This year marks the ten-year anniversary of the “auto-enrolment” regime, which requires all employers in the UK to enrol staff that meet certain criteria into a pension scheme that meets statutory standards. The criteria for auto-enrolment is currently limited to workers aged over 22 who earn over £10,000. Workers who earn over £6,240 (the qualifying earnings limit) and up to £10,000 do not have to be enrolled but can ask to be, and are entitled to employer contributions. Those who do not earn above the qualifying earnings limit can still chose to be enrolled but are not entitled to employer contributions. However, on 5 January, a private member’s bill outlining a roadmap for the extension of auto-enrolment to lower the age threshold to 18, and remove the earnings trigger and the lower qualifying earnings limit, by 2026 was introduced to parliament. It is estimated that the proposed changes could result in an additional £2.77 trillion being saved into pensions, with up to 7 million people in the UK set to benefit.
These proposals were initially recommended in the 2017 review of auto-enrolment, and have previously been committed to by the government, which pledged to implement the changes by the mid-2020s. The roadmap, which comes in light of research revealing the benefit of the extension to lower-paid and part-time workers’ retirement savings, demonstrates a more concrete plan towards implementation. The timescale proposed by the report spans four years, proposing to freeze the auto-enrolment trigger at £10,000 and the qualifying earnings limit at £6,420 in 2022. The earnings trigger and age limit would then be abolished in 2023, with the qualifying earnings limit being reduced gradually over 2024 and 2025 before being abolished in 2026.
Commentators in the pensions industry have reacted positively to the news, supportive of the prospect of younger workers being given the opportunity to save into their pensions four years earlier. However, there are some who question the timing of increasing pension costs for companies at a time when many firms are still recovering from the impact of COVID-19. Indeed, the sectors that tend to employ younger and part-time workers were those that were worst affected by the pandemic, such as the hospitality sector.
Whilst the proposal is a step in the right direction for those in underpensioned groups, businesses will need more detail and time in order to adequately prepare, given the administration and costs that will be involved in enrolling greater numbers of employees into qualifying schemes, where they would normally not meet the criteria. The bill, which is scheduled for a second reading on 25 February, should provide a pathway to meet the goal of implementing the extension by 2026, giving firms four years to make relevant adjustments.
