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Extension to auto-enrolment provisions receives royal assent

| Damon Tunnicliffe | 29 September 2023

A private member’s bill to help millions of workers save more into their pension has been cleared by Parliament and granted royal assent, meaning that it will ultimately become UK law.

The introduction of automatic enrolment in 2012 resulted in almost 11 million people being enrolled into pension schemes. As a result of the future extension to the scope of the scheme, the government hopes that this number will significantly increase further.

What are the proposed changes to the workplace auto-enrolment scheme?

The Pensions (Extension of Automatic Enrolment) Act 2023 will allow for changes to be made to the existing workplace pension scheme, with the aim of having more employees save towards their retirement. Current rules state that employees between the age of 22 and the state pension age - which is currently 66 - who also earn above £10,000 should beopted into their employers’ workplace pension scheme automatically.

Once the extension to the scheme becomes law, the automatic enrolment age will reduce from 22 to 18 years of age, meaning employees can start saving four years earlier. The lower earnings limit of £10,000 will also be abolished.  

The changes mean that for the first time, employers must offer teenage employees from the age of 18 the option to save into a pension scheme, and employers will start contributing to employee’s’ pensions at a much earlier stage.

Not only will younger employees benefit from a longer period of employer pension contributions, employee payments into an eligible workplace pension scheme are deducted from salaries before tax is calculated, meaning less tax is paid on remaining earnings.

Can employees opt out of the auto-enrolment scheme?

Employees do have the option to opt out of the scheme once they have been enrolled for one full calendar month and receive a refund of any contributions made during that period.

When will the changes happen?

There's no immediate change. The Government now needs to consult on how and when these powers could be used.

The difference it could make to an average pension pot

Calculations from the government suggest that someone earning £20,000 at the age of 18 and paying into their pension until the age of 66 could end up with £159,000 more as a result of the changes. A worker earning £30,000 could be up to £199,000 better off.

The government has inferred that the average earner’s pension could increase by up to nearly 50%, if they choose to save across their entire career. A minimum wage earner could see their pension pot increase even further, by a predicted 85%. However, it’s important to note that this relies on individuals paying into their pensions from the age of 18 until state pension age, without any breaks.

Increasing the number of pension savers

Before Automatic Enrolment was first introduced, only 55% of eligible employees chose to save into their workplace pension. By 2021, nine years after the introduction of the bill, this rose to 88%, with an additional £33 billion saved. By opening up automatic enrolment and making it more inclusive to all workers, this figure should rise further over the next few years.

While these changes may seem relatively small, they are likely to have a life-changing impact on some individuals, who may be able to retire earlier and remain financially stable for the duration of their retirement. The most significant changes are likely to be seen by lower earners, with less of an impact on higher-salaried workers.

If you’re looking for advice for yourself or your employees regarding the recent pension changes, get in touch with our team of advisers today.

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