Britons working to build their pensions could get a major boost if the auto-enrolment scheme is expanded.
The Government has set out plans to scrap the lower earnings limit and to expand the minimum age from 22 to 18.
Alice Guy, head of Pensions and Savings at interactive investor, said: “The Government’s plans to scrap the lower-earnings limit and expand auto-enrolment to 18-year-olds give lower paid employees a better chance of building a decent sized pension pot and achieving a comfortable retirement.
“Someone earning £20,000 between the ages of 18 and 62 could end up with £112,925 more in their pension pot after 44 years, due to the combined impact of an extra four years’ contributions and their own and employers’ contributions being based on their whole salary.”
Auto-enrolment is a scheme that obliges employers to provide a workplace pension for their employees, with the employee automatically added to the scheme with contributions taken from their wages.
READ MORE Pension warning as Britons risk £115,000 shortfall – how to retire comfortably
At present, a worker has to be at least 22 and earn at least £10,000 to qualify for auto-enrolment.
Ms Guy said expanding the scheme could particularly benefit women as they are more likely to be working part-time on a low income and are more likely to be living in poverty in retirement.
She said: “This policy could go some way to closing the pension gender gap which is currently 35 percent by the time women reach age 55.
187,000 Britons owed £1billion after state pension error[STATE PENSION]
Dragons’ Den rejected pitch is now worth £95million[DRAGONS DEN]
800,000 homeowners could see mortgages rise by £2,900 year – how to avoid[MORTGAGES]
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
“However, the Government needs to keep up the momentum as the timetable for this plan is not yet clear and there’s a danger that improving pension outcomes drops off the list as the next election looms.”
People who are auto-enrolled have to contribute at least eight percent of their salary, with the employee contributing five percent while the employer matches this with a three percent contribution.
Some schemes allow the employer to pay in more meaning the employee can pay in less as long as the eight percent minimum is reached.
Workers also pay towards their state pension through their National Insurance contributions.
A person typically needs 35 years of contributions to get the full new state pension, which is £203.85 a week.
A person can find out how much state pension they are on track to receive using the state pension forecast tool on the Government website.
For the latest personal finance news, follow us on Twitter at @ExpressMoney_.
Source: Read Full Article