The Pensions (Extension of Automatic Enrolment) (No. 2) Bill has received Royal Assent.
The bill, introduced in the House of Commons by Jonathan Gullis MP and taken through the House of Lords by Baroness Altmann, will see the age at which eligible workers must be automatically enrolled into a pension scheme lowered from 22 to 18. The lower earnings limit, which currently stands at £192 a week or £833 a month, will also be removed.
Combined with the Mansion House Reforms announced by Jeremy Hunt, Chancellor of the Exchequer, in July, the changes could see the average earner’s pension increase by nearly 50% if they save throughout their entire working career, while a minimum wage earner could see their pension pot increase by more than 85%.
Mel Stride, secretary of state for work and pensions, said: “Thanks to automatic-enrolment, we are empowering a record number of British workers to invest in their financial futures, with an additional £33 billion saved in 2021 compared to 2012. This bill will mean millions across the country can save more and earlier, boosting security in older age and helping people achieve the retirements they’ve worked so hard for.”
Kate Smith, head of pensions at Aegon, added: “Contributions will be based on the first pound of earnings rather than on a band above £6,240. Employees pay 5% so this equates to an extra £312 a year, but after-tax relief, this is just over £20 a month. But with employer contributions, this will be boosted by £499 a year extra.
“The next step is to implement the changes, and the expectation is that the government will consult on an implementation plan imminently. We believe this should be carried out over two to three years starting no later than April 2025 on a phased basis so that employers and employees can get used to the increased contributions.”
Hannah English, head of DC corporate consulting at Hymans Robertson, said: “We’ve also long been calling for a fuller range of measures to help narrow the gender pension, elderly, and ethnic minority pension gaps. To solve this, one measure the government should provide is contributions for individuals taking career breaks, reflecting the value they are adding to society.”