31For anyone studying for their pension exams, the Brand Financial Training team recommend keeping an eye on proposed changes to the auto-enrolment regime.
Auto-enrolment has been everywhere since the government started its phased introduction of the process over a decade ago. Well, almost everywhere.
Those who have been studying towards R04 will be aware of the basic details of the automatic enrolment process. Essentially, all employed members of staff are placed into one of three categories, with the employer’s obligations towards them governed by their categorisation.
Eligible jobholder
Firstly, we have the eligible jobholder. This category consists of anyone who is aged between 22 and State Pension age and who earns over £10,000 per annum. The obligation of the employer towards an eligible jobholder is simple, they are required to automatically enrol the member into an eligible workplace pension scheme.
Eligible jobholders who have previously elected not to join the scheme, or joined and opted out of it, are also permitted to opt back in. However, the employer is only obliged to action such a request once in any 12-month period.
Non-eligible jobholder
The second category for automatic enrolment purposes is the non-eligible jobholder. This category consists of those who are aged under 22 or past State Pension age and those who are between those ages but earning less than £10,000 per annum and more than the minimum threshold currently set at £6,240.
For non-eligible jobholders, the employer is not required to enrol them automatically into a pension scheme. However, it is required to enrol the employee into the pension scheme should they wish to join it and, where such a request is made, required to make the same level of contributions as for an eligible jobholder.
Entitled worker
Finally, we have the third category which is that of the entitled worker. An entitled worker is one who earns less than £6,240 per annum from their employment, whatever their age. For these workers, the employer is required only to make access to a pension scheme available should they wish to contribute to one. It is not, however, required to automatically enrol the worker into the scheme, or to contribute to it on their behalf.
Minimum pension contributions
Following enrolment, the usual minimum contribution is 8% of the worker’s qualifying earnings. There is a 3% minimum employer contribution, which if made would require the employee to pay a minimum of 5%. However, the employer may pay a greater share (and consequently the employee a lesser one) should it so desire.
Qualifying earnings, for the purposes of the auto-enrolment requirements, are defined as all earnings between £6,240 and an upper limit, currently £50,270 in line with the higher rate income tax threshold. Qualifying earnings basically cover most remuneration payable to the employee as a result of the employment, including salary or wages, bonuses, overtime, commission and statutory sick, maternity, paternity or adoption pay. They do not, however, include benefits in kind (termed, as the R03 students amongst you will know, ‘P11D benefits’).
It should be noted that the above figures are a minimum and not a limit. Employers can, and many do, pay pension contributions based on full earnings. However, the above figures are what the employer is legally required to pay under auto-enrolment legislation.
Pensions (Extension of Automatic Enrolment) Act 2023
In March 2023, however, a relatively unpublicised bill was tabled in Parliament named the Pensions (Extension of Auto Enrolment) bill 2023. The bill was tabled by Conservative MP Jonathan Gullis and Conservative Peer Baroness Altmann, a former Pensions Minister known to be a passionate supporter of pensioners’ rights. That bill received Royal Assent in September 2023 and is now an act of Parliament.
It should be noted that the Act does not specify any firm proposals for the extension of the auto-enrolment regime. Rather, it hands power to the relevant Secretary of State to table legislation before Parliament to reduce the relevant ages and/or monetary limits, subject to appropriate consultation being entered into.
The consultation is due to launch at some stage during the autumn (a similar one has already been launched in Northern Ireland and can found on the government website here. It is thought that the consultation will indeed include a reduction in the minimum qualifying age to 18. It will also include a proposal to reduce or completely abolish the £10,000 qualifying limit.
There is, as of yet, no definite timescale for the government to look to introduce any changes. However, we would recommend that anyone currently studying for their pension exams or working within the pensions industry should monitor the situation with interest.
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