Automatic enrolment extension reforms receive Royal Assent

A Private Members Bill giving powers to extend automatic enrolment to workers under age 22 and to remove the Lower Earnings Limit received Royal Assent in September 2023, the Pensions and Lifetime Savings Association (PLSA) has said¹.

The PLSA, an industry body, said the Government had "begun to take action to address this shortfall, in particular, by introducing some reforms to the automatic enrolment regime so that people will save from the first pound of pension saving and from age 18 rather than age 22"¹. It described the reforms as "very much welcome but more action is needed"¹.

The PLSA's report, published in October 2023, sets out five proposed reforms. It says contributions should rise gradually from 8% to 12% over the next decade, with employees required to put in 1% extra and employers 3% extra, so that by the early 2030s each pays 6%¹. It also proposes maintaining the State Pension Triple Lock, additional help for under-pensioned groups including women, the self-employed and gig economy workers, and industry initiatives such as the Retirement Living Standards and the Pay Your Pension Some Attention campaign¹.

The report models retirement outcomes against the 2023 Retirement Living Standards. Among the whole population, 71% of households (12 million of 17 million) are on track to hit the Minimum standard, £19,900 for a couple; among the working population the figure is 78%, and among active defined contribution savers 79%¹. For the Moderate standard, £34,000 for a couple, 30% of all households are on track¹. The PLSA says that without changes to the pensions regime more than 50% of savers will fail to meet the retirement income targets set by the 2005 Pensions Commission, and as many as 20% will fail to achieve its Minimum Retirement Living Standard¹.

Source: PLSA, Five Steps to Better Pensions: Final Report, October 2023¹

The report says that if all its proposals are implemented and the Triple Lock maintained, the projected retirement income for a median earner working a full working life without career breaks would rise from £17,672 to £20,609 for men and from £17,177 to £19,825 for women¹. It adds that including housing wealth means 42% of the working population are projected to reach the Moderate standard, up from 33% without it¹.

Why it matters for households

The Royal Assent gives the Government powers to change who is automatically enrolled into a workplace pension and on what earnings. On the PLSA's account, the changes would mean saving from the first pound earned and from age 18 rather than 22¹. The powers themselves do not set contribution rates, and the report does not state when any extension would take effect; no commencement date has been reported.

The PLSA's proposed contribution increase, from 8% to 12% of qualifying earnings, is a recommendation to government and has not been adopted. Under its proposal, an employee would pay 1% more and an employer 3% more, reaching 6% each by the early 2030s¹. The report does not say what this would cost an individual household in cash terms.

The figures on retirement adequacy cover the whole population, not only those newly brought into automatic enrolment, so the effect on any one household depends on earnings, age and existing pension saving. The report notes that among DC savers with no defined benefit entitlement, only 35% would reach their Pensions Commission replacement rate¹.

What happens next

The report says the PLSA "will work with" stakeholders and experts who agree a higher level of pension saving is needed "to make the case for change"¹. No timetable for extending automatic enrolment, or for raising contributions, is set out in the report.