The Workplace pension reforms started to be introduced from 2012.
Under the reforms, employers are required to automatically enrol
workers into a qualifying pension scheme and, unless the worker
opts out, make minimum contributions. This briefing paper looks at
progress to date and the debate on the way forward, including the
2017 review.
Provision was made in the Pensions Act 2008
to place a duty on employers to automatically enrol
jobholders into, and to contribute to, either a “qualifying
pension scheme” or a new personal accounts scheme, a “simple
low-cost pension scheme”, also established by the Act, now
the National Employment Savings
Trust (NEST). The plan was to introduce these
requirements from 2012.
After the 2010 general election, the Coalition Government set up
a review to look at whether the proposed scope for the policy was
still appropriate in the light of developments since it was
formulated. The Making Automatic Enrolment
Work Review recommended an optional waiting period of up
to three months before an employee needs to be automatically
enrolled and an increase in the earnings threshold for
auto-enrolment. These changes were legislated for in
the Pensions Act
2011. Other core aspects of the
policy were confirmed by the review. For example, the new duties
apply to all employers regardless of size.
The auto-enrolment duties were phased-in by employer
size, starting in October 2012 with large employers. Small and
micro employers were brought into the reforms between June 2015
and February 2018. The minimum contribution has also been
phased-in, reaching its full amount (8% in total, including 3%
from employers, 4% from employees and 1% tax relief) from April
2019.
The policy has reversed the decline in workplace pension saving.
An evaluation of the
policy in 2019 showed that:
- