Auto-enrolment reforms to cost £600m in tax relief

Auto-enrolment reforms to cost £600m in tax relief

Auto-enrolment reforms to cost £600m in tax relief

We know the world of work is changing, so it is only right that pension saving does too.

The government made the announcement following a review that identified parts of the United Kingdom population are falling outside the auto-enrolment scheme that was first brought into force in 2012.

But the Department For Work and Pensions is recommending the starting age be lowered to 18 - and that workers begin contributing at a much lower income level.

The scheme, which automatically enrols those working in a private or public sector firm in the United Kingdom into a workplace pension, is now open to those aged 22 or above, who earn more than £10,000 from one job.

Someone earning £5,876 or under is entitled to join a pension scheme but the employer doesn't have to contribute.

"There's always a risk that people will be put off saving when more is taken from their pay packets so we're pleased the government will be studying how people react to increases in contributions which are due in 2018 and 2019". Contributions are now calculated based on how much you earn between £5,876 and £45,000.

"Automatic enrolment has transformed the way people save, with more than 9m now enrolled into a workplace pension".

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As part of the review, the DWP plans to lower the age limit to 18 while maintaining the upper age limit. Those aged 16-18 and over State Pension Age would be allowed to opt in to their workplace pension scheme.

Sir Steve Webb said that proposals to expand pensions auto-enrolment - by including younger people by the "mid-2020s" and by increasing the amount people save - would come too late to defuse a "time bomb" faced by middle-aged workers.

Director of external affairs as at the Pensions and Lifetime Savings Association (PLSA), Graham Vidler, also praised the age extension, saying it was an important step on the road to helping people save for retirement.

Kate Smith, head of pensions at Aegon, said the moves are positive but should be introduced sooner. "Just a third of our self-employed members are saving into a private pension scheme, so we hope to see new flexible savings options that work for the changing workforce". It would be good if employers offered this choice now, rather than waiting till the mid 2020s when it will become compulsory.

More than six million middle-class savers are failing to save enough for a comfortable retirement, the Government has admitted, as employers are scaling back the generous pension arrangements they once enjoyed.

A Department for Work and Pensions spokesman said: "Our pensions reforms are setting millions of people on the path to a secure retirement".

AJ Bell senior analyst Tom Selby questions the government's position on this in relation to the Conservative Party's manifesto commitment to include the self-employed in the auto-enrolment reforms.

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