Pension rule changes could boost retirement income by £2,500 a year | Personal Finance | Finance

Working Britons approaching their retirement could see their post-retirement pensions income get a £2,500 a year boost if the auto enrolment scheme were expanded.

A study by the Pensions Policy Institute looked at what would be the effect if the low earnings limit for auto enrolment were scrapped.

A person currently has to earn at least £10,000 a year to be put on auto enrolment but there are currently 3.17 million Britons who earn below this amount who would otherwise qualify, including many people approaching retirement age.

Researchers calculated what the effect would be for a typical married woman and man who reduced their earnings as they approached retirement.

They found that when the husband was 72 and the wife was 68, based on average age differences, they would have a net household income of £34,270 a year under the current auto enrolment policy.

This would increase to £36,740 if the lower earnings limit was scrapped, a 7.2 percent increase of around £2,500 a year.

The figures were based on both of them working part-time and taking a reduction in their earnings at 58, with both of them fully retiring when they reach state pension age.

However, the research also found some 300,000 people low earners would be disadvantaged by the removal of the lower earnings limit.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Boosting pension saving is incredibly important but must not be pursued at the expense of people’s financial resilience in the here and now.

“Recent findings from the HL Savings and Resilience Barometer showed that the lowest earning households are really struggling right now, with 89 percent of the lowest fifth of earners having ‘poor’ or ‘very poor’ levels of financial resilience and almost a third (31 percent) running behind on payments for essentials, such as electricity.”

Low earning was most common for the ages of 16 to 22 and 59 to 62, and two thirds of low earners are women. They typically contribute around 10 percent towards a household’s income.

Ms Morrissey added: “It’s fair to say that there are low earners who can afford to save into a pension – young people living at home, and those who are part of a higher earning household.

“Making sure that these groups are aware they have the ability to be auto-enrolled and build up a pension is hugely important and will be further boosted when the Government introduces its 2017 reforms.

“However, the earnings trigger plays a vital role in making sure people are not being put under unnecessary strain by auto-enrolment and should remain in place.”

A set of reforms published in 2017 suggested scrapping the lower earnings limit. Legislation is going through Parliament for the scheme to be expanded so anyone aged 18 and over earning above the limit is eligible – at present a person has to be at least 22 to be auto enrolled.

For the latest personal finance news, follow us on Twitter at @ExpressMoney_.