Pension warning: Savers risk missing out on £76,000 in retirement as Government delays major pension change

Insurance company Aon has warned that thousands of workers are losing significant retirement funds because long-promised changes to pension rules have yet to be implemented.

The reforms, which would lower the age threshold and change earnings requirements for workplace pensions, were first proposed in 2017 but remain in limbo.

Currently, workers are only automatically enrolled into workplace pensions if they are aged 22 or over and earn more than £10,000 annually. Contributions are only counted on qualifying earnings between £6,240 and £50,270.

The total minimum contribution stands at eight per cent, with employees contributing five per cent and employers providing at least three per cent. This system leaves many young people missing out on crucial early years of pension saving.

Under proposed reforms, the age threshold would drop to 18, and contributions would apply from the first pound earned. These changes would remove the £6,240 lower earnings limit that currently exists.

Despite cross-party support and a stated intention to implement these changes "by the mid-2020s", no timeline has been put forward.

No legislative commitment has been made, despite the reforms being first proposed in the 2017 auto-enrolment review.

Steve Leigh, associate partner at Aon, told The i Paper: "Automatic enrolment is incredibly effective at getting people to save more for their retirement.

"The earlier someone starts saving the better, as the money saved in the early years will be worth far more than an equivalent amount saved later in life due to the power of compounding of returns."

Had these changes been implemented four years ago, a typical 22-year-old could have an additional £76,000 in their pension by retirement.

Critics argue that the current regime excludes some of the most financially vulnerable groups in society. Young workers, part-time workers and the self-employed are particularly affected by the current rules.

Leigh points to the exclusion of the self-employed and people with multiple low-paid jobs as a key weakness in the system.

He said: "There may not be a simple solution but building on the foundations of automatic enrolment to help people attain a dignified standard of living in retirement is something that should be addressed as soon as possible."

The consequences of inaction are stark, with new research by Hargreaves Lansdown revealing only 36 per cent of pension savers are on track to achieve a moderate income in retirement.

These findings indicate that a large portion of the population is not preparing adequately for their future.

Many will face financial uncertainty in their later years due to insufficient contributions. Housing costs, which many current retirees did not have to consider, are becoming a growing issue.

The new state pension - currently £230.25 per week - is often insufficient to cover basic needs.

Helen Morrissey, head of retirement analysis at HL, said: "It's alarming to see that so many people aren't saving enough for retirement.

"While some individuals are putting away what they need, the majority aren't making sufficient contributions, and many will find themselves struggling in their later years."

Experts, including those at Aon, are calling on the Government to act urgently, particularly given the cost-of-living crisis. Increasing concerns about retirement affordability make these reforms more critical than ever.

Campaigners say small policy changes now could have an outsized impact on retirement savings.

Aon's modelling shows that applying the eight per cent contribution rate to all earnings from age 18, and from the first pound earned, would drastically improve outcomes.

Younger and lower-income workers would benefit most from compounding returns over time.

Despite clear evidence and broad consensus among industry professionals, the Government has yet to commit to a timetable for implementation.