The Pensions Extension of Automatic Enrolment Bill received Royal Assent this morning, a day after passing through the House of Lords following its third reading.
The bill will amend the Pensions Act 2008 meaning that the age for automatic enrolment will be reduced from 22 to 18 years of age and the lower earning threshold for contributions will be removed.
The private members’ bill was first introduced in February 2023 by Jonathan Gullis MP and taken to the House of Lords by Baroness Altmann.
According to the government, changes to automatic enrolment as well as the changes proposed by the Mansion House reforms could see the average earner’s pension increase by nearly 50 per cent if saving across their entire career, while a minimum wage earner could see their pension pot increase by over 85 per cent.
The Department for Work and Pensions (DWP) has also confirmed that it will launch a consultation on implementing the new measures.
Secretary of State for Work and Pensions Mel Stride says: “Thanks to Automatic Enrolment, we are empowering a record number of British workers to invest in their financial futures – with an additional £33 billion saved in 2021 compared to 2012.
“This bill will mean millions across the country can save more and save earlier – boosting security in older age and helping people achieve the retirements they’ve worked so hard for.
Jonathan Gullis MP says: “I am delighted that the Pensions (Extension of Automatic Enrolment) bill has received Royal Assent. Auto-enrolment is a significant step forward and will dramatically improve financial resilience in retirement for young people, women and lower earners.
“Nearly 25 per cent of people in Stoke-on-Trent North, Kidsgrove and Talke are not yet auto-enrolled on a pension plan, and this piece of legislation will ensure part-time, women, apprentices and young people have financial stability in the long-term.”
Minister for Pensions Laura Trott says: “Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ bill has successfully passed through Parliament and received Royal Assent.
“This will mean younger workers and those in lower-paid employment will be able to fully participate in Automatic Enrolment. For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.
Industry leaders have also welcomed the changes with some saying it’s been “a long time coming”.
Standard Life managing director for workplace Gail Izat says: “It’s so positive to see the government get behind pension saving and pass a bill that will enable people to save right from the start of their careers and save from the first pound of their earnings.
“The ability to start saving four years earlier will boost the pension people retire on by tens of thousands of pounds, and when combined with removing the lower earnings limit, the changes will make a significant difference to people’s retirement outlook.
“While the change represents a new era for auto-enrolment, an 8 per cent contribution rate will only take savers so far and it’s clear that increasing both employee and employer contributions to 12 per cent when possible is the missing piece of the puzzle when it comes to reducing under-saving and boosting retirement incomes outcomes even further.”
AJ Bell head of policy development Rachel Vahey says: “These automatic enrolment changes have been a long time coming, but this week marks a significant step on the road to improving outcomes for millions of pension savers.
“Back in 2017, the government promised to make these fundamental changes to lower the age limit and count from the first pound of earnings. Now is the time to make good on this promise by extending automatic enrolment to help people save more from an earlier age.
“Removing the lower earnings band of £6,240 means increasing pension contributions by just under £500 a year for most automatic enrolment pension savers. This could provide a boost of over £120,000 to someone’s pension pot over the course of a 50-year career, depending on investment growth.
“The best bit is that the employer must pay at least £187 of this, meaning everyone with a standard workplace pension that meets minimum requirements will get more money toward their pension from their employer. But they must stay opted-in to the scheme to benefit, and leaving the pension means they’ll be giving up that extra employer pension payment, as well as tax relief on their contributions.
“Lowering by four years the minimum age someone can be automatically enrolled is a boost for those yet to start work and could eventually lift their final pension pot by over £45,000. It illustrates that, although these changes may seem small, they can provide a big pension saving boost to lower earners and younger workers in particular.
“The DWP now has to keep the momentum going. The next stage is to form a plan to implement these changes. This has to strike the right balance. Financial life is tough for many people right now, so changes need to be brought in at the right time and pace that supports pension savers and their employers.
“But the DWP cannot drop the ball, it needs to keep forging ahead as this new law will make a meaningful difference to people’s later financial lives.”
Pensions Management Institute president Robert Wakefield says: “The PMI is delighted that the AE extension bill has been given Royal Assent, and we offer our gratitude to those Parliamentarians who have made this possible. Through being able to start pension saving earlier and by making more earnings pensionable, millions of workers will be able to accrue greater pension benefits and look forward to a more comfortable retirement.
“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.”
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