Martin Lewis explains benefits of workplace pension
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A bill proposing to extend auto-enrolment to workers younger than 22, as well as those earning less than the current £10,000 minimum threshold, is expected to be put forward in Parliament today. Any changes could have a significant impact on the retirement savings of British workers.
The proposals will draw upon the findings from a report published today by the think-tank Onward, which suggest the proposed measures could increase Britons’ retirement savings by £2.77trillion.
As a result of the changes, Onward estimates that a full-time worker on the National Living Wage would gain an extra £93,989 over a working lifetime.
This would mark a 60 percent increase in their workplace pension savings.
North West Durham MP, Richard Holden is set to table the proposals, which hope to include more workers in auto-enrolment.
He said: “Auto-enrolment has been one of the massive hidden triumphs of the last decade in the UK.
“But sadly millions of hard-working British people aren’t benefiting because they’re under 22 or simply not working enough hours. I want to change that.”
At present, employees under the age of 22 or who earn less than £10,000 are not required to be auto-enrolled in a company pension scheme by their employer.
Becky O’Connor, Head of Pensions and Savings, interactive investor, believes the current framework of auto-enrolment is outdated as fewer people go to university and therefore start work at a younger age.
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She said: “Far too many people remain outside of the current workplace pension auto-enrolment guidelines and will face a hard retirement as a result.
“Many of these are low earners and women – people who auto-enrolment should be helping.
“The minimum age of 22 doesn’t work in a world where many young people choose not to go to university.
“There is no reason someone starting work at 18 shouldn’t be paying into a pension and every reason they should – the benefits of compound growth over the years for them are significant.”
She also suggested that lower earners could be forced to live solely on the state pension when they retire unless measures are introduced to help them build a pension pot.
Ms O’Connor believes minimum contribution levels for workplace pension schemes should be increased to give Britons a better chance of saving enough for their retirement.
She said: “Not only do lower and younger earners need to be brought into the private pensions system, minimum contribution levels should also rise to counteract the likelihood that investment growth from the stock market may be less buoyant over the coming decades.
“Being auto-enrolled at work doesn’t guarantee you a good retirement, if that system is based on stock market returns that don’t deliver the expected amount.
“There are still big disparities in the retirement standards between those retiring on a defined contribution pension and those with far more generous, old-style defined benefit schemes.
“So not only does auto-enrolment need to be expanded to help those who are currently excluded, including the self-employed – the elephant in the room when it comes to pension provision – the contribution levels also need to be ‘levelled up’.”
Getting more workers involved earlier on in contributing to their pension savings could make a big difference to the overall health of Britain’s retirement landscape, and help ensure people can live their desired lifestyle when they stop working.
Ms O’Connor concluded: “Step one is getting more people in on the pensions act, step two is making sure it delivers something worthwhile.”
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