The next steps in Auto-Enrolment

A recent statement from the government has announced plans to extend the automatic enrolment scheme so that it applies to all workers aged 18 or over by the mid 2020s. Currently, the scheme ensures that workers aged 22 or older and who earn £10,000 or more, are enrolled in a workplace pension by their employer, unless they opt out. The plans to extend the scheme mean that approximately 900,000 more young people will be affected.

Prior to this proposed change, the amount of workers’ earnings being put into their pension is set to increase from the current 2% contribution (made up of 0.8% from the worker, 1% from the employer and 0.2% from the government as tax relief) to 5% in April this year (2.4% worker, 2% employer, 0.6% tax relief) and again in April 2019 to 8% (4% worker, 3% employer, 1% tax relief). These changes will apply to anyone who employs even one person, including nannies and carers, if they are over 22 and earn more than £833 per month, as the grace period allowed for employers to enrol their employees ends at the beginning of February 2018.

Plans to lower the starting age to 18 have received a mixed response. Former pensions minister, Steve Webb, welcomed the change, but described the pace at which it was being made as ‘shockingly lethargic’, as delaying the change until the mid 2020s ‘risks leaving a whole generation of workers behind.’

Other changes to auto-enrolment include a proposal to calculate contributions of all earnings up to £45,000, as opposed to the current system which calculates them as a proportion of earnings between £5,876 and £45,000, an annual review of trigger points and contribution levels and carrying out further research into how technology can be used to encourage self-employed workers to put into a pension. It has been calculated that the proposals will cost employers an additional £1.4 billion every year, with the government providing £600 million more in tax annually.

Whilst the change to calculate from the first pound of earnings will help those with multiple jobs, there has been some criticism that it could be detrimental to small businesses. The Federation of Small Businesses has found that it could mean an additional £180 per employee each year being paid by these businesses by 2019.

Subscribe to our newsletter

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.