Auto-Enrolment: Maintaining the Momentum

Earlier this week the Department for Work and Pensions (DWP) published their latest review document which looks at the success of Pension Auto-Enrolment (AE) to date, and what changes may be required to build on that success in future years. Auto-Enrolment compliance is of course a given for all UK employers, so the DWP review will be of importance to most followers of this blog.

The review document is entitled “Automatic Enrolment Review 2017: Maintaining the Momentum” and is a rather weighty tome at more than 130 pages long.

We do however accept that few employers will – at this stage – want to wade through the entire review, so below is a summary of the recommendations made in the report for those who want to understand what has so far been suggested. We will of course be adding thoughts and commentary to some of the below during 2018 both in our written articles and (of course) at the Jelf Employment Seminars.

It is worth highlighting that many of the changes suggested will be solidified once there is more statistical evidence as to the impact of the minimum contribution increases which come into play in April 2018 and April 2019. So the review effectively remains a work in progress at this time.

The following content is taken directly from the DWP document:

Summary of DWP proposals

Government wants to continue to normalise pension saving among workers; help lower earners build resilience for retirement; support individuals, predominantly women, in multiple part-time jobs; and simplify automatic enrolment for employers. Therefore:

  • Automatic enrolment duties will continue to apply to all employers, regardless of sector and size.
  • We want pension saving to be the norm when most individuals start work. We therefore want young people from age 18 to benefit from automatic enrolment and our ambition is to lower the age criteria from 22 to 18. This would bring a further 900,000 young people into automatic enrolment. It also simplifies the workforce assessment for employers. All eligible workers will benefit from automatic enrolment from age 18 whoever employs them.
  • Our ambition is to change the framework for automatic enrolment so that pension contributions are calculated from the first pound earned, rather than from a lower earnings limit of £5,876 (in 2017/18). As part of the proposals in this review, we would also remove the ‘entitled workers’ category. The removal of the lower earnings limit would bring an extra £2.6 billion into pension saving, improve incentives for individuals in multiple jobs to opt-in to pension saving because they would get an employer contribution for every pound they earn in every job. It would also help to simplify the way many employers assess their workforce and calculate contributions.
  • As a result of these simplifications eligible workers would have access to a workplace pension with an employer contribution – with those eligible workers aged 18 to State Pension age being automatically enrolled.
  • Recognising that these changes present significant additional costs, in particular for employers and the Exchequer and significant changes for individuals, we will seek to better understand the full impacts for all stakeholders as part of the consultation process and will explore cost mitigations and funding options. We plan to do a full impact assessment of the increased costs for businesses. For employers, we will explore cost mitigations as part of any relevant consultation.
  • We have reviewed the earnings trigger for automatic enrolment, and this will remain at £10,000 a year in 2018/19, subject to annual review. Whilst current evidence does not support change now, our approach ensures factors, including affordability for employers and whether or not it ‘pays to save’ for individuals, are kept under consideration.
  • We will continue to monitor and evaluate the impact of increasing contributions and will carry out further analysis to inform a longer-term debate on the right balance between statutory contribution rates and voluntary additional retirement savings.
  • A proportion of the 4.8 million self-employed people are at risk of under-saving for their retirement. We will work to implement the Government’s manifesto commitment by testing targeted interventions – including through the opportunity of Making Tax Digital – to identify the most effective options to increase pension saving among self-employed people. We will provide more information about the trial areas during 2018, following feasibility work.
  • While many of those working in atypical ways or in non-standard forms of employment already come within the automatic enrolment framework, following the Taylor Review, we will explore whether there is a need for greater clarity to ensure that those workers who are eligible are automatically enrolled into a workplace pension scheme.
  • Automatic enrolment has worked. The savings behaviour of millions of individuals has changed so they are now savers: workplace pension saving has become normal. Effective engagement can reinforce individual’s saving behaviour, supporting the social normalisation, especially where a choice exists to opt out, stop saving or save more. We want to support the ability of individuals to engage with, and have a sense of greater personal ownership for, their workplace pension saving so that they can plan for the future.
  • This report sets out specific areas where there is scope for pension providers, the advisory community, employers and government to build on existing and develop new initiatives that will support individuals’ engagement with and personal ownership of their savings – while delivering better value for customers. We are calling on partners to take forward work in these areas.

Overall, this package will build on the success of automatic enrolment and create a fairer, more robust and sustainable system for the future which balances the needs of individuals, employers and tax-payers.”

In summary

It therefore appears that there is plenty of change on the horizon for employers, employees, and even the self-employed, and we will comment on some of these in more detail next year. For more information on any of these issues please speak to your usual Jelf consultant in the first instance.