Those aged between 18 and 21 will be automatically enrolled in workplace schemes amid Tory worries about young voters’ prospects

Young people aged 18 to 21 who are earning £10,000 or more will have to be automatically enrolled into workplace pension schemes for the first time to help them save for retirement, under plans to be announced by ministers .

The extension of automatic enrolment to teenagers and those in their early 20s is seen as increasingly necessary as life expectancy grows and the length of time people spend in retirement increases.

The move also reflects concerns within the Tory party that it has to do more for the prospects of young voters – who are struggling to make ends meet, let alone save for retirement.

Nearly a million young people are about to start saving for retirement Read more

With housing costs rising, real wages falling and many burdened with student debt, employers are being increasing called upon to help young workers build pensions for the future. David Gauke, the work and pensions secretary, said last night: “For an entire generation of people, workplace pension saving is the new normal.

“And my mission now is to make sure the next generation of younger workers have the same opportunities. We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.”

When the modern state pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years receiving the state payment – 23% of their adult life. In 2017 a 65-year-old can now expect to live for another 22.8 years, or 33.6% of their adult life. Currently, unless an employee actively opts out of the auto-enrolment system, employers have to enrol any worker aged 22 or over, and who is earning over 10,000 a year, into an approved scheme. Ministers now want to legislate to reduce the age at which enrolment starts to 18.

The changes, to be announced by Gauke this week, will mean around 900,000 young people in the workforce will soon find themselves saving into a workplace pension.

At present, employers must contribute 1.0% of an employee’s qualifying earnings while employees pay in 0.8% of earnings, although they enjoy the benefit of tax relief on contributions.

Explaining the changes in an article on theguardian.com, Gauke says: “Since 2012, automatic enrolment has brought millions of people into a workplace pension for the first time, thanks to the support of businesses and employees across the UK.

“The impact has been felt far and wide. For instance, in the private sector, the savings gender gap has been closed and the number of people with a workplace pension has increased by 23% since 2012. By 2019-20 an extra £20bn will have been saved as a result.

“Five years on, we want to build on this success to make sure that automatic enrolment is truly reflective of modern working practices and that everyone who could benefit from a workplace pension has the opportunity to do so.”

In a further move that is likely to be criticised as too costly and bureaucratic, particularly by small employers, Gauke will also unveil plans to ensure that people who are in multiple jobs, but whose combined income totals more than £10,000, are also enrolled by each of their multiple employers.

And whereas, at present, the first £5,876 of their earnings is excluded from their pensionable income, ministers will push through changes to ensure every pound is in future included in the calculation of contributions.

Since the launch of auto-enrolment in 2012, the number of people in workplace pensions has grown to more than 9 million, with many of them under the age of 30. However, around 12 million people are judged to be under-saving for their retirement.

But the proposed pace of change is shockingly lethargic Steve Webb, former pensions minister

Jamie Jenkins, head of pensions strategy at Standard Life, said the government’s plans were welcome: “These measures will ensure that as many people as possible have the opportunity to start to build up pension savings. Since auto-enrolment was introduced it has enjoyed huge success and it is right this is extended to include young workers, and those who might not have a standard employment set-up.”

Chris Curry, director at the Pensions Policy Institute, added: “We all want to be able to enjoy a comfortable retirement and to maintain our standard of living. However, the review has shown that one of our greatest challenges remains that many people are still under-saving. By removing the lower earnings limit we’ll be enabling people to contribute towards their pension from the first pound of earnings.”

But former pensions minister Steve Webb, who is now director of policy at Royal London, a leading mutual life insurance and pensions company, said the government was acting far too slowly.

“There are some great ideas, including starting pension saving at age 18 and making sure that every pound that you earn is pensionable. But the proposed pace of change is shockingly lethargic,” he said.

“Talking about having reforms in place by the mid 2020s risks leaving a whole generation of workers behind,” said Webb. “Those who never got to join a final salary pension and who have only recently come into pensions through automatic enrolment need urgent action to help them build up a decent pension pot.

“This pedestrian pace of reform risks creating a ‘lost generation’ of people in their late 40s and 50s who will be unable to afford to retire.”