Potential auto enrolment changes: don’t get caught out
21st December 2023
Earlier this year, the government confirmed that it intends to expand pension auto enrolment, a move that could have an impact on many employers and employees. Payroll Manager, Rebecca Gotch, explains more about the forthcoming changes and how employers can ensure they don’t get caught out.
Auto-enrolment: the existing rules
Since its introduction in 2012, auto-enrolment has transformed UK pension saving, with nearly 11 million people enrolled.
All employers are required to provide a workplace pension scheme and are required to automatically enrol employees into a pension scheme and make contributions to their pension if all of the following apply to the employee:
- They are classed as a ‘worker’
- They are aged between 22 and State Pension age
- They earn at least £10,000 per year
- They usually work in the UK
What are the proposed changes?
The government has confirmed that it intends to:
- Remove the ‘lower earnings limit’ (currently £6,240) for minimum contributions, meaning the first pound of earnings will qualify for a matched employer contribution and tax relief.
- Lowering the minimum age at which someone qualifies for auto enrolment from 22 to 18.
The reforms are forecast to increase total pension contributions by £2bn per year in 2022-23 terms – or by £45bn over 30 years. A move that will help people to build bigger retirement pots.
Although the government has confirmed the changes will be introduced in the future, they haven’t confirmed when this will be. However, it’s likely these changes will be introduced in the next couple of years and could possibly be phased in to allow employers and employees to adjust to the increase in contributions.
What are the potential impacts?
The forthcoming changes to auto enrolment, coupled with forthcoming rises to National Minimum Wage and National Living Wage could be too much for some employers to bear. Both changes would see a significant increase to employers for each pay period.
Employers / payroll providers will also need to ensure their software is updated to process these changes. An additional cost of potentially both time and money.
Employees may also feel the pinch. With the cost-of-living crisis impacting households, some employees may not be able to afford to put money aside for retirement.
Advice for employers
Employers need to ensure they plan ahead to ensure they don’t get caught out. They need to factor in the increases to National Minimum and Living Wage, as well as a potential increase in pension contributions into their financial plans.
Our friendly payroll team works with organisations of various sizes to help them ensure they correctly fulfil their auto enrolment requirements. For advice on how to prepare for the changes, please get in touch.