UK Government plans to lower minimum pension auto-enrolment age to cost employers £1.4 billion

But there are fears that hikes in minimum pension contributions could lead to more people opting out in light of falling real wages.

The UK government’s plans to lower the minimum auto-enrolment age from 22 to 18 years by the mid-2020s is expected to cost employers an estimated £1.4 billion (US$1.87 billion) per year.

Pension secretary David Gauke said that reducing the minimum age would affect about 900,000 young people and would cost the government an extra £600 million (US$802 million) in tax relief each year.

He also announced that annual reviews of the trigger point for auto-enrolment would likewise be introduced and that the government intended to explore how technology could be used to encourage the country’s 4.8 million self-employed people to save for retirement too.

A further proposal included calculating contributions as a proportion of an individual’s entire earnings up to £45,000 (US$60,141) – the threshold of the higher tax rate – rather than calculating them as a portion of earnings between £5,876 (US$7,858) and £45,000. The aim is to support people with multiple jobs more effectively.

Malcolm McLean, a senior consultant at actuarial and consultancy services provider Barnett Waddingham, told HR magazine that the measures were overdue but also expressed disappointment that they would not be introduced until the mid-2020s.

“This is presumably motivated by a desire not to upset the apple cart until the current contribution increases, planned for April 2018 and April 2019, have been implemented and given time to settle down,” he said. “I sense there is already a certain jitteriness about how these planned increases will play out, with both workers and employers, and what impact they will have on the very good opt-out rates to date.”

From April 2018, all employees that are members of auto-enrolment pension schemes will need to pay a minimum of 3% of their annual salary, with employers contributing 2%. The current minimum levels are 1% for both.

A year later, minimum levels will jump again to hit 5% for employees and 3% for employers. Overall participation in workplace pensions in the UK is about 75% due to the success of auto-enrolment since it was introduced in 2012, but there are fears that this situation could move into reverse if the increases are not carefully managed in light of falling real wages.