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The government has announced proposals to extend pensions auto enrolment to younger workers. They will also amend the way in which contributions are calculated.

According to the press release:

The review’s recommendations, which will now be progressed and legislated for where necessary, will see:

  • automatic enrolment duties continuing to apply to all employers, regardless of sector and size
  • young people, from 18 years old, benefiting from automatic enrolment. They will also introduce 900,000 young people into saving an additional £800 million through a workplace pension
  • workplace pension contributions calculated from the first pound earned. This is instead of it being from a lower earnings limit. This will bring an extra £2.6 billion into pension saving, improving incentives for people in multiple jobs to opt-in. It will also simplify the way employers assess their workforces and calculate contributions
  • the earnings trigger remaining at £10,000 for 2018/19, subject to annual reviews
  • contribution levels reviewed after the implementation of the 8% contribution rate in 2019
  • the government testing a series of ‘targeted interventions’. This is through opportunities to work with organisations who act as ‘touch points’ for the 4.8 million self-employed people. Examples are: banks and those who contract labour. They will explore how technology can be used to increase their pension saving.’

Under auto enrolment, employers are required to automatically enrol all eligible workers into a workplace pension scheme. They must then pay a minimum contribution into their pension. Employees do, however, have the right to opt out of auto enrolment.

The Current Situation

Currently workers who are aged between 22 and the State Pension Age with earnings of £10,000 per annum are eligible to be auto enrolled. Younger employees and those who do not meet the minimum income requirement can opt to make pension contributions.

The government plan to reduce the lower age limit to 18 by the mid 2020s, in order to encourage younger workers to get into ‘the habit of saving’.

David Gaulke, Work and Pensions Secretary said:

‘We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire. We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement.’

Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), stated:

‘Requiring employers to contribute from the first pound of earnings will mean that, by 2019, hundreds of thousands of small employers will have to pay up to £180 more per employee each year. ‘For employers in certain sectors, such as care and hospitality where margins are tight, this will really add up.’

Contact us if you would like help with payroll and auto enrolment.

Internet links: GOV.UK news FSB press release