Automatic Enrolment Bill Extension Receives Royal Assent

On 19th September, the Pensions Extension of Automatic Enrolment Bill received Royal Assent. The bill introduces two important changes to the original auto-enrolment legislation, which are to reduce the minimum age that an employee has to be enrolled from 22 to 18 and to remove the lower earnings threshold for contributions.

The Department for Work and Pensions has confirmed that it will launch a consultation on how and when to implement the new measures. These are not anticipated to come into force until at least 2025/26 and there could be some level of phasing.

The change of minimum age is anticipated to bring an additional 900,000 young workers into auto-enrolment for the first time and has been widely welcomed across the political divide and within the pensions industry.

The second change will mean that pension contributions will be based on earnings from the first pound, rather than being limited to the Qualifying Earnings band. For a company with an employer contribution of 3% of Qualifying Earnings, this will cost an additional £3.60 per week / £15.60 per month. Employees will also see their pension contributions increase by an extra £4.80 per week / £20.80 per month.

Employers already paying pension contributions from the first pound of earnings will be unaffected by the removal of Qualifying Earnings, but will have to look at enrolling employees between 18 and 22 in due course.

Employers using Qualifying Earnings as their definition of pensionable pay will need to budget for these changes. If you’d like to discuss the potential impact and costs of this change to your workplace pension, don’t hesitate to get in touch.