The Department for Work and Pensions (DWP) has backed MP Jonathan Gullis’s long-awaited Private Members’ Bill (the Bill) on plans to expand the auto-enrolment (AE) regime to enhance its reach and reduce earnings limits.
AE is a government initiative requiring all employers, including those with only one member of staff, to automatically enrol certain members of staff into a pension scheme, and for both employers and employees to make contributions into it. This signified a move from the previous convention in which UK employees commonly had to “opt-in” to pension schemes to an “opt-out” basis. The AE regime has now been in force for more than a decade in the UK as detailed in our previous article, which reflects on the last 10 years of AE and also discusses the anticipated expansion. As it stands, the current AE regime only applies to members of staff aged from 22 up to the state pension age who earn more than £10,000 a year, and employers are required to make a minimum level of contributions based on qualifying earnings (i.e. all an employee’s earnings between a lower and upper limit set by the government and reviewed each year).
Private Members’ Bill
In 2017, there was a review of AE, following which the DWP proposed changes to it, including lowering the age threshold to 18 and abolishing the lower earnings limit for determining qualifying earnings. As highlighted on our blog last year, the former Minister for Pensions previously announced that a bill covering the proposed AE reforms was ready, but the Bill was only published this year on 2 March 2023.
Although the Bill will not result in immediate change, it seeks to give the Secretary of State powers to amend the age limit and lower qualifying earnings limits for AE. There will be a statutory requirement to consult and report on the outcomes to inform the implementation approach and timing before the Secretary of State is able to exercise these powers.
Department for Work and Pensions endorsement
The DWP has publicly backed the Bill with the Minister for Pensions, Laura Trott, expressing that the proposed measures should be of particular benefit to women, young people and lower earners who have faced challenges when historically saving for retirement. The DWP is hopeful that the Bill will make a meaningful difference to people’s pensions savings going forward, as millions more people will be empowered to save more and start saving earlier. This is particularly timely as recent research by the DWP published on 3 March indicated that 38% of working age people (equivalent to 12.5 million of the population) are not making sufficient provisions for retirement.
Takeaway for employers
The Pensions Regulator has conducted in-depth compliance inspections on employers suspected of falling short of AE obligations – read more about this in our blog here. The Bill proposes to increase these obligations on employers and so employers may wish to keep a close eye on any developments in this space.
Please get in touch with Eleanor Hart (firstname.lastname@example.org) for any queries in relation to this blog or for any other pension advice.