Student workers could add thousands of pounds to their pension if the government goes ahead with the extension of automatic enrolment (AE) to 18-year-olds, research from PensionBee has found.

PensionBee research found that a student aged 18 earning around £5,500 a year who opts in to a workplace pension could save approximately £450 annually through combined employer and personal contributions.

Furthermore, if they continued to contribute at this rate for three more years (two years of study and a year of part-time work), taking into account an increase in the national minimum wage after their 21st birthday, these contributions could grow by age 22 to £2,034, adding £4,748 by a retirement age of 68.

This is assuming an annual management fee of 0.7 per cent, 5 per cent annual investment growth and 2.5 per cent inflation.

Under current legislation, students under 22 who earn between £6,240 and £10,000 must opt in to their workplace scheme to receive the 3 per cent mandatory employer contribution.

Those earning less than £6,240 can also request to join the scheme but employers are not required to contribute.

However, the new legislation would mandate employers to auto-enrol employees from age 18 and to contribute to their pension from the first £1 of earnings.

Despite this, this legislation would only automatically apply to those earning more than £10,000 a year.

However, research from the Office for National Statistics (ONS) revealed that two in 10 workers aged 16 to 21 have a workplace pension, due to current legislation that excludes workers under 22 and those earning less than £10,000 from the benefits of AE.

Commenting on the research, PensionBee director of public affairs, Becky O’Connor, said: “Reforms to AE have the power to enhance millions of young people’s financial futures and lay the foundation for a more secure retirement, raising overall pension awareness for younger generations.

“While the Labour government has been quick to announce a raft of changes to pensions, the lack of a clear timeline for implementing these reforms means those students and other young lower earners who want to make pension contributions will continue to miss out, just like their predecessors.”

O’Connor suggested that by making pension contributions a habit from the start of young adults' working lives, they are more likely to continue to save consistently, benefitting from the power of compound returns, ultimately making a “significant” difference to their retirement income over the long term.

“If they would rather just keep the money to help get them through their studies - they don’t have to pay in,” she added.

“However, opting in after the introduction of the AE extension would potentially be more financially beneficial in the longer run - and this early lesson in setting money aside for the very long term is more likely to reap dividends later on.”

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