Pensions: Automatic enrolment - current issues

What is auto-enrolment?

Employers must enrol eligible employees into a pension scheme. Unless the employee opts-out, both the employee and employer contribute to the pension.

Employees eligible for auto-enrolment are those who:

• are not already in a workplace pension scheme;
• are between 22 years old and State Pension age; and
• earn more than the minimum earnings threshold (£10,000 since 2015/16).

In 2025/26, employers must make contributions on earnings between £6,240 (the lower earnings limit) and £50,270 (the upper earnings limit).

What has been the impact of auto-enrolment?

The government phased-in auto-enrolment by employer size (number of employees) between October 2012 and February 2018.

The minimum amounts employees and employers contribute also increased gradually. Minimum contributions were last increased to 8% of earnings, in April 2019. Employers contribute a minimum 3% and employees 5% (including tax relief).

The policy reversed the decline in workplace pension saving. There was a tenfold increase in members contributing to defined contribution occupational pension schemes, from 0.9 million in 2011 to 10.6 million in 2019.

How might auto-enrolment change?

Auto-enrolment is widely agreed to have been a success. However, there are concerns that many are still under-saving for retirement. A review of the policy in 2017 proposed lowering the age threshold for auto-enrolment from 22 years to 18 and removing the lower limit of the ‘qualifying earnings band,’ so that contributions are paid from the first pound earned.

The Pensions (Extension of Automatic Enrolment) Act 2023 gave the Secretary of State the power to:

• reduce the lower age limit for auto-enrolment.
• remove the Lower Earnings Limit for qualifying earnings. People would make auto-enrolment contributions from the first pound of earnings.

During the passage of the Act, the Conservative government confirmed its intention to reduce the lower age limit to 18 years old. The government has not yet introduced the changes. Following the 2024 election, the Labour government said in November 2024 that it would consider “if and when to make changes to [auto enrolment], balancing the need for improved pension outcomes with the effects on businesses.”