The Pensions Extension of Automatic Enrolment Bill received Royal Assent this morning, a day after passing through the House of Lords following its third reading.
The bill will amend the Pensions Act 2008 meaning that the age for automatic enrolment will be reduced from 22 to 18 years of age and the lower earning threshold for contributions will be removed.
The private members’ bill was first introduced in February 2023 by Jonathan Gullis MP and taken to the House of Lords by Baroness Altmann.
According to the government, changes to automatic enrolment as well as the changes proposed by the Mansion House reforms could see the average earner’s pension increase by nearly 50 per cent if saving across their entire career, while a minimum wage earner could see their pension pot increase by over 85 per cent.
The Department for Work and Pensions (DWP) has also confirmed that it will launch a consultation on implementing the new measures.
Secretary of State for Work and Pensions Mel Stride says: “Thanks to Automatic Enrolment, we are empowering a record number of British workers to invest in their financial futures – with an additional £33 billion saved in 2021 compared to 2012.
“This bill will mean millions across the country can save more and save earlier – boosting security in older age and helping people achieve the retirements they’ve worked so hard for.
Minister for Pensions Laura Trott says: “Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ bill has successfully passed through Parliament and received Royal Assent.
“This will mean younger workers and those in lower-paid employment will be able to fully participate in Automatic Enrolment. For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.”
Jonathan Gullis MP says: “I am delighted that the Pensions (Extension of Automatic Enrolment) bill has received Royal Assent. Auto-enrolment is a significant step forward and will dramatically improve financial resilience in retirement for young people, women and lower earners.
“Nearly 25 per cent of people in Stoke-on-Trent North, Kidsgrove and Talke are not yet auto-enrolled on a pension plan, and this piece of legislation will ensure part-time, women, apprentices and young people have financial stability in the long-term.”
Industry leaders have also welcomed the changes with some saying it’s been “a long time coming”.
Standard Life managing director for workplace Gail Izat says: “It’s so positive to see the government get behind pension saving and pass a bill that will enable people to save right from the start of their careers and save from the first pound of their earnings.
“The ability to start saving four years earlier will boost the pension people retire on by tens of thousands of pounds, and when combined with removing the lower earnings limit, the changes will make a significant difference to people’s retirement outlook.
“While the change represents a new era for auto-enrolment, an 8 per cent contribution rate will only take savers so far and it’s clear that increasing both employee and employer contributions to 12 per cent when possible is the missing piece of the puzzle when it comes to reducing under-saving and boosting retirement incomes outcomes even further.”
AJ Bell head of policy development Rachel Vahey says: “These automatic enrolment changes have been a long time coming, but this week marks a significant step on the road to improving outcomes for millions of pension savers.
“Back in 2017, the government promised to make these fundamental changes to lower the age limit and count from the first pound of earnings. Now is the time to make good on this promise by extending automatic enrolment to help people save more from an earlier age.
“Removing the lower earnings band of £6,240 means increasing pension contributions by just under £500 a year for most automatic enrolment pension savers. This could provide a boost of over £120,000 to someone’s pension pot over the course of a 50-year career, depending on investment growth.
“The best bit is that the employer must pay at least £187 of this, meaning everyone with a standard workplace pension that meets minimum requirements will get more money toward their pension from their employer. But they must stay opted-in to the scheme to benefit, and leaving the pension means they’ll be giving up that extra employer pension payment, as well as tax relief on their contributions.
“Lowering by four years the minimum age someone can be automatically enrolled is a boost for those yet to start work and could eventually lift their final pension pot by over £45,000. It illustrates that, although these changes may seem small, they can provide a big pension saving boost to lower earners and younger workers in particular.
“The DWP now has to keep the momentum going. The next stage is to form a plan to implement these changes. This has to strike the right balance. Financial life is tough for many people right now, so changes need to be brought in at the right time and pace that supports pension savers and their employers.
“But the DWP cannot drop the ball, it needs to keep forging ahead as this new law will make a meaningful difference to people’s later financial lives.”
Pensions Management Institute president Robert Wakefield says: “The PMI is delighted that the AE extension bill has been given Royal Assent, and we offer our gratitude to those Parliamentarians who have made this possible. Through being able to start pension saving earlier and by making more earnings pensionable, millions of workers will be able to accrue greater pension benefits and look forward to a more comfortable retirement.
“We are also greatly encouraged by Laura Trott’s commitment to further reforms and hope that the Government will consider higher minimum contribution rates and effective ways to help the self-employed save for retirement. It is enormously encouraging to see cross-party consensus on pensions policy, and we can feel confident that this augurs well for future developments.”
