Pensions: Automatic enrolment – current issues

What is auto-enrolment?

Auto-enrolment requires employers to enrol eligible employees into a workplace pension scheme. Unless they opt-out, employees will build up a private pension through their contributions and those of their employer.

Workers covered by auto-enrolment are those who:

• are not already in a workplace pension scheme;
• are between age 22 and State Pension age; and
• earn more than a minimum earnings threshold (£10,000 since 2015/16).

In 2023/24, contributions are required to be made on earnings between a lower earnings limit set at £6,240 and an upper earnings limit set at £50,270.

What has been the impact of auto-enrolment?

Auto-enrolment was phased-in by employer size (number of employees) between October 2012 and February 2018.

The minimum amounts employees and employers were required to contribute were phased-in, reaching their full amount, 8% of earnings, in April 2019. Employers contribute a minimum 3% and employees 5%, part of which includes tax relief.

The policy has reversed the decline in workplace pension saving. The rollout of automatic enrolment from 2012 onwards has led to a tenfold increase in total membership of defined contribution occupational schemes, from 2.1 million in 2011 to 21 million in 2019. Actively contributing membership rose from a low point of 0.9 million active members in 2011 to 10.6 million members in 2019.

Although auto-enrolment is widely agreed to have been a success, there are concerns that many are still under-saving for retirement. A review of the policy in 2017 recommended lowering the age threshold for auto-enrolment from 22 years to 18 and removing the lower limit of the ‘qualifying earnings band,’ so that contributions are paid from the first pound earned. The Government said its ambition was to implement these changes in the mid-2020s.

What changes are expected?

The Pensions (Extension of Automatic Enrolment) Act 2023 gave the Secretary of State the power to:

• reduce the lower age limit for auto-enrolment
• remove the Lower Earnings Limit for qualifying earnings. This would mean auto-enrolment contributions are made from the first pound of earnings.

During the passage of the Act, the Government confirmed its intention to reduce the lower age limit to 18 years old. In response to a written question in October 2023 the Pensions Minister, Laura Trott, said that the Government will consult on the detailed implementation at the earliest opportunity and report to Parliament before using the powers in the Act.”