Almost two million people are missing out on £90 million of pension perks due to a loophole in the law for auto-enrolment.
The law that means workers are automatically enrolled into their workplace pension unless they actively opt-out has helped to vastly increase the number of people saving for retirement.
The latest figures from Scottish Widows show that 39% of employees aged 22 to 29-years-old are now saving adequately for retirement.
Auto-enrolment also requires employers to contribute towards their employees’ pensions helping to boost the amount being tucked away for retirement.
But, almost two million people are being denied the opportunity to benefit from employer contributions to their pension due to a loophole in the law.
Employers must automatically place an employee into a workplace pension if they earn more than £10,000. But, there are no rules in place for people who may be earning more than £10,000 a year over a number of jobs.
“Some of the hardest working and most financially vulnerable members of society are slipping through the auto-enrolment net because of minimum earnings thresholds,” says Robert Cochran, retirement expert at Scottish Widows.
“This unfairly impacts multi-jobbers, who could be working the equivalent of full-time hours, yet without the financial benefit of having a single employer.”
Figures from Scottish Widows show that 1.8 million people with multiple jobs in the UK have at least one job earning under £10,000, so they aren’t being automatically enrolled into a pension and receiving employer contributions that go with it.
This adds up to a massive £90 million of employer contributions that could be claimed if the auto-enrolment threshold was scrapped.
Five ways to improve auto-enrolment
“The current threshold puts an unfair barrier in the way of low-paid workers and their ability to prepare adequately for retirement,” says Cochran. “We want to see it scrapped entirely to let all workers benefit from employer contributions.
“It’s vital that every single person in the UK is prepared for the rising costs of retirement, and removing the threshold can help to do that.”
You can opt-in
Your earnings with one employer have to reach £10,000 a year before you are automatically enrolled into a workplace pension, and your employer starts paying contributions towards your retirement.
But, you can choose to opt-in to your workplace pension as long as you earn more than £6,032 a year.
At present, the minimum you have to pay into your workplace pension is 3% of your salary, with your employer adding another 2%.
On a £7,500 a year salary that works out as an extra £150 you are missing out on from your boss if you don’t join the pension scheme.
From April 2019 the minimum contributions will rise to employees paying in at least 5% of their income and employers adding another 3%.
If you earn enough to opt-in then do it otherwise you are missing out on valuable extra cash from your employer.