Government announces changes to auto enrolment

Proposals to change the way auto enrolment works have been published by the Department for Work and Pensions. The review looked at auto enrolment to examine whether it’s working properly and whether it could be adjusted to get more low earners saving more into pensions.

We look at what the main results of the review could mean for employers.

What hasn’t changed

The review concluded that there is currently no need to change the auto enrolment earnings trigger of £10,000 although it will continue to be reviewed every year to make sure its level is sustainable and meets its objectives. This should have little impact on employers at the moment.

What are the proposed changes?

  • Reduction of the auto enrolment age
    This will mean employers will have to automatically enrol workers from age 18 instead of age 22 just now. The hope is that by saving longer in an auto enrolment scheme, they will build up bigger pension pots. In addition, auto enrolment administration will become simpler. Employers however might see an increase in their contribution costs, especially if their workers are concentrated around younger ages as they will have to pay contributions for them if they don’t already.
  • Removal of the lower contribution earnings threshold
    At the moment, auto enrolment minimum contributions are based on a band of earnings equivalent to the National Insurance Contributions lower and upper thresholds. Removing the lower amount will mean that minimum contributions will now be due on the first pound of earnings although the upper cap will remain. Workers will benefit from increased pension contributions and it is hoped that people with multiple jobs will be more likely to save. For employers with schemes set up on the minimum contribution level, it will mean an increase in cost. Where an employer uses a different contribution structure for their scheme, this proposal should have little or no impact.

When will the changes happen?

The Government will consult on how to introduce the changes over the next few years with a view to introducing them in ‘the mid 2020s’. 

Where can I find out more?

Rest assured we’ll be involved in any consultation process and we’ll keep you and your adviser up to date on how these proposals might affect your pension scheme as we approach their implementation.
Read the DWP paper.

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