Automatic enrolment was introduced in 2012 with the aim of helping more people save for their retirement. Since then 10.8 million people have been automatically enrolled into a workplace pension scheme and pension participation in the private sector has increased from 41% in 2012 to 86% in 2021, according to recent analysis by the Department for Work and Pensions (“DWP”). We celebrated ten years of automatic enrolment in our previous blog wherein we discussed the possibility of future reform in order to help more people save for retirement against a backdrop of high inflation and rising retirement costs. Fast forward six months and the DWP has confirmed that it will support proposals to expand automatic enrolment to enable “millions of people to save more and to start saving earlier”.

Background

The Pensions Act 2008 introduced a duty for employers to enrol eligible jobholders into a “qualifying pension scheme” and to pay contributions to it. Although automatic enrolment is widely regarded as a success story, there are concerns that many people are still not saving enough for retirement. Indeed, recent data from the DWP suggests that 38% of the working population – around 12.5 million people – are not saving enough for an adequate standard of living in retirement.

The proposed changes

The reform proposals are set out in the Pensions (Extension of Automatic Enrolment) (No. 2) Bill (“the Bill”), a private members bill prepared by MP Jonathan Gullis. A similar private members bill had been presented to Parliament last year, but did not make its way through all of the necessary stages before Parliament broke for recess. The Bill, which is scheduled for its third reading stage on 24 March 2023, seeks to expand the current system of automatic enrolment to cater for younger and lower paid workers.

The Bill makes provision for lowering the age at which eligible jobholders must be automatically enrolled into a pension scheme by their employers from 22 to 18, which the DWP suggests will “make saving the norm for young adults and enable them to begin to save from the start of their working lives”. In addition, the Bill seeks to abolish the lower earnings limit for contributions which currently stands at £6,240 for 2023/24.

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