How will the auto enrolment extension affect employees?

Extending auto enrolment to younger people

Since its arrival in 2012, automatic enrolment has helped millions of people make a start at saving for the future. Tied exclusively to the workplace – which removes the barriers of having to choose and set up a pension with little interest or knowledge – it’s an absolutely invaluable employee benefit. 

However, critics have often questioned the age limit, which excludes anyone under the age of 22 from being enrolled automatically. If they don’t ask, they don’t get. But that’s set to change.  

Soon, employers will have to automatically enrol employees from age 18. And there will be no lower earnings limit. 

Here are those changes at a glance:

What are the auto enrolment rules today? 

Currently, employers must automatically enrol employees who: 

• Are at least 22 years old 

• Earn at least £10,000 a year 

If they’re younger than 22 or earn less than £10,000, employees can still join the workplace pension scheme if they ask to – but only if they earn at least £6,240, the ‘lower earnings limit’.  

(When the trigger age is lowered to 18, the lower earnings limit will be abolished.) 

Both employees and employers make contributions: 

• At least 5% of employee income 

• Plus at least 3% extra from employers 

If you use ‘qualifying earnings’ to calculate how much you need to contribute as an employer, this requirement only kicks in after the first £6,240 of income.  

(Again, the lower earnings limit will be abolished when the age is lowered to 18, so everyone will be saving from their first pound of earnings.) 

This change has been a long time coming

Lowering the minimum age for auto-enrolment was originally recommended in 2017, as part of a review by the Department for Work and Pensions. They estimated it would help 910,000 young adults to start saving. 

“By lowering the eligible age criteria to 18, it will normalise workplace pension saving for more young people as they start work for the first time. This will help embed good savings habits earlier and allow more time to build up a meaningful workplace pension over an individual’s lifetime, while they balance work and other responsibilities.” 

As we mentioned, it will happen, it’s just a question of when. And the new government does seem keen on moving things along. They’ve already enacted a change to pension tax relief, which affects employees from the current 2024/25 tax year. You don’t need to do anything as an employer, but you can read about net pay equalisation here. 

Workplace pension round-up 2024

In case you missed it, we hosted a webinar for our clients on 10th September to let you know about these regulations changes. 

Steve Watson, along with NatWest Cushon specialists and trustees, covered what’s new and what’s coming for UK pensions. They also discussed our evolved brand identity, investment strategy and decarbonisation journey, all of which have a direct impact on employee experience. In short, we’ve turbocharged what we do for you and your teams! 

This communication is for information purposes only and is not personal advice.

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NatWest Cushon