The Workplace pension reforms started to be introduced from 2012. Under the reforms, employers are required to automatically enrol workers into a qualifying pension scheme and, unless the worker opts out, make minimum contributions. This briefing paper looks at progress to date and the debate on the way forward, including the 2017 reviewJump to full report >>
Provisions in the Pensions Act 2008 place a duty on employers to automatically enrol jobholders into, and to contribute to, either a “qualifying pension scheme” or a new personal accounts scheme, a “simple low-cost pension scheme”, also established by the Act (and now called the National Employment Savings Trust (NEST)).
The Coalition Government set up a review to look at whether the proposed scope for the policy was still appropriate in the light of developments since it was formulated. The review, which reported in October, recommended some changes to the design of the policy. For example, it recommended an optional waiting period of up to three months before an employee needs to be automatically enrolled and an increase in the earnings threshold for auto-enrolment. These were legislated for in the Pensions Act 2011. Other core aspects of the policy were confirmed by the review. For example, the new duties apply to all employers regardless of size.
The policy has cross-party support, having been legislated for by the last Labour Government, implemented by the Coalition Government and supported by the SNP in its manifesto for the 2015 election.
The new duties were phased-in by employer size, starting in October 2012 with large employers. Small and micro employers were brought into the reforms between June 2015 and February 2018. The minimum contribution has also been phased-in, reaching its full amount (8% in total, including 3% from employers, 4% from employees and 1% tax relief) from April 2019.
The policy has reversed the decline in workplace pension saving. Latest figures show that more than 10 million workers have been automatically enrolled into workplace pension by more than 1.4 million employers. By 2019/20, an estimated extra £18.4 billion a year is estimated to go into workplace pensions as a result of auto enrolment (PQ 2019503, 19 February 2019).
Although the policy is widely viewed to have been a success, there are still around 12 million people thought to be under saving for retirement. Particular concern has been expressed about the design of the policy as it relates to low earners - for example, the fact that employers are not required to auto-enrol people whose earnings are below £10,000. A 2017 review recommended lowering the age threshold for auto-enrolment from 22 to 18 and removing the lower limit on the band of ‘qualifying earnings’ so that contributions are calculated from the first pound earned. The Government intends to implement these changes in the mid-2020s, subject to consultation and evidence of the impact of the policy to date. It would also consider the case for moving beyond the 8 per cent headline contribution rate and the balance between statutory and voluntary contributions (Cm 9546, December 2017).
The background to the reforms is covered in more detail in Library Standard Note SN 4847 Pensions: auto-enrolment – background (September 2012).
Commons Briefing papers SN06417
Author: Djuna Thurley