The government has been discussing potential changes to the pension automatic enrolment minimum age and increases to workplace pension contributions.
The Pensions (Extension of Automatic Enrolment) (No. 2) Bill* is made up of two sections which could give the government regulatory powers to:
- Change the minimum age at which workers must be enrolled into a workplace pension from 22 to 18 years; and
- Expand the band of earnings on which contributions are based.
So, what could this mean for you and your retirement?
Automatic enrolment can be a successful way to encourage private sector workers to save for their retirement. The government’s official statistics show that between 2012 and 2021, private sector pension participation rates have more than doubled from 42% to 86%.**
The intent behind the Bill is to reduce the minimum age at which automatic enrolment operates to 18.*** It also sets out plans to apply an 8% minimum total contribution rate to all earnings up to upper earnings limits (£50,270), rather than the current band between £6,396 and £50,270.
Eradicating the £6,396 lower threshold would mean that the multiple job anomaly is removed – this is where multiple jobholders could miss out on any pension contributions, even if their total earnings are enough to qualify for automatic enrolment if it were in a single employment.
The future of automatic enrolment
The Treasury will no doubt have an interest in developments. As more people begin to make pension contributions, more Income Tax relief will be obtained by individuals, some of whom may be non-taxpayers.
Employers will also be able to offset their contributions against their Corporation Tax bill (as employer pension contributions are a deductible expense). Pension contributions also reduce the amount of National Insurance paid by individuals and employers.
The primary benefit to automatic enrolment is that it helps to encourage early pension contributions and ultimately ensure more individuals are able to support themselves in retirement.
Whether you solely contribute to a workplace pension or have other provisions, you should have consistent reviews of your contributions and potential post-retirement income.
To speak to one of our expert financial planners please get in touch.
*Pensions (Extension of Automatic Enrolment) Act 2023, Private Members’ Bill (Presentation Bill) Originated in the House of Commons, Session 2022-23, 21 September 2023
**Workplace pension participation and savings trends of eligible employees: 2009 to 2021, 28 June 2022
*** Government backs bill to expand pension saving to young and low earners, March 2023
Contains public sector information licensed under the Open Government licence V3.0.
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