A recent article in the Telegraph indicated that the Government is considering reducing the age for auto-enrolling employees into their pension scheme to 16 from the current age 22. The DWP are currently reviewing this and will release the details towards the end of this year.
Do you think it is a good thing?
The Government points out that 80% of eligible workers are now contributing to a pension scheme and this shows auto enrolment to be a success. But we haven't yet reached the point where the first increase in contributions will occur - in April 2018 employees will be contributing an additional 2% into their pension with employers contributing an additional 1%. It will be interesting to see how many employees opt out when they start having 3x the deduction from their pay as they do now.
And then 12 months later a further increase will occur when employees will be contributing 5% i.e. 5x what they are paying now into their pension scheme. Will even more employees opt out?
We know that individuals need to contribute to a pension scheme to support them in their retirement but having seen the contributions currently being made from lower earners it doesn't seem as though there will be much to help fund their retirement especially if pension pots don't benefit from good interest rates.
However encouraging 16 year olds to start contributing to a pension scheme can only be a good thing. Those who are just starting out in work won't miss what they have never had and 50 years worth of contributions can only be of benefit to them. Young workers generally don't have the commitments or responsibilities of those aged 22+. They probably still live at home so don't have to contribute as much to food, utility bills or other expenses. Those aged 22+ may have a mortgage and a young family so losing even 1% of their wages is significant, especially for lower earners, and they are more likely to opt out of the pension scheme.
I think it is a very good idea to encourage younger workers to start saving as soon as they are earning. Helping them to understand why they need to save and to show them how to see the growth in their investment is important as it would hopefully set them on the right path for financial stability. Some financial guidance before teenagers leave school would really help them to understand the importance of saving and investing and could help them to manage their money better. It always surprises me how many employees do not understand their payslip or what their tax code means so some support with this too would help many employees to check that they are being paid and taxed correctly.
But how will the change in auto enrolment age to 16 affect small businesses? The cost is already significant to some businesses who only just manage to keep their head above water. Younger workers are often employed in shops but many of these shops are finding it difficult to increase their turnover to cover the additional costs of the pension scheme for the age 22+. Contributing for younger workers too may just be a step too far for some of them. However, this change may encourage small businesses to employer older workers who are close to retirement age or already receiving a pension as they may not need to make any contribution. That may really help older people to find or stay in work.
What are your thoughts about reducing the age for auto enrolment into a pension scheme to 16?