Pensions: Automatic enrolment – current issues

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.

Introducing auto-enrolment

Provisions in the Pensions Act 2008 placed a duty on employers to automatically enrol jobholders into, and to contribute to, either a “qualifying pension scheme” or a new personal accounts scheme, a “simple low-cost pension scheme”, also established by the Act, now the National Employment Savings Trust (NEST). The plan was to introduce these requirements from 2012.

Following the 2010 general election, the Coalition Government set up a review to look at whether the policy was still appropriate. The core aspects of the policy were confirmed: for example, the new duties would still apply to all employers regardless of size. To help employers, the Pensions Act 2011 introduced an optional waiting period of up to three months before an employee must be automatically enrolled and an increase in the earnings trigger for auto-enrolment.

The auto-enrolment duties were phased-in by employer size, starting in October 2012 with large employers. Small and micro employers were brought into the reforms between June 2015 and February 2018. Minimum contribution rates 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.

What impact did auto-enrolment have?

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 (DC) 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.

What is the next stage of auto-enrolment?

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.

In September 2021, Pensions Minister, Guy Opperman, said the Government was committed to “implementing the 2017 auto-enrolment review ambitions in the mid-2020s.” The 2017 Review report had been “clear that implementation will be subject to learning from previous workplace pension contribution increases, discussions with employers and others on the right approach, and finding ways to make these changes affordable.” 

On 5 January 2022, Richard Holden MP, moved a motion in Parliament that “leave be given to bring in a Bill to extend pensions automatic enrolment to all jobholders aged at least 18; to remove the lower qualifying earnings threshold for automatic enrolment; and for connected purposes.”

Other issues include:

• The need for changes to enable low earners to benefit from tax relief regardless of how their scheme administers tax relief. The Government said in October 2021 that it would legislate to enable low-earning individuals making contributions to net pay schemes from 2024-25 to claim a top-up. The first payments would be made in 2025-26.
• In February 2021, the UK Supreme Court found that Uber drivers were “workers” for the purpose of the National Minimum Wage Act 1998 in the case of Uber BV v Aslam. This gave rise to debate about whether gig workers are covered by auto-enrolment.
• Supporting self-employed people to save for retirement, given that auto-enrolment is not an option.
• Whether, when and how contribution rates should increase above the 8% minimum.

The background to the reforms is covered in more detail in Library Standard Note SN 4847 Pensions: auto-enrolment – background (September 2012).