Millions now eligible to get £500-a-year boost after major rule change

Millions of workers in Britain will get a £500-a-year pension boost that will result in £17,500 in savings.

A new Private Members' Bill aims to add extra cash for retirement for people who are already enrolled into a scheme.

People can now pension-save earlier

At the moment employers and workers must pay pension contributions on earnings between £6,240 a year and £50,270. A Private Members' Bill, which the Government has confirmed it will support, will abolish the lower limit, in a move that will significantly boost savings for people who are already enrolled into a scheme.

Around 900,000 18-year-olds will also begin saving into a pension under the plans, with companies forced to lower the starting age of company pensions from 22 currently.

An extra £500 a year will be added to most workers’ pensions, according to estimates by the consultancy LCP.

Throughout a typical career, this equates to an extra £17,500 in contributions alone. With investment returns, the boost to savings will be even greater.

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Targeting women, young people and lower earners

According to Pensions minister Laura Trott, these ‘widely supported measures’ will make ‘a meaningful difference’ to people’s pension savings over the years ahead.

She said:

Doing this will see the Government deliver on our commitment to help grow the economy and support the hard-working people of this country, particularly groups such as women, young people and lower earners who have historically found it harder to save for retirement.

Sir Steve Webb, a former pensions minister and now a partner at LCP commented:

The way has been cleared for younger workers to be brought in and for lower earners, in particular, to build up pensions more quickly.

To qualify for auto-enrolment, workers must still earn over £10,000 a year.

The news comes after the Government warned that more than 12 million people were undersaving for retirement. Around two in five working-age people in Britain would not be able to fund the minimum lifestyle standard after they left the workforce, official data suggested.

The state pension age is due to increase from 66 to 67 by 2028 and could rise again to 68 by the mid-30s under plans being considered by ministers.

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Sources used:

The Telegraph: Millions of workers to get £500-a-year pension boost