Auto-enrolment into pension schemes to be extended to 18-21 year olds

The Government has announced that the minimum age of 22 for auto-enrolment into pension schemes is to be lowered to 18. Auto-enrolment makes it compulsory for employers to enrol all of their employees (who are aged 22 and over and who earn at least £10,000) into a suitable pension scheme, unless employees actively “opt out” of being enrolled. 

Now the Department for Work and Pensions has announced proposals to extend the provisions to all workers aged 18 and over.

It will also scrap the “lower earnings limit” for pension contributions. At present, workers do not pay pension contributions on the first £5,876 of their earnings, but the proposals mean they will start contributing straight away instead.

The move is intended to encourage workers to start saving from a younger age to ensure that they will be prepared for retirement. However, with the move estimated to affect approximately 900,000 additional workers, it is also likely to place a significant extra financial burden on employers.

No date has been set for the changes to come into force yet, and it is likely this will not happen before 2020 at the earliest.

In the meantime, however, the minimum contribution into auto-enrolment pension schemes (currently 1% of earnings) is set to be increased to 5% in April this year, 2% of which must be met by employers.

Employment & HRKenneth Rees