Millions of workers risk falling short in retirement, but Scottish Widows claims a simple reform could boost savings by £46,000.
The pension provider is calling for the automatic enrolment age to be lowered from 22 to 18, while scrapping the minimum earnings threshold.
Retirement expert Robert Cochran said these changes would give young workers a major head start on their savings.
He explained that under the current system, employees aged 22 and over are automatically enrolled into a workplace pension with contributions set at a minimum of 8 per cent of gross salary, split between worker and employer.
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"It's advisable to start saving as soon as you begin working," Mr Cochran said. "Lowering the entry age to 18 and removing the earnings limit could boost a young worker’s future retirement pot by £46,000."
Scottish Widows’ latest Retirement Report shows just 39 per cent of people are on track for an adequate retirement lifestyle.
A quarter of adults admit they are not sure how pensions actually work.
Mr Cochran stressed that pensions are tax-advantaged, long-term investments, supported by employer contributions and topped up by the state pension.
Industry experts have criticised Rachel Reeves for failing to launch phase two of the pensions adequacy review in her Mansion House speech in July, calling it a “missed opportunity.”
While Reeves confirmed progress on the Pension Schemes Bill and praised the Mansion House Accord, there was no mention of the review that would assess auto-enrolment.
Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, warned: “Retirement adequacy cannot be solved in isolation… we must build a lifetime savings framework that reflects how people actually live.”
Former pensions minister Steve Webb added: “With every passing year that this issue goes unaddressed, time is running out for people already well through their working life to have the chance for a decent retirement.”
The pension provider is calling for the automatic enrolment age to be lowered from 22 to 18
| gettyHe urged workers not to opt out of auto-enrolment and to start saving as soon as they begin employment, even before any legal changes are introduced.
Contributions should ideally rise to 12 per cent over time, he added, suggesting employees increase payments gradually by one percentage point at a time.
Maximising employer matching is another key way to build retirement savings, with extra contributions often available for those who top up their own.
Scottish Widows also advises savers to keep track of multiple pension pots built up across different jobs. One in five people want to consolidate their accounts but are unsure how to do so.
Scottish Widows is a subsidiary of Lloyds Bank | PATo help, the firm has launched the Ready-Made Pension tool, which integrates with Lloyds Bank, Halifax and Bank of Scotland apps, and #PensionMirror, an online platform created during Pension Engagement Season to boost awareness.
Salary exchange arrangements, also called salary sacrifice, provide another opportunity.
This involves redirecting part of a salary before tax into pension contributions, reducing National Insurance bills and raising savings power.
Mr Cochran said: "Despite the name, salary sacrifice doesn’t reduce your take-home pay. In fact, it can boost your pension savings significantly – opting for salary sacrifice could increase your pension savings by £463 a year."
The SAVE guide to retirement planning
Scottish Widows has condensed its advice into a four-step "SAVE" guide:
- Sit down and plan – assess your current finances and set clear goals.
- Auto-enrol – stay in your workplace pension and build contributions towards 12 per cent over time.
- Value – keep track of all your pension pots, consolidating where necessary.
- Enhance – make use of salary exchange (or salary sacrifice) to boost savings tax-efficiently.
Young people are being urged to start contributing to their pensions as soon as possible
| GETTYThe provider argues that earlier saving, higher contributions and better engagement are essential if Britain is to avoid a retirement shortfall.
Currently, 61 per cent of workers are falling behind the level of savings they will need in later life.
Their message is simple – start early, save smart, and make retirement easier.