Auto-enrolment reform could boost 18-year-olds’ pension pots by £46k

22nd August 2024

Scottish Widows has called on the new government to take forward a raft of changes to auto-enrolment which it says could result in 4.7 million more people receiving pension contributions from their employer.  

Young people could be one of the groups with the most to gain, as lowering the age threshold for auto-enrolment to 18 and removing the lower earnings limit could increase the average 18-year-old’s future pension pot by £46,000 - an increase of 45%.       

The new modelling from Scottish Widows 2024 Retirement Report, published in July and  conducted in partnership with Frontier Economics, reveals this increase comes from an additional four years of saving and an extra £500 in savings for each year of their working life.  

Scottish Widows has modelled the difference that four landmark changes could make to UK pension savers and calls on the new government to lower the auto-enrolment age to 18, lower the earnings threshold, extend the initiative to include self-employed workers and raise default contributions. 

1. Lower auto-enrolment age from 22 to 18 years-old

With greater encouragement and education from employers, this would see younger people engage earlier with pension saving and add as much as 15% to pots. It’s a big step on the way to building their resilience and giving them a better chance of a comfortable retirement.

2. Reduce or remove the earnings threshold of £10k

This would allow low-paid workers, part-time workers and multi-jobbers to benefit from auto enrolment. Those on low wages should be permitted to opt out of the employee contribution but benefit from the employer contribution. Removing the ability for employers to deduct the lower earnings limit from an employee’s salary before calculating their pension contributions, could increase pension pots for low earners by as much as 150%

3. Gradually raise default pension contributions to 12%

This could put 370,000 people on track for affording at least a basic lifestyle in retirement who are not currently and increase the future pension pot of an average 18-year-old by an incredible £157k (in today's money). This equates to an 87% increase compared to if they only saved 8%. This should go alongside clear and consistent messaging that those who can afford to do so should save at least 15%.

4. Extend auto-enrolment to the self-employed

An equivalent to Auto Enrolment for the self-employed will be required to help over 4 million self-employed workers have the same retirement prospects as employed workers. Alongside auto-enrolment reform, Scottish Widows is also calling on the government to establish a Lifetime Savings Commission to tackle reform for generations to come. Financial resilience needs to be considered in the round, and a cross-party commission should seek consensus on pensions, housing and investing with particular attention paid to specific groups, from women to disabled people, where retirement outcomes are predicted to be lower.

Peter Glancy, Head of Pensions Policy at Scottish Widows, said:
"The new government has a unique opportunity to hit the ground running and transform pension saving for generations to come. The introduction of auto-enrolment in 2012 was a game-changer, but now it’s time to scale that up. Reducing the age threshold to 18, lowering earning limits, bringing in self-employed workers and upping default rates all build on the existing framework and would be incredibly powerful in getting more people in the UK saving enough for the future, while also looking at how people’s financial goals complement each other, rather than compete.  

“This is particularly true for younger workers, but the positive impact would be felt across all ages. Indeed, it’s important to remember that by regularly contributing into a workplace pension, employers have a legal obligation to pay at least 3% if not more. This is effectively boosting future incomes. Now is the time for action and commitment to improving pension savings and this should form a pivotal part of the new government’s plans.”

Download full press release (PDF, 191KB)

Notes to Editor 

• The research was conducted online by YouGov on across a total 5,072 nationally representative adults aged 18+ in the UK between 21/03/2024 – 05/04/2024. 

* Auto-enrolment estimations based on ONS and DWP available data:

1. Estimates of the population for the UK, England, Wales, Scotland, and Northern Ireland
2. Understanding changes in self-employment in the UK: January 2019 to March 2022
3. Earnings and hours worked, age group: ASHE Table 6
4. Exploring practical ways to support self-employed people to save for retirement (PDF, 5MB)
5. Pension type by age group and gross weekly earnings bands: Table P1
6. A06 SA: Educational status and labour market status for people aged from 16 to 24 (seasonally adjusted)

About Scottish Widows

Founded in 1815, Scottish Widows is part of Lloyds Banking Group, the UK’s largest digital bank and financial services group. With more than £210bn assets under administration and 6 million customers, Scottish Widows’ award‐winning product range includes workplace and individual pensions, annuities, life cover, critical illness, income protection as well as savings and investment products. Customers can access our products and services through independent financial advisers, directly, and through all Lloyds Bank, Bank of Scotland and Halifax branches.