Changes to the pensions auto enrolment could provide a huge boost for many people’s retirement income particularly poorer Britons.
The pensions auto enrolment system is set to be expanded so workers aged 18 to 22 will be eligible.
The rules are also changing so a person on any amount of income is auto enrolled, whereas now a person has to earn at least £10,000 a year to be eligible.
With the changes, a person who earns £20,000 at age 18 and pays into their pension until they reach age 66, with a two percent increase to their salary each year, could see their pension pot increase by £159,000.
An individual earning £30,000 at age 18 who pays into their pension until the age of 66 could see their retirement income increase by £199,000.
Alice Guy, head of Pensions and Savings at interactive investor, said: “Pension pots are currently far too low for most workers and won’t be enough for a comfortable retirement, so anything the Government can do to boost retirement savings is good news.
“Pension contributions from your employer are basically free money so what’s not to like.”
Under the auto enrolment rules, an employee has to be signed up to a workplace pension where a minimum total of eight percent of their salary is contributed.
The employer has to match the employee’s contributions with a minimum three percent contribution, in which case the employee would pay five percent of their salary into the pot.
Ms Guy said: “The changes are particularly good news for women and poorer workers, who often struggle to save enough for retirement.
“Poorer workers are disproportionately affected by the current system that excludes lower earnings from automatic pension contributions.
“However, the changes are only one step in the right direction. It’s important to bear in mind that you may need to save more than the minimum pension amounts to achieve a comfortable retirement.”
She urged the Government to increase the minimum auto enrolment amount to above eight percent as this is “not enough for most people to achieve a comfortable retirement”.
Figures from the Pensions and Lifetime Savings Association suggest a single person would need £37,300 a year for a comfortable lifestyle in retirement, while a couple would need £54,500 a year.
A single person would need £12,800 a year for a basic standard of living in retirement while a couple would need 19,900 a year.
For the latest personal finance news, follow us on Twitter at @ExpressMoney_.