The UK government is under pressure to reform its pension policies, with millions of workers potentially benefiting from key changes in the upcoming Budget.
Experts have called for a reduction in the starting age for pension savings and the elimination of a key earnings threshold, which they argue is hindering widespread access to retirement funds.
As the Labour Party prepares to unveil its Budget, there is growing concern that millions of workers, especially those on lower incomes, are not saving enough for their retirement.
Proposals to reduce the pension pot starting age from 22 to 18 and scrap the £6,240 earnings threshold have gained significant traction, with experts asserting that these changes are crucial to expanding pension saving access.
These adjustments are seen as vital for narrowing the gap in retirement savings, helping ensure that more individuals begin saving earlier in their careers.
Long-Overdue Pension Changes Urged
The call for reform has been led by PensionBee, a leading UK pension provider, which warns that the current system excludes many workers from accessing their pensions.
According to Lisa Picardo, Chief Business Officer UK at PensionBee, “These simple, long-overdue changes could help transform the nation’s retirement savings.”
The primary suggestion is to allow workers to start saving for their pensions from the age of 18, rather than 22, which would increase access to retirement savings for many young people, particularly those starting their first jobs.
Furthermore, the current earnings threshold of £6,240 means many workers—especially those in part-time or lower-paid roles—are excluded from pension contributions.
Picardo argues that lowering the starting point for contributions would allow for earlier accumulation of savings, benefiting individuals in the long run due to compound growth.
Addressing Pension Tax Relief Discrepancies
Another key concern for pension savers is the disparity in tax relief, which experts argue is disproportionately benefiting higher earners. At present, higher income earners can access tax relief of up to 45%, while those on lower incomes receive only 20%.
Picardo has suggested that a universal tax relief rate of 30% could be implemented, helping lower-income savers to accumulate more in their pensions, and providing them with a stronger incentive to save.
Additionally, there are calls for legislation to improve pension transfers. Currently, some workers face delays of several months in transferring pension funds between providers, preventing them from accessing their savings when needed.
By introducing a legislative cap of 10 days on transfers, Picardo believes the government can help ensure that pension savings are more fluid and accessible.
In light of these proposals, the UK government’s forthcoming Budget could signal a significant shift in pension policy, with reforms aimed at making retirement savings more inclusive and accessible for all workers.
