Auto-enrolment: the Government's plans to 'maintain the momentum'
Just prior to the Christmas break, the Government published the outcome of its review of auto-enrolment. Maintaining the Momentum sets out the Government's proposals for moving forward with auto-enrolment "to build a stronger, more inclusive savings culture for future generations."
The review's headlines include:
- Reducing the lower age limit for auto-enrolling eligible workers from 22 to 18. The Government estimates that this would bring a further 900,000 young people within the scope of the auto-enrolment legislation
- Removing the lower earnings limit (currently £5,876) from the band of qualifying earnings used to frame the statutory minimum pension contributions to a defined contribution scheme, so that workers being auto-enrolled at the minimum level would receive contributions between £1 and the upper earnings limit (currently £45,000). Individuals earning £10,000 or less could choose to opt in and would then receive pension contributions calculated in the same way.
Further work has been promised in several areas, most notably in respect of:
- Statutory minimum contribution levels, where the Government will monitor the impact of the phased increases in statutory minimum contribution rates in April 2018 and April 2019 in order to inform discussions with stakeholders about future contribution rates and the balance between statutory and voluntary saving
- The self-employed, where the Government intends to begin "testing targeted interventions" in 2018 with the aim of establishing what will work to increase pension saving for the self-employed.
The Government aims to implement the proposed changes in the mid-2020s.
Whilst the reaction to the proposals has generally been favourable, there has been some criticism over the tardy timetable for implementation and the decision not to extend auto-enrolment to the self-employed pending further work. However, the Government is keen to create a renewed consensus to deliver the detailed design and implementation of the proposals, pointing out that consensus across stakeholders has been an important factor in the success of auto-enrolment to date.
Earnings limits for 2018/19
The DWP has also published details of the auto-enrolment earnings trigger and qualifying earnings band for the 2018/19 tax year.
The earnings trigger at which a worker is automatically enrolled will continue to be set at £10,000.
From 6 April 2018, the lower and upper earnings limits of the qualifying earnings band for auto-enrolment purposes will increase in line with the lower and upper earnings limits for NICs (from £5,876 to £6,032 and from £45,000 to £46,350 respectively). Some defined contribution schemes use this band of earnings as the measure for contributions into the scheme, while the lower threshold is used to distinguish between non-eligible jobholders and entitled workers for all employers.
Employers should continue to use existing figures up to and including 5 April 2018, but will need to ensure that payroll and HR systems are revised to factor in the new figures from 6 April 2018.