The government’s proposal to lower the auto-enrolment age threshold for workplace pension schemes from 22 to 18 is expected to have unintended consequences for women because it aims to encourage early retirement preparation, according to research by Prospect.
Experts predict a rise in the proportion of women excluded from such schemes due to poor salaries. The new regulation seeks to bring more young individuals into the pension system, ensuring they start saving for retirement at an earlier age.
But it disproportionately affects women who often earn below the £10,000 per year threshold, at which point employers must automatically enrol workers into workplace pension schemes. This change will have a severe impact on women, compounded by the significant number of young people engaged in part-time work or earning low incomes.
Analysis conducted by the Trades Union Congress (TUC) reveals that 36.3 per cent of women in the 18-22 age group currently fall below the income threshold, thereby remaining excluded from the workplace pension enrollment requirement. In contrast, only 14.6 per cent of male employees in the same age bracket would still be excluded once the auto-enrolment is extended.
Further TUC analysis, based on data from the Office for National Statistics (ONS), highlights that the proportion of female employees falling below the earnings threshold is more than double that of their male counterparts. While only 4.3 per cent of men in employment are potentially excluded from auto-enrolment due to low incomes, this figure rises to 10.9 per cent for women.
This issue is particularly acute for individuals juggling multiple part-time jobs since the income threshold applies separately to each job rather than considering total earnings. Consequently, if someone holds multiple jobs, each earning less than £10,000 annually, none of their employers would be obliged to auto-enrol them into a workplace pension.
Another aspect of auto-enrolment that poses challenges for low-wage earners is the Lower Earnings Limit. This provision allows the exclusion of the first £6,240 of income when calculating pension contributions. As a result, the statutory minimum contribution rate of “8 per cent of band earnings” equates to a mere 4 per cent for a worker earning £12,500 per year—well below what is necessary to maintain a comfortable standard of living during retirement.
The TUC and other advocacy groups have raised concerns about the potential long-term consequences of these changes. They argue that without targeted measures to address the gender pension gap and provide adequate support for low-earning individuals, the government’s efforts to expand pension coverage could inadvertently exacerbate existing inequalities in retirement savings.
The government has yet to respond to these concerns, but the growing consensus among experts is that comprehensive reforms and additional safeguards are needed to ensure that women, especially those with low earnings, are not disproportionately excluded from workplace pension schemes as a result of the lower auto-enrolment age threshold.