Following its third reading before the House of Commons on 24 March 2023, the Government has backed MP Jonathan Gullis Private Members Pensions (Extension of Automatic Enrolment) (No. 2) Bill and it is likely that the Bill’s provisions will become law in 2024 if not earlier.
The Bill seeks to expand the current system of automatic enrolment to younger and lower paid workers.
The Pensions Act 2008 imposes an obligation on employers to enrol eligible workers into a "qualifying pension scheme" and to make financial contributions to the scheme unless the worker decides to opt out of the scheme.
The eligibility criteria applies to those aged between 22 to State pension age and who earn at least £10,000 per year.
Where an employer fails to comply with the above requirements, the Pension Regulator can impose penalties that may result in fines and potential prosecution in addition to requiring the employer to pay back dated contributions (see here).
What changes are being proposed by the Bill?
The Bill looks to amend the Pensions Act 2008 to enable the Secretary of State to make regulations to reduce the lower age limit for auto-enrolment likely to be 18 and to remove the lower earnings limit for qualifying earnings (currently stands at £6,240 for 2023/24) thus “auto-enrolment contributions would be made from the first pound of earnings” (see here).
It appears that there is no intention at present to remove or vary the £10,000 earnings criteria that triggers eligibility for auto enrolment thus workers with earnings less than £10,000 will still need to consider opting into workplace pension scheme rather than being automatically enrolled by their employer.
What is the rationale for making such proposed changes?
Minister for Pensions, Laura Trott, has indicated that such changes will make a meaningful difference to people’s pension saving over the years ahead.
A reduction in the lower age limit would reduce the administrative burdens and expenses to employers as well re-aligning it with the National Minimum Wage (NMW) age brackets (18 to 20) thus providing consistency, removing the arbitrary age 22 assessment and simplifying processes for most employers.
What is the territorial jurisdiction of the Bill if passed?
The Bill covers England, Scotland and Wales.
With Northern Ireland, private pensions are devolved thus Secretary of State and Northern Ireland Minister would need to consult each other with a view to securing a single system of legislation for pensions in the UK.
When will the Bill become law?
The Pensions Minister, Laura Trott (Con) confirmed that the Bill had Government support and that the Government would like to consult in autumn 2023 about the timetable for introducing the changes enabled by the Bill, the Minister said that she “cannot say anything further than ‘mid-2020s’”.
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