Auto-enrolment (AE) rules currently require employers to enrol into a pension scheme all staff aged between 22 and the state pension age who earn more than £10,000 a year and to make a minimum level of contributions based on qualifying earnings (the bands of earnings between £6,240 and £50,270 a year, for the 2022/2023 tax year). In the 2017 AE review, the Department for Work and Pensions proposed to auto-enrol workers from the age of 18 onwards and abolish the lower earnings limit for determining qualifying earnings.
During a Work and Pensions Committee hearing on 6 July, Guy Opperman, the Pensions Minister, stated that the Bill to implement the proposed AE reforms was ready, but that the current economic situation posed challenges to its introduction. If the Bill goes ahead it will have the effect of increasing qualifying earnings (by removing the lower earnings limit), meaning that contributions will be calculated based on a larger sum. Additionally it will increase the number of employees who come within the scope of AE as the minimum age will decrease from 22 to 18.
Furthermore, whilst the 2017 AE review does not contemplate increasing minimum contributions from 8% to 12% of qualifying earnings, Guy Opperman stated that “my personal view is we’ll go way beyond 8 per cent to 12 per cent in the longer term.“If such a significant increase to minimum contributions were to be made, especially when combined with an increase in qualifying earnings and a decreased eligibility age, it would have a significant impact on employers’ pension contribution liabilities.
Guy Opperman did not indicate a precise date for the reforms to be implemented, but remained confident that it will be done in the mid-2020s. We will need to continue to watch this space!