The Government’s decision to extend automatic enrolment to workers aged between 18 and 21 could mean an additional £105bn of pension savings for younger people across the UK over the next 50 years, according to new analysis by People’s Partnership1, which provides The People’s Pension to more than 6.5 million people across the UK.
Following the passing of a new Bill in Parliament last year, automatic enrolment, which has seen nearly 11 million people start saving into a pension since 2012, is set to be extended to workers aged between 18 to 21 by the mid-2020s.
The analysis2 by People’s Partnership reveals that additional pension contributions of £400m per year for 18-21-year-olds will result in an additional £105bn of savings, over the next 50 years, when all returns, fees and further contributions are factored in.
Impact of the automatic-enrolment extension – an example:
- An 18-year-old with a salary of £15,0004 who contributes 8% to their pension will have £4,900 saved by the time they reach age 22.
- The amount will add an extra £33,900 to their pension by the time they retire at age 68.
- This calculation doesn’t factor in wage growth and compounding of additional contributions, so the total amount added to the pension as a result of saving earlier could be much higher.
The not-for-profit pension provider, which reinvests its profits to benefits its members is calling for cross party agreement, with the support of key unions and trade bodies, on a timeline for implementing the vital reforms.
Phil Brown, director of policy at People’s Partnership, said:
“The earlier you can save into a pension the better as it means your money is invested for longer and has more time to benefit from growth in investment markets. So, the Government’s commitment to help younger workers start saving for their future is a huge step forward. But now we need to see promises turned into action, with a cross-party consensus on the timeline for delivering this change, given we have been waiting for this since 2017.
“Automatic enrolment is undoubtedly one of the most successful Government policies in living memory, enabling millions of people to save tens of billions of pounds extra into their pension. It’s absolutely right that the policy continues to develop so that it reaches its full potential and enables as many people as possible to have the opportunity to benefit.
“With nearly 4 in 10 people3 not saving enough for their retirement, the next big challenge for policymakers and the industry is reaching a consensus on how we solve the problem of under saving.”
Note to editor
- People’s Partnership provides The People’s Pension, the largest independent master trust in the UK, serving more than six million pension savers across the UK and manages more than £24bn in assets. As a business without shareholders, it reinvests its profits with the aim to help customers and achieve better financial outcomes for everyone.
- The research models the impact of the auto-enrolment extension by taking the additional contributions of £400m per year for 18-21 year olds, as forecast in the Department for Work and Pensions’ Impact Assessment, and looks at what this will mean in terms of additional retirement savings in 50 years’ time. The analysis assumes wage growth of 2.5% per year, investment returns of 4% per year and charges of 0.5% per year, and was calculated for a 50-year period given today’s 18 year-olds might reasonably expect to begin receiving their State Pensions in 50 years, at age 68.
- According to Government analysis of future pension incomes, 38 per cent of the working population, or 12.5 million people, are undersaving for retirement.
- Based on ONS Data ‘Annual Survey of Earnings and Hours’ (table 6.7a – gross annual pay by age).