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The extension
of the adult rate national minimum wage to 21 year-olds will have
a knock-on effect on employer pension contributions after 2012,
according to Watson Wyatt.
The proposed change will increase employer pension contributions
for 21 year-olds on the minimum wage who choose to opt into the
Personal Accounts scheme by almost 50 per cent. Under the Pensions
Bill, which is currently before Parliament, only employees aged
22 or over must be automatically enrolled into a pension scheme
with compulsory employer contributions. Younger employees can opt
in and receive the mandatory employer contribution should they choose
to.
The current adult rate minimum wage is £5.52 per hour for
those aged 22 and over, and 18 to 21 year-olds can expect to receive
£4.60 per hour. Should the increase for a 21 year-old apply,
employer contributions would jump from £2.40 per week to around
£3.50.
Paul Macro, a senior consultant at Watson Wyatt, said: “Compulsory
employer contributions have been set at a modest level, so the difference
will only be around £1.10 a week. Even so, this is a reminder
that the Pensions Bill changes the relationship between wages and
total labour costs.
“21 year-olds will have to opt in to receive employer pension
contributions and many will not do so – especially as it means
having to take a cut in take-home pay.”
Macro thinks the more interesting issue will be what happens when
the adult turns 22, as those who could have expected a pay rise
will not have it as they will have been auto-enrolled into pension
saving.
“Back in 2006, the Government said the age for auto-enrolment
should be aligned with the age at which people get the full minimum
wage. However, the age of 22 is now on the face of the Pensions
Bill. If there were any suggestion that this should be changes,
some employers would point to administrative difficulties in auto-enrolling
younger employees who do not stay with them for very long,”
Macro added.
- Pensions Age
July 2008
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