A recently approved Bill proposing an extension to the auto-enrolment (AE) scheme will facilitate “earlier and increased savings” for millions of young people across the UK.

Whilst this is undoubtedly a positive thing for the pension savings of young people and low-wage earners, it poses some significant issues for businesses.

Who is automatically enrolled in workplace pension schemes?

Auto-enrolment contributions currently depend on several factors:

• Any employee who earns over £10,000 must be automatically enrolled in the scheme. The minimum contribution from each employee must add up to eight per cent of their wage. The business must contribute at least three per cent of this total.
• An employee earning between £6,240 and £10,000 per year won’t automatically be included in the scheme but can request to be. In this case, the business must contribute at least three per cent of the total eight.
• Those employees earning less than £6,240 can opt into the scheme but the business is not required to contribute the usual three per cent. In this case, the employee must cover the eight per cent contribution themselves.

What does the Bill say?

Endorsed by MP Jonathan Gullis and Baroness Ros Altmann, the new legislation comes with two significant amendments to the AE initiative.

• The removal of the lower earnings threshold for contributions from £6,240 to only £1. This means that virtually any employee can request to be included in the workplace pension scheme.
• A reduction in the minimum age for automatic enrolment from 22 to 18 years old.

The consequences for UK businesses

The administrative adjustments alone, especially regarding payroll, will be considerable and might include more work to remain financially and legally compliant.

An increase in the contributions that businesses make to employee pensions will also be a significant concern for many businesses trying to save money and maintain profitability.

Are you concerned about how these changes will impact your business? Get in touch today.