Auto-Enrolment: Understanding Today’s Rules and Tomorrow’s Changes
In this article, we explore the dynamic changes in auto-enrolment relevant to CII R04 candidates. Learn about the current rules and the changes on the horizon.
This article is correct as at 12 December 2023.
Those of you who are studying for R04 will know that the auto-enrolment process has been very high profile over the last decade or so.
Legislated under the Pensions Act 2008 and introduced in phases between 2012 and 2018, it made workplace pension enrolment an opt-out process for the first time. This meant that where a worker met the criteria, the employer was required to enrol them in a qualifying scheme within six weeks of commencing employment. The phasing process required the bigger employers with a larger number of employees to meet their obligations at an earlier date.
Most R04 candidates will be familiar with the three categories of worker for the purposes of the auto enrolment legislation.
Eligible jobholders, basically those aged between 22 and State Pension age and earning over £10,000 per year are required to be auto-enrolled. The worker must then actively opt out of the scheme if they do not wish to remain a member. Once enrolled, a minimum of 8% of qualifying earnings must be paid into the scheme, of which the employer must contribute a minimum of 3%.
Non-eligible jobholders, those aged under 22 or over state pension age and/or those earning under £10,000 per annum but over £6,240, do not have to be auto-enrolled. However, they have the right to opt into the scheme and should they do so, the employer is required to make contributions on their behalf.
Finally, we have the entitled worker, which is those of whatever age earning below £6,240 per year. For these workers, the employer is required to make access to a pension scheme available but is not required to auto-enrol them or to make contributions on their behalf.
Changes on the Horizon
Clearly, the process has been successful. A recent report by the Department for Work and Pensions showed 10.8 million people have been automatically enrolled, and private pension participation has more than doubled from 42 per cent in 2012 to 86 per cent in 2021. However, the report highlighted that not all of the problems have been solved and a significant number of people are still not saving enough for retirement.
As a result, it appears as though the times are changing concerning auto-enrolment. On 18 September, the Pensions (extension of auto-enrolment) bill 2023 received Royal Assent.
The bill does not firmly legislate for changes to the auto-enrolment regime. What it does do is give the relevant Secretary of State the powers to table legislation, which must then be passed through Parliament, amending either the age or the earnings thresholds as seen fit. However, it is not thought that passage through Parliament will prove a problem for what is seen as a relatively non-contentious proposal.
Consultation will take place in the autumn prior to the tabling of legislation. The proposed changes will likely include a reduction in the auto-enrolment age to 18 and a reduction to or abolition of the minimum qualifying earnings.
No timescale has been given for the implementation of any changes, however, if the proposals proceed as intended, the likelihood is that this will be sometime during 2024, just in time for the new edition of R04.
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