Possible Payroll Auto-Enrolment Changes?
15th August 2023
The UK Government recognises that payroll auto-enrolment pension contributions need to increase in order to cover projected short-falls in personal pension pots. A private members bill (Extension of Automatic Enrolment No 2) has received a second reading in the House of Lords & is scheduled to return to the Commons in September. The aim is to increase personal pension savings by some £45 billion over the next 30 years. As yet there has been no confirmation when any changes will be made to existing legislation and with the current cost of living crisis showing no signs of abatement, it remains in the air as to whether the government will introduce the bill in the short term.
The two key reforms under consideration are the removal of the lower earnings limit (LEL), currently £6,240 per annum, for minimum contributions, so an employee starts to make NI contributions from the first pound they earn.
The second key reform would be to lower the minimum age for auto-enrolment from 22 to 18.
Removing the LEL would obviously increase the size of the contribution paid into an employee’s pension pot each month. Similarly, reducing the qualifying age to 18 would provide a good platform for young adults to start saving for their retirement that much sooner.
As yet, no mention has been made in the area of employer contributions. Nor indeed whether employee contributions will be increased from the current 5% level. In addition to this, any reforms to Auto-Enrolment will not cover the self-employed or do much for low earners.
A recent Which study has estimated, in order to enjoy an annual income of £41,000, a pension pot needs to be in the region of £757,000. According to a report by the Work & Pensions Committee in 2022, 60% of the population are at risk of missing out on merely adequate funding after retirement. The changes are needed, the question is when.
For more information contact your local Whitings Office today.
Disclaimer - All information in this post was correct at time of writing.
