Auto-enrolment reforms: what changes are being proposed?

The UK government plans to expand its auto-enrolment reforms to increase total pension contributions by £45 billion over 30 years, but there’s no confirmation when this will happen.

Key reforms include removing the lower earnings limit (£6,240 a year) for minimum contributions so that the first pound of any earnings will qualify for a matched employer contribution and tax relief.

The government is also considering lowering the minimum age that someone qualifies for auto-enrolment from 22 to 18.

“The proposal to ditch the lower earnings limit, currently set at £6,240, so the first pound of earnings counts for both a matched contribution and tax relief should help more people build bigger retirement pots over their careers,” said Tom Selby, head of retirement policy at AJ Bell.

“Similarly, lowering the age at which someone first qualifies for auto-enrolment from 22 to 18 will be a significant step in helping millions of young people benefit from the magic of compound growth.”

While Selby believes these reforms are good for savers, higher pension contributions could be the ‘straw that breaks the camel’s back’ while businesses may resist committing more cash to pensions due to cost pressures.

It’s also unlikely this will be the end of auto-enrolment reforms as there are concerns that people aren’t saving enough for retirement, while this scheme does not cover the self-employed and low earners.

“Whether the reforms are ultimately viewed as a success will depend largely on what happens next,” commented Selby.