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 will apply to all employers regardless of size.
The broad policy has cross-party support, having been legislated for by the last Labour Government and then implemented by the Coalition Government. The SNP’s manifesto for the 2015 election said the party would continue to support the roll-out of auto-enrolment.
The reforms are being phased-in by employer size, starting in October 2012 with large employers. Small and micro employers will be brought into the reforms between June 2015 and February 2018. The minimum contribution will also be phased-in, with employers paying the full three per cent from April 2019.
In a review of automatic enrolment published in December 2017, DWP said that 9 million individuals had been auto-enrolled, with nine out of every ten continuing to save. By 2019/20, it is estimated that an extra £20 billion a year will be saved into workplace pensions as a direct result of auto-enrolment. The Government said a key focus for the review had been for individuals to “keep saving and to save more after minimum contributions reached 8 per cent in 2018.” Specific proposals included: lowering the age threshold for auto-enrolment from 22 to 18 and removing the lower earnings limit so that contributions are calculated from the first pound earned. It would also test a number of different approaches to increasing the pension saving of self-employed people, with a focus on those with low and moderate incomes. It estimated that its proposals would “bring an extra £3.8 billion into pension saving annually, increasing the pension pot of the lowest earners by over 8 per cent and that of the median earning by over 40 per cent.” Its ambition was to implement its proposed changes in the mid-2020s, subject to consultation and emerging evidence of the impact of the phased increases in the statutory minimum contribution rates (Cm 9546, December 2017).
The background to the reforms is covered in more detail in Library Standard Note SN 4847 Pensions: auto-enrolment – background
Commons Briefing papers SN06417
Author: Djuna Thurley