NEWSLETTER    |     March 13, 2023

Auto-enrolment: is change finally on the horizon?

The pensions industry continues to call on Government to make changes to the auto-enrolment regime, including expanding its scope and increasing the contributions required – and there are indications that change will come soon as Government backs a Private Members’ Bill to achieve this, which would increase pension costs for employers. Work for lawyers may increase too – particularly on transactions involving an employer with UK staff, where the extent of compliance with any revised regime will need to be carefully assessed.

Since the publication of Government’s auto-enrolment policy paper in 2017 there have been calls for changes to the regime to make it more inclusive. Nothing, however, has changed since.

The review recommended: (i) lowering the age threshold for auto-enrolment from 22 to 18 years; and (ii) removing the lower limit of the “qualifying earnings” band (roughly between £6,000 and £50,000 at present), which is the amount of salary used to calculate the statutory minimum pension contributions (so that, if an employer uses this metric to determine auto-enrolment pension contributions, they will not be based on an employee’s full salary).

When the 2017 Review was published, the government stated its ambition was to implement these changes in the mid-2020s. The mid-2020s are no longer distant but creeping up quickly. Laura Trott, the Pensions Minister, confirmed recently that the reforms in the 2017 Review remain an “absolute priority” and that she is working on setting out a timeline with the Work and Pensions Committee.

Running separately from this is a Private Members’ Bill which would give the Secretary of State power to amend the auto-enrolment regulations to lower the age threshold and remove the lower limit of the “qualifying earnings band” – in other words, to do the same things that Government’s own policy review recommended.

The Bill will have its second reading in the House of Commons on 17 March 2023. Most Private Members’ Bills do not become law, but on 3 March it was announced the DWP will support the Bill so there is every chance this will receive Royal Assent. What isn’t clear is how this will align with the timetable currently being formulated by the Work and Pensions Committee.

Assuming the changes do become law, it would mean more workers will need to be automatically enrolled. Employers would need to conduct a review of their workforce to auto-enrol anybody who wasn’t previously enrolled on the basis on being under age 22 (assuming they meet the other conditions). Some businesses may have a large population of workers aged 18 to 22 years – although they would still need to be earning over £10,000 annually to fall within the auto-enrolment regime, so this may have less impact than some might imagine.

Either way, there will be an increased cost for employers using the “qualifying earnings” definition. Many employers already use a different definition of pay, such as basic pay or basic pay plus fixed allowances. For those employers, the removal of the lower limit may not have an impact but otherwise, if the lower limit of the “qualifying earnings” band is removed, this could have a significant financial impact. Pension contributions will need to be calculated on the first £1 of earnings for those automatically enrolled. Workers will also find they are paying more into their pensions – not an insignificant consideration in the current climate.

Nothing is changing yet. There will still be time until any changes are implemented, and they may also be phased in. But it does now feel like a matter of ‘when’ not ‘if’. Change, when it comes, will extend the obligations for employers and result in an increased bill for pensions provision, as well as impacting the legal work that needs to be undertaken whenever UK businesses are bought and sold.




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