Pension boost for millions of part-time workers

If you’re employed, chances are, your employer will have automatically enrolled you into a company pension scheme, into which both they and you must usually contribute. Under current rules, if you earn less than the lower earnings threshold, at £520 a month (£6,240 a year), or £120 a week, your employer doesn’t have to contribute to your pension. But this threshold is being abolished, which could benefit workers, for example, who are choosing to supplement their pension income by working part-time.

Changes to the scheme will also see employees auto-enrolled from the age of 18, rather than the previous age of 22, so they start saving into their pension from a younger age.

If you’ve been auto-enrolled into your employer’s workplace pension scheme, the minimum contribution is currently 8% of ‘qualifying earnings’ (between £6,240 and £50,70, but the lower earnings limit is being scrapped). Of that 8%, your employer can’t contribute less than 3%, but they can pay as much of the 8% as they want. This minimum contribution will now be applied from the first pound of earnings, rather than only to those above a minimum earnings threshold. Read more in our article How does pension auto-enrolment work?

Laura Trott, Pensions Minister, said: “Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ Bill has successfully passed through Parliament and received Royal Assent.

“This will mean younger workers and those in lower paid employment will be able to fully participate in automatic enrolment.

“For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.”

You can choose to opt out of your workplace pension, but employer contributions are a valuable benefit, and this will leave you with less saved in your pension. Some employers will pay in more than the minimum contribution, and you may contribute more if you wish, too.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Auto-enrolment has shone a light on people’s retirement planning. Over 10m people have been brought into a workplace pension so far and the changes in this Bill will help more people to save more. However, more still needs to be done to boost contribution levels beyond their current 8% minimum. For instance, we would like to see focus on how to encourage employers to boost their contributions as an incentive for employees to further boost theirs.”