Student workers could add up to £450 per year into their pension pot if auto-enrolment is extended to 18-year-olds, a study finds.
That would increase to almost £5,000 once they reach the future state pension age of 68, based on 2.5% inflation and a 0.7% annual management fee, according to Pension Bee.
Even by the time they reach 22 years old, the additional contributions could reach over £2,000.
This is based on an 18-year-old student earning around £5,500 per year who continues to contribute to their pension pot at that rate for two years of study and an extra year of part-time work.
The introduction of auto-enrolment for those employees would no longer restrict workers aged between 18 and 22 from only contributing to their retirement fund once they earn £6,240.
As it stands, workers in that demographic need to opt into their workplace scheme, worth 3% of their earnings, to start saving for the future.
Also, it is not currently mandatory for employers to contribute anything if their employee is aged under 22 and not yet earning over the £6,240 mark.
In 2017, a review of auto-enrolment by the Department for Work and Pensions (DWP) recommended dropping the threshold from 22 to 18 years old. But, despite calls to extend the policy and allow “younger employees to benefit from a more secure financial future”, there has been no confirmation of when the Government will go ahead with this change – yet.
‘Raising overall pension awareness for younger generations’
Becky O’Connor, director of public affairs at PensionBee, says reforms to auto-enrolment “have the power to enhance millions of young people’s financial futures and lay the foundation for a more secure retirement, raising overall pension awareness for younger generations.”
The pensions expert said: “While the Labour Government has been quick to announce a raft of changes to pensions, the lack of a clear timeline for implementing these reforms means those students and other young lower earners who want to make pension contributions will continue to miss out, just like their predecessors.”
As per its manifesto, the Labour Party said it will conduct a review into workplace pensions and has committed to the triple lock. However, it has not announced any dates for legislation changes when it comes to auto-enrolment.
Regarding the benefits reforms would have on the next generation, O’Connor added: “By making pension contributions a habit from the start of their working lives, young adults are more likely to continue to save consistently, benefitting from the power of compound returns, ultimately making a significant difference to one’s retirement income over the long term.
“If they would rather just keep the money to help get them through their studies – they don’t have to pay in. However, opting in after the introduction of the auto-enrolment extension would potentially be more financially beneficial in the longer run – and this early lesson in setting money aside for the very long term is more likely to reap dividends later on.”
