changes to Auto Enrolment

Auto Enrolment is set for a bit of a shake-up with plans to extend the scheme to all workers over the age of 18 and to include all earnings instead of qualifying earnings.

The Government has laid out plans to do away with the lower earnings limit of £10,000 as well as reducing the minimum age to 18 (down from 22) and the changes are set to come into play by the mid-2020’s. The forecast is that the changes will generate an extra £3.8 billion in contributions in order to help younger generations save for their retirement.

The rather vague and slow-paced target of ‘mid 2020s’ appears to be due to the minority Government having a limited capacity for imposing new legislation. Ex-pensions minister Steve Webb said, “The government doesn’t have a majority, so they’ll be wary of anything that might look controversial, that might look like them putting people’s taxes up.”

It is widely thought that part of the reason for such a long run-up to the changes is to give the industry time to prepare but there is some scepticism that this does not help the so-called ‘lost generation.’ Webb continued, “You’ve got a bunch of people in their 50’s who never had a final salary pension. They joined the company after that was gone. They’ve only started saving recently. If we do nothing until the mid 2020’s, it’s too late for this group. They simply won’t be able to retire.”

A concept that is certainly not lost on many of today’s workforce. As you will be aware, minimum contributions will be increasing in April this year and then again next year so eventually Auto Enrolment will total 8% of an employee’s salary. Some would argue that this doesn’t go far enough. Opt-out rates have been very low so far and it will be interesting to see how employees react to increase in their contributions. There have been discussions around increasing contribution percentages as salaries increase but it remains to be seen whether these plans will come to any sort of fruition.