A bill providing powers to extend auto-enrolment to under-22s and scrap the lower limit on qualifying earnings has become law, with a consultation on implementing the changes expected later this year. Industry has welcomed the reforms but calls for more, with the pensions minister hinting at further changes.

Following its third reading in the House of Lords on Monday, the bill has become law, although it will not mean that auto-enrolment changes immediately. 

 

    
The new Act gives the secretary of state powers to amend the age limit and qualifying earnings limits for automatic enrolment. Before these powers can be used, there will need to be a consultation and report on the outcomes to inform the implementation approach and timing.  

 

About the timing, Baroness Ros Altmann, who sponsored the private member’s bill in the Lords, said that "the government will look to play their part by consulting on how to implement the expansion of automatic enrolment at the earliest opportunity... We hope that it could be later this year.” 

 

She added: “We will then report to parliament about how we intend to proceed in accordance with the provisions in the bill.” 

 

The Department for Work and Pensions claimed that “the changes to automatic enrolment, combined with the Mansion House reforms announced by the chancellor in July, could see the average earner’s pension increase by nearly 50% if saving across their entire career, while a minimum wage earner could see their pension pot increase by over 85%”. 

 

Pensions minister Laura Trott said the passage of the bill was “great news”, adding: “Automatic enrolment has been a phenomenal success, and we are determined to go further.” 

 

The Pensions Regulator has welcomed the passage of the bill to become law. 

 

A spokesperson said: “We are proud of our contribution to the successful roll-out of [auto-enrolment] and look forward to continuing to work closely with DWP on the next steps to extend the [auto-enrolment] framework for the benefit of millions of workers. We will ensure employers, pensions schemes and the wider supporting market are well-prepared to successfully implement these important changes.” 
   

The roll-out of auto-enrolment was described as one of the “notable successes” in the track record of TPR in an independent review of the regulator by Mary Starks, published on Tuesday. 

 

Starks, who has worked for Ofgem, the Financial Conduct Authority and the former Office of Fair Trading, noted that legislation to extend auto-enrolment was passing through parliament, but seemed to be of the view that contributions will be looked at next.  

 

“The necessary legislation to provide enabling powers is currently before parliament, before looking at further changes to the AE framework, recognising the current minimum contribution of 8% on a band of earnings is unlikely to support the retirement lifestyle to which most individuals aspire,” she wrote. 

 

The DWP declined to comment on whether raising contribution levels was on the cards. 

 

Industry showed itself delighted at the news of the bill receiving royal assent, but urged government to start now on increasing minimum contributions, somethings both the Pensions and Lifetime Savings Association and Association of British Insurers have called for.  

 

Robert Wakefield, president of the Pensions Management Institute, said through being able to start pension saving earlier and by making more earnings pensionable, millions of workers will be able to accrue higher pension benefits.  

 

“We are also greatly encouraged by Laura Trott’s commitment to further reforms and hope that the government will consider higher minimum contribution rates and effective ways to help the self-employed save for retirement. It is enormously encouraging to see cross-party consensus on pensions policy, and we can feel confident that this augurs well for future developments,” Wakefield said. 

 

Head of pensions at Aegon, Kate Smith, called it a “momentous day in the journey of auto-enrolment". 

 

Smith said: “The next step is to implement the changes, and the expectation is that the government will consult on an implementation plan imminently.” 

 

She recommended that implementation should be carried out over two to three years starting no later than April 2025 on a phased basis, saying that otherwise someone earning £12,480 would see their contributions double overnight. 

  

“Eleven years after the start of auto-enrolment and almost six years on from the 2017 independent review of auto-enrolment, finally much-needed improvements will be made to auto-enrolment. But it shouldn’t stop here,” she added. 

 

“Change takes years, from consultations to legislation, and finally to implementation. It’s time to start thinking about increasing auto-enrolment contributions to 12% of earnings, equally split between employers and employees, with solutions for those on the lowest incomes,” she said. 

 

Other providers agree. Gail Izat, managing director for workplace at Standard Life, said: “While the change represents a new era for auto-enrolment, an 8% contribution rate will only take savers so far, and it’s clear that increasing both employee and employer contributions to 12% when possible is the missing piece of the puzzle when it comes to reducing undersaving and boosting retirement incomes outcomes even further.”  

 

Do you expect the DWP to address minimum contributions in the coming years?