Aegon head of pensions Kate Smith says: “Today is a momentous day in the journey of auto-enrolment and for pension savers, especially for low earners and younger workers. The Pensions (Extension of Automatic Enrolment) (No 2) Act, will, in time, widen the scope of automatic enrolment bringing in those aged between 18 and 22, so pension saving becomes the norm for younger employers and the extra four years of saving may help to close the gender pensions gap.
“Equally importantly, contributions will be based on the first £ of earnings rather than on a band above £6,240 will mean contributions from both individuals and employers increase, leading to larger pension pots in later life. Employees pay 5 per cent so this equates to an extra £312 a year, but after-tax relief, this is just over £20 a month. But with employer contributions, this will be boosted by £499 a year extra.
“The next step is to implement the changes, and the expectation is that the government will consult on an implementation plan imminently. We believe this should be carried out over two to three years starting no later than April 2025 on a phased basis so that employers and employees can get used to the increased contributions. Otherwise, someone earning £12,480 would see their contributions double overnight.
“11 years after the start of auto-enrolment and almost six years on from the 2017 independent review of auto-enrolment, finally much-needed improvements will be made to auto-enrolment. But it shouldn’t stop here. The 8 per cent auto-enrolment contribution, even without the offset, lures people into thinking they are saving enough to provide an adequate income in retirement.
“For many this, this won’t be the case. Change takes years, from consultations, to legislation, and finally to implementation. It’s time to start thinking about increasing auto-enrolment contributions to 12 per cent of earnings, equally split between employers and employees, with solutions for those on the lowest incomes.”
Now: Pensions CEO Patrick Luthi says: “We welcome the swift passage of the Extension to Automatic Enrolment (AE) Bill which has now received Royal Assent. Step by step, we are getting closer to the day when the 2017 AE reforms will become a reality.
“The news may pass unnoticed in the majority of workplaces, but it will ultimately become a cause for celebration for thousands of workers who stand to benefit, particularly the youngest generation who can get a head-start on their retirement savings journey.
“We’ve been long-standing partners with Debate Mate, an online debating platform for students aged 6 to 16 and believe the earlier children begin to have positive relationships with money, savings, and budgeting, the more likely it is to have a positive impact on their financial futures. Our recent research showed that 86 per cent of over 1,000 young adults (aged 11-27 years) supported the Government’s proposal to reduce the age of automatic enrolment from 22 to 18.
“We look forward to the Government consultation which the Pensions Minister has indicated will follow this Autumn, so reform can be implemented as soon as practical. It will be essential for the government to work openly and collaboratively so that savers, employers, schemes, and industry can plan for a successful implementation.
“This is an important step in the right direction, but it’s equally important that the government keeps its eyes on the wider challenge of long-term strategy and adequacy which must still be tackled to create a pensions system which is fair for all. A formal review of AE is essential to establish a consensus on issues such as scope and contribution levels, so AE continues to evolve and remains relevant and fit for purpose.
“We are one of the very few UK workplace pension providers who accept all employers and their employees into the scheme, and many of our members are lower earners. We have long taken an interest in how to improve members’ savings, including working with the Pensions Policy Institute (PPI) to assess the pension savings gap and address the issue of chronic under-saving for retirement. We believe the policy needs to work for all eligible workers to avoid millions falling short of the retirement they deserve.”
Hymans Robertson head of DC corporate consulting Hannah English says: “The cross-party consensus for extending automatic enrolment is very heartening. With increasing numbers of individuals now being encouraged through AE to contribute to a pension, it will mean that more people are beginning to save for their retirement from a younger age and increase their chances of better financial outcomes.
“The removal of the lower earnings limit would also bring significantly more people into AE. The current opt-in option for individuals earning below the lower-earning threshold is too weak a mechanism to support retirement savings. The Gender Pension Gap report from 7 April 2022 suggests that reducing the threshold to £5,000 (from the current £10,000) would result in over 800,000 individuals being subject to AE. Of these, over 600,000 would be women.
“But these measures alone won’t be enough and it’s vital that the Government does more to help extend AE further and build on its success. We continue to call for the AE minimum total rate to be increased to 12 per cent. Yet, what we’d really like to see is a complete overhaul of the current AE legislation, with much more done to encourage individuals to forward plan and invest in their pension, even during challenging times.
“We’ve also long been calling for a fuller range of measures to help narrow the gender pension, elderly, and ethnic minority pension gaps. To solve this, one measure the Government should provide is AE contributions for individuals taking career breaks, reflecting the value they are adding to society.”