New private members bill seeks to extend auto-enrolment
When auto-enrolment was introduced in 2012 to help people save for retirement, it was revolutionary. Since 2012, millions of people have been automatically enrolled and taken the first step in saving for retirement. Unfortunately, not every employee meets the current criteria to be eligible for automatic enrolment. Those employees are missing out on contributions from their employer which are required as part of the auto-enrolment legislation.
Under legislation, automatic enrolment requires employees to be enrolled into a qualifying workplace pension scheme if they are (i) at least 22 years old but younger than state pension age; (ii) earning more than £10,000 a year and (iii) normally working in the UK. Once automatically enrolled into a pension scheme, the employer must also make minimum contributions on behalf of the employee (usually, at least 3% of “qualifying earnings”).
A Private Members Bill, titled “Pensions (Extension of Automatic Enrolment) Bill”, put forward by MP Richard Holden, seeks to extend auto-enrolment to those aged 18 and over and remove the £10,000 earnings threshold.
When proposing the bill, MP Richard Holden outlined some of the people that this bill could help, and in particular, it is the young and part-time workers who would benefit the most. The MP mentioned the situation of an employee who has two jobs, both with an annual salary of £9,000. That employee has a total annual salary of £18,000 but won’t meet the criteria for auto-enrolment. However, a person earning an annual salary of £18,000 in one job, will meet the criteria for auto-enrolment. Arguably, it seems almost discriminatory that two people with the same salary can have different tax benefits available to them.
Students with part-time jobs and those entering full-time employment immediately after education would also benefit. Currently somebody entering the workforce at age 18 would have to wait four years before their employer needs to auto-enrol them into a pension scheme and make the minimum level of pension contributions. Because of the way that compound interest works, any pension contributions (even if calculated using a small salary) made at this age could become much more valuable over the 40 or 45 years until retirement.
Recent research by the think tank Onward has found that the proposals in the bill could boost British pension savings by c. £2.77 trillion over the working lives of the current workforce. In addition, the research also showed that extending auto-enrolment to all employees over age 18 would benefit up to 7 million people in the UK.
It is worth noting that, under the bill, it is not clear if the lower threshold for “qualifying earnings” (currently set at £6,240 annually) will be reduced.
The bill will have its second reading in the House of Commons on 25 February 2022. If the proposals eventually go through, it will have the potential to impact a lot of people. Arguably, the proposals make the system much fairer, placing the young and those with part-time jobs on a level playing field with everyone else.
Read Rhiannon’s article in Pensions Age. A different version of this article has also been published in The Legal Diary.
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