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UK workers to be eligible to join company pension from age 18

Millions of UK teenagers are to be brought into workplace pensions under a widely welcomed shake-up aimed at bridging the country’s yawning retirement savings gap.

The government on Friday confirmed support for a proposal to lower the age at which employees become eligible for automatic enrolment in a company pension from 22 to 18.

It said it would also back a further proposal whereby auto-enrolled workers will save more into their pensions, potentially boosting lifetime retirement savings, although it did not announce any changes to the policy’s £10,000 earnings threshold.

In a separate move, government insiders expect chancellor Jeremy Hunt to reform pension tax rules for older workers in his Budget on March 15, as part of an effort to keep the over-50s in the workplace and boost economic activity.

Pension tax rules have been particularly blamed by the British Medical Association for the number of senior doctors leaving the NHS, and Hunt is expected to raise the £40,000 annual allowance for pension savings.

The Treasury declined to comment, but before becoming chancellor Hunt said last year: “It is crazy not to fix this when there is such a big capacity crisis in the NHS.”

Referring to the plan for younger workers, pensions minister Laura Trott on Friday said the government knew “these widely supported measures will make a meaningful difference to people’s pension saving over the years ahead”.

The proposals had been presented in a private members bill by Tory MP Jonathan Gullis relating to automatic enrolment. The policy has given more than 10mn employees pension coverage since taking effect in 2012, but it has been criticised for not applying to enough people.

Under the scheme, a minimum of 8 per cent of an employee’s pensionable salary must be paid into their retirement pot every month. Of that, at least 3 per cent comes from the employer, while the rest is made up of contributions from the employee and tax relief.

Praising the “huge positive impact” of the policy, Gullis on Friday said it was “a no-brainer that we now need to extend auto-enrolment to those aged 18 and above”.

As well as extending access to automatic enrolment, Gullis’s proposals remove the so-called lower earnings limit, whereby pension contributions are calculated only on the portion of a worker’s salary above £6,240. The removal of the LEL will mean that contributions will count from the first pound earned.

Steve Webb, a partner at the consultancy LCP and a former Lib Dem pensions minister, said the reforms would be “an extremely welcome step forward in the drive to tackle pension under-saving”.

Research published the Department for Work and Pensions on Friday found 38 per cent of the working-age population who were currently eligible for automatic enrolment, or about 12.5mn people, were not putting away enough money to live on once retired.

David Robbins, director at WTW, a professional services company, also welcomed the government’s decision. But he cautioned that, as a policy, reforming automatic enrolment “has always been kept out of fiscal forecasts on the grounds that it is not a firm commitment”.

“Changing that would be a stronger signal that change is coming than passing a law,” he added.

The government said it would consult on the proposals, and then allow the work and pensions secretary to put forward changes, before they became law.

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