4th May 2016
The government has changed the way state pensions are calculated and millennials stand to lose £19,000 as a result. Anyone retiring after April 6 2016 will be paid via single tier or flat-rate state pension.
The Pensions Policy Institute (PPI) released a report stating that 11.4 million workers, most of whom are in their 20s and 30s, will lose up to £19,000 under the new system.
Under the old two-tiered system, people were able to build up additional savings into the state pension pot through the second state pension— known as Serps. However under the new system, Serps has been abolished. So even if younger workers have already paid full National Insurance Contributions, they will technically not see that cash. Only older workers will see those funds protected.
The PPI said people in their 20s would lose an average of £19,000 over the course of their retirement while two thirds of workers in their 30s would lose an average of £17,000 under the new system compared to if they stayed in the old system.
Auto-enrolment allows millennials the chance to recover from this deficit with opportunities to save money through the workplace. With the obligation to provide workers with a pension scheme more important than ever to young people, businesses need to play their part to help employees meet their expectations. Ensure that your business is clear about its pension options and that opt-ins and opt-outs are all communicated to effectively. For Payroll and HR departments, this will introduce extra processing, but getting it right could be essential to your workers’ livelihoods.
Millennials want to be more informed about their pension and payroll options. Expertise in payroll and how changes in legislation can affect millennials is knowledge that your payroll provider can offer. With IRIS FMP’s payroll services at your disposal, your business will have access to both auto-enrolment support and the knowledge and expertise gained from years in the payroll business.