Expansion of auto-enrolment will lead to £3.8bn additional pension savings

An analysis of proposals to expand auto-enrolment in a workplace pensions scheme to more people found that lowering the age limit to 18 from the current limit of 22, as well as removing the lower earnings limit of £5,876 annually, would result in a small drop to workers' annual income but a significant hike in pension pots.

The DWP estimated an additional 900,000 employees would be automatically enrolled in workplace pension schemes as a result of the proposals.

The analytical report (192 page / 2.67MB PDF) was produced to accompany the government's review of automatic enrolment, which was announced last year.

The analysis said 78% of eligible employees now participated in a workplace pension, up from 55% before reforms to the system in 2012. The biggest increases in participation had been among younger people, those with lower earnings and those working for smaller employers.

The DWP said by 2019/20 an additional £19.7bn would be contributed to pensions annually as a result of auto-enrolment. Last year a majority of employers were contributing more than the minimum 1% rate, with 64% of those saving into a workplace pension receiving an employer contribution of 2% or more.

The report estimates that the introduction of auto-enrolment reduced under-saving from 14 million to 12 million individuals. It said introducing auto-enrolment at a younger age would further cut the number of people under-saving for their retirement.

The DWP also published a refreshed strategy for evaluation of auto-enrolment (33 page / 402 KB PDF). The new strategy is structured around seven key questions which seek to understand the effectiveness of the rollout of auto-enrolment to date, the impact of the planned increase in minimum contribution rates, and how to maximise the effectiveness of the reforms.