UK - Extending the adult rate national minimum wage to include 21-year-olds will have a knock-on effect on UK employer pension contributions after 2012, Watson Wyatt has revealed.
Under the Pensions Bill currently before Parliament, only employees aged 22 or over would be automatically enrolled into a pension scheme with compulsory employer contributions.
However, younger employees could opt in and receive the mandatory employer contribution, Watson Wyatt explained.
Paul Macro, senior consultant, 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."
Watson Wyatt said previously young people on the minimum wage could have expected a pay rise at the same time as they were auto-enrolled into pension saving.
After the change, they said that "cushion" would not be there and it could mean more low earners opted out rather than accepted a lower disposable income.
Macro commented: "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 changed, some employers would point to administrative difficulties in auto-enrolling younger employees who do not stay with them for very long."
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