Automatic enrolment: Extension to under 22 year olds and removal of lower earnings limit
17 December 2017
The DWP has published their automatic enrolment review 2017 ‘analytical report’, with two key proposals; to remove the lower earnings limit so that every saver makes pension contributions from their first pound of earnings, and to lower the age limit from 22 to 18.
The Department for Work and Pensions (DWP) has published their analytical report (unusually on a Sunday) which sets out the analysis and findings used to inform the automatic enrolment review 2017: Maintaining the momentum.
The first scan of the 192 page report reveals two major proposals which will undoubtedly benefit younger savers but will also increase the financial output for employers:
“The 2017 review of automatic enrolment proposes that the LEL should be removed. This would mean that employers and employees contributing to pensions through automatic enrolment (those that are earning above the trigger and fulfil the age criteria) will make contributions across an increased band of earnings – they would contribute from the first pound of their earnings (rather than from £5,876) up to the UEL. In addition, this proposal will increase the number of people who are eligible to receive employer contributions as those earning below £5,876 will now be entitled to employer contributions if they choose to opt in.
The 2017 review of automatic enrolment proposes to change the lower age limit to 18 (while maintaining the upper age limit at SPA). This would mean that those aged between 18 to SPA would be automatically enrolled into their workplace pension scheme if they earned above £10,000 a year. Those aged 16-18 and over SPA would remain eligible to opt into their workplace pension scheme.”
Removing the LEL also means that multiple job holders who earn below the current LEL in any of their employments could choose to opt in and would automatically be entitled to employer contributions. Those earning above the earnings trigger in one or more of their jobs would be entitled to increased employer contributions (from £1).
The analytical report does state that it is the government’s ambition to implement the proposed changes to the framework in the mid-2020s. This will be subject to discussions with stakeholders around the detailed design in 2018/19, finding ways to make the changes affordable, and followed in due course by formal consultation with a view to introducing legislation.
The CIPP Policy team will be involved with all levels of consultation and will keep the payroll profession informed and involved accordingly.