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Pensions auto-enrolment may expand to workers aged 18-22

The age at which workers are automatically enrolled in a workplace pension would drop from 22 down to 18 under new reforms proposed by the Department for Works and Pensions (DWP), alongside a raft of other recommendations. Under a scheme launched in 2012, UK employers are required to automatically enroll eligible employees[1] in a workplace pension scheme. Today, the DWP has published a series of proposals on the back of a major review of auto-enrolment.

Which? explains what the lower age limit would mean for employees and what other reforms are on the table.

Auto-enrolment age may drop to 18

The biggest proposed change would see the age of eligibility for the pensions auto-enrolment scheme lowered to 18, down from 22. This would mean employees aged between 18 and 22 who met the other criteria would be auto-enrolled in a workplace pensions scheme[2] when they begin their jobs.

Currently, there are 790,000 people aged between 18 and 22 who earn enough to qualify for auto-enrolment, according to the DWP. The change would bring these workers within the auto-enrolment scheme, with the DWP estimating this could add an additional GBP800 million to workplace pensions. To qualify for auto-enrolment, a worker must be earn GBP10,000 a year, and be under state pension age.

The DWP has confirmed it will not change the ‘auto-enrolment trigger’ of GBP10,0000 for the coming tax year.

Lower earnings limit scrapped

For workers who are already enrolled in a workplace pension scheme,[3] the government has proposed scrapping the lower earnings limit – meaning every pound earned by an employee will be pensionable. Currently, workplace pension contributions are calculated on earnings above a lower threshold – which is GBP5,876 in the 2017-2018 tax year. Under the proposal, the lower limit would be scrapped, so that contributions are calculated from the first pound earned.

The government estimated this would add GBP2.6 billion into pension savings. The most likely to benefit are employees who hold multiple jobs, of which there are approximately 970,000 in the UK aged between 22 and state pension age.

Self-employed pensions on the agenda

People who are self-employed make up about 15% of the UK workforce, accounting for 4.8 million individuals. The government has announced it will launch a series of ‘interventions’ targeted at the self-employed to explore how technology could help increase their pension savings.

These ‘interventions’ are likely to involve organisations that work closely with self-employed people – including banks and labour contracting companies.

How successful has auto-enrolment been?

Since 2012, more than 9 million people have been enrolled in a workplace pension due to the auto-enrolment scheme. Workplace pension scheme participation rates have increased from 55% in 2012 to 78% in 2016 – and the total amount saved in 2016 was GBP87.1 billion, a ten year high. But the DWP review found that around 12 million workers – or 38% of the workforce – are still ‘under-saving’ for retirement.

The proposed reforms are designed to ‘normalise pension saving among workers’, especially lower-earners and those in multiple part-time jobs, as well as simplifying auto-enrolment for employers.

Do I qualify for auto-enrolment?

Auto-enrolment has been phased in over the last 5 years, starting with companies with 120,000 or more employees and progressively extending to other workplaces.

From 1 October 2017, all employers must provide a workplace pension scheme, even if they only have one eligible employee.

This means that if you’re a worker aged between 22 and State Pension age, and earning more than GBP10,000 a year, your employer must enroll you in a workplace pension scheme.

References

  1. ^ automatically enroll eligible employees (www.which.co.uk)
  2. ^ workplace pensions scheme (www.which.co.uk)
  3. ^ already enrolled in a workplace pension scheme, (www.which.co.uk)



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