from workplace pensions with the expansion of the auto-enrolment system.


Under current auto-enrolment rules, which were introduced in 2012, employers must by law automatically enrol workers aged 22 or above into a company pension scheme into which both must contribute.

Workers must pay at least 5% of their ‘qualifying earnings’ into their pensions, whilst employers must contribute at least 3%. Contributions are usually based on a set band of earnings which for the 2023/24 tax year is between £6,240 and £50,270 a year, so the first £6,240 of your earnings isn’t included.

However, following the Extension of Auto-enrolment Bill receiving Royal Assent this week, the pensions auto-enrolment age will be reduced from 22 to 18 and the lower earnings limit scrapped, which means workers will be able to benefit from workplace pensions earlier and from the first pound that they earn.

Katharine Photiou, managing director of workplace savings at Legal & General said: “Looking at the impact of these changes on retirement pots, we have mapped out what the eventual pension pot size would be at retirement for 18-year-olds coming into the workforce under the new reforms, compared to those that were auto-enrolled at the age of 22 under the current legislation.

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“If the changes were to be implemented tomorrow, the average man saving into a pension now would have an additional £430,694 in their pension pot once they reach 65, a 47% increase in the value of their pot. Whilst a woman would see their pension pot grow more significantly but from a much lower starting point: an 87% increase, which amounts to an additional £378,997 in pension savings by the age of 65.

“Now that the Bill has received Royal Assent, the Government will launch a consultation later in the year on how best to implement these changes. One scenario could be phasing the implementation of changes over three years, which would see the value of pension pots for a man increase by £420,296, and £369,199 for a woman.”

Plenty more to be done

Measures to boost retirement saving are to be welcomed given claims that thousands of people haven’t put away anywhere near enough for a comfortable retirement. According to research by investment platform Interactive Investor, women and the over-55s are particularly at risk of running out of money in retirement. It found that almost two fifths of over-55s have less than £50,000 in their pension pot, and only one in 10 women have enough for a moderate retirement.

Separate research carried out by professional services consultancy Barnett Waddingham found that more than a quarter (28%) of over-55s currently have no workplace or private pension savings at all, and therefore will be solely reliant on their State Pension to provide them with an income when they finish work.


Paul Leandro, partner at Barnett Waddingham, says: “Over a quarter of people over the age of 55 could be retiring without a sufficient pension, which is hugely worrying. If we also take into account life expectancy figures and future increases to the State Pension age, people are working and living for longer, but could still struggle to afford a comfortable retirement. It’s difficult to believe that people work for over 45 years are then left with very little to enjoy retirement.”