Pensions - Articles - Comments as the Government backs measures to expand AE


Comments from LCP Aegon and Hymans Robertson as the Government agrees to expand Auto Enrolment. The expansion of automatic enrolment was proposed back in 2017 by a Government review but no action had been taken since then to implement those proposals. The Government has now given its backing to a Private Member’s Bill which will make the necessary changes. The key changes are:- To require automatic enrolment of employees as soon as they reach 18 rather than the current age of 22;- To apply the mandatory 8% contribution to earnings ‘from the first pound’ rather than only to those above a lower earnings limit;

 The Bill will have to complete its remaining stages in the House of Commons and will also need to be approved by the House of Lords, but this is unlikely to be a problem with Government support. It is however not yet clear exactly when the changes will come into force. The change to the threshold for the 8% contribution rule is likely to need to be phased in over a couple of years, as some lower earners could see their contributions more than doubled.

 Commenting, Steve Webb, partner at consultants LCP said: “This is truly a landmark day for UK pensions. With pensions policy having been stuck since the 2017 review there was a real risk that the gains from automatic enrolment would be stalled. Now that the Government is backing the necessary legislation the way is cleared for younger workers to be brought in and for lower earners in particular to build up pensions more quickly. The new Minister, Laura Trott, deserves huge credit for her role in unlocking this logjam”.
  

 Kate Smith, Head of Pensions at Aegon, said: “It’s fantastic news that the Government has confirmed its support for enhancements to auto-enrolment, originally put forward back in 2017. The next step is to agree a timetable for implementing these enhancements. With the next General Election to take place not later than January 2025, we urge the Government to start phasing this in from April 2024.

 “Basing contributions from the first £ of earnings rather than on a band above £6240 will mean contributions from both individuals and employers increase. Employees pay 5% so this equates to £312 a year, but after tax relief, this is just over £20 a month. But with employer contributions, this will be boosted to £499 a year extra. To avoid an overnight change, it will be important to introduce this gradually over a number of years, particularly as we emerge from the current cost of living crisis. Otherwise, someone earning £12,480 would see their contributions double overnight.

 “It is also hugely welcome that those aged between 18 and 22 will in future be auto-enrolled. This will get younger employees into the pension savings habit earlier, and won’t ‘miss’ it from their pay. And it’s the contributions paid in the earliest years that have longer to grow with investment returns.”
  

 Bill, Michael Ambery, Partner, Hymans Robertson, says: “We welcome any attempts to lower the age threshold for auto-enrolment, and extend the number of individuals who will be eligible. We strongly believe that increasing the availability of pensions to all is key to eradicating future pensioner poverty, and fully support the Private Members Bill. As an industry, we would welcome any attempts to encourage employers to review their pension provision and accessibility to increase inclusion.

 
 “Whilst the reading is a step in the right direction, a sea-change is needed. We would like to see no restrictions by way of earnings for contribution (i.e. from first pound without upper limit), AE being open to everyone whether in employment or self-employed (including ‘gig’ economies) as well as the removal of any upper age limit. A review on minimum levels of contribution from the 8%, supported by the work of the PLSA, is key to this and we look forward to hearing from the Pensions Minister, and government in due course.”
  

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