Pensions auto-enrolment to be extended to 18-year-olds under recommendations

A landmark workplace savings drive is to be extended to 18-year-olds under recommendations set to be published by the Department for Work and Pensions (DWP).

Some 900,000 young people could save into a workplace pension for the first time under the plans contained in the review, which looks at how to build on the success of automatic enrolment into workplace pensions.

At present, automatic enrolment applies to workers who are aged between 22 and state pension age, and earning above a certain trigger - but under the recommendations the eligible age would be lowered by four years to 18.

David Gauke, Secretary of State for Work and Pensions said: "We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.

"We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement."

The rollout of auto enrolment started in 2012, with more than nine million people now having been placed into a workplace pension.

Take-up of the scheme so far suggests a strong appetite for saving - particularly among younger people.

The review, due to be published on Monday, estimates there are still about 12 million people under-saving for their retirement, representing 38% of the working age population.

Of this 12 million, six million are deemed "mild under-savers".

It is estimated the changes outlined in the review will deliver an additional £3.8 billion of pension contributions, taking the total to £24 billion per year.

The Government plans to work towards introducing the reforms in the mid-2020s in partnership with employers and the pensions industry.

The review's recommendations, which will now be progressed and legislated for, will also see workplace pension contributions calculated from the first pound earned, rather than from a lower earnings limit, bringing an extra £2.6 billion into pension saving.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said: "Starting from age 18 instead of waiting until 22 and allowing contributions to apply from the first pound earned will transform people's retirement prospects.

"Not only does this mean retiring with more income, it means having greater control over leaving work.

"These measures mean someone with average earnings could increase their pension pot at retirement by over £60,000."

The Government will also test out ways to support pension saving among the 4.8 million self-employed people.

The earnings trigger at which auto-enrolment kicks in for employees will remain at £10,000 for 2018/19, subject to annual reviews.

It has previously been announced that contribution levels into workplace pensions, which include the combined amounts coming from employers and employees will be raised over the coming years. Contribution levels will be reviewed after the minimum rate rises to 8% in 2019.

A former pensions minister welcomed the planned reforms but said the proposed pace of change should be faster.

Sir Steve Webb, director of policy at Royal London, said: "There are some great ideas in this review, including starting pension saving at age 18 and making sure that every pound that you earn is pensionable.

"But the proposed pace of change is shockingly lethargic.

"Talking about having reforms in place by the mid-2020s risks leaving a whole generation of workers behind."

Darren Philp, policy director at The People's Pension, welcomed the plans, saying: "The earlier people start saving, the more investment growth can do the heavy lifting for them in saving for their retirement.

"It also kick-starts the savings habit from an earlier age."

He continued: "As well as widening access to pensions, this review signals that pension contribution levels will be reviewed after the implementation of the 8% contribution rate in 2019.

"For many people we know that saving 8% of their salary won't be enough and what we need is a real and urgent debate as to what the right level needs to be in the future."

Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association (PLSA), said: "The PLSA has long argued that automatic enrolment should cover more people and that contributions should rise, ideally to 12% over the next decade.

"The new measures, plus the commitment to review contributions after 2019, marks real progress and we look forward to supporting the Government in implementing the policy."