The Pensions (Extension of Automatic Enrolment) (No. 2) Bill will be read a third time in the House of Lords today, the final step before it receives Royal Assent and becomes law.
This legislation allows for two expansions of automatic enrolment: the elimination of the Lower Earnings Limit (LEL) for contributions and the reduction of the minimum age for automatic enrolment to 18 years old.
PLSA director of policy and advocacy Nigel Peaple: “It is very positive news that the Extension of Automatic Enrolment (AE) Bill will have its third reading today (18 September). If passed, it will be an important step forward in achieving adequate, fair and affordable pensions for everyone. This bill will provide the legislative footing to extend AE so a greater number of savers will have incomes, sufficient to meet their retirement goals.
“By making it a legal requirement for workers under 18 to be automatically enrolled and removing the Lower Earnings Limit (LEL), millions of people will get a better pension when they retire. However, for savers to reach an adequate income in retirement, further increases are still needed over the next decade so that AE rises from the 8 per cent pension contribution today to around 12 per cent in the early 2030s – split 50/50 between employers and employees.”
Quilter head of retirement policy Jon Greer says: “Today, as the private members bill on the extension of automatic enrolment takes centre stage with its third reading in the House of Lords, the pensions minister Laura Trott has being doing the media rounds drawing attention to the pivotal changes it would enable.
“Central to the bill is the ability to extend pensions automatic enrolment to those employed under the age of 22, a move that signifies the government’s intent to bolster the future financial security of younger workers. The inclusion of provisions concerning the lower qualifying earnings threshold for automatic enrolment further emphasises a commitment to ensuring that even those at the more modest end of the earning scale are not left behind.
“There is no doubt that these reforms are needed to adapt pension policy to the evolving needs of the workforce and an ageing population that may end up needing to lean on a pension for decades. In fact data out today, about the number of people living to over 100 shows that it has increased 127-fold over the past century. These people have half their life to save (about 50 years) to support themselves in retirement for a third of their life (about 32/33 years). This is no mean feat and the government need to be doing everything they can to help people save as much for retirement as possible.
“The proposed changes in the bill, especially the ability to include younger employees in the automatic enrolment scheme, reflect the government’s desire to normalise pension saving or young adults enabling them to start saving from the beginning of their working lives. The changes recognise the importance of starting retirement savings early and maximising the benefits of compound returns over time.
“However, considering the enormous pressure on people’s finances, and particularly the young, the timing of the changes will be key and the reaction of younger workers, if implemented swiftly during this cost of living crisis when every pound counts, is unknown. However, there is no doubt that the government moving towards adopting some of the recommendations of the 2017 Automatic Enrolment Review is a good thing as while the policy has had runaway success it must evolve to stay relevant.”