Government moves forward on the expansion of auto-enrolment duties for employers.

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Government moves forward on the expansion of auto-enrolment duties for employers.

Since the relevant parts of the Pensions Act 2008 came into effect from 2012, every employer in the UK has been required to put in place a pension scheme, with minimum standards, for its employees and to automatically enrol those employees into that scheme.

The legislation has undoubtedly been a success. In 2021, employees across the UK had saved £114.6 billion into their pensions. An increase of £32.9 billion compared to 2012, following the introduction of the automatic enrolment legislation.

Over the same period there has been an increase of more than 50 per cent in the number of people saving for their retirement at the workplace, to more than 10.7 million employees. The number of young people aged 22 to 29 saving into a workplace pension has more than doubled in the same time period.

Since introducing the auto-enrolment legislation, the government is under a legal obligation to review how the system is operating, every five years. Despite recommendations for change in 2017, the auto-enrolment pension duties for employers remained the same. But, as we reported in January last year, the Government has been considering extending employers’ legal duties, to expand the provision of workplace pensions.

In particular, the focus of that consideration was whether to extend the age by which employers must automatically enrol employees into their workplace scheme and whether it was fair to continue to allow a percentage of an employee’s earnings to be disregarded for the purposes of calculating how much to pay into their scheme.

As a result, at the end of last year the Pensions (Extension of Automatic Enrolment) Act 2023 received) Royal Assent. Its key measures are that:

  1. the age at which employers will be under a duty to auto-enrol employees into their workplace pension scheme will fall from age 22 to age 18; and
  2. employers will no longer be allowed to disregard the first £6,240 of an employee’s earnings when calculating how much to contribute into their scheme.

These measure have been welcomed generally, especially by younger workers and those at the lower end of the pay spectrum.

However, it will also mean additional duties and costs for employers at a time when the economy has yet to fully turn the corner from recession into growth.

It is likely for this reason that the changes in the new legislation will not come into effect immediately. It has been drafted such that the Government will not be able to make changes to the age limits or the disregard, before first undertaking a consultation exercise and then producing a report to Parliament.

It seems unlikely that the reforms will come into force this year and may, when they are finally effected, be phased in over time. Given the impending General Election, there is a chance that the new duties will never see the light of day.

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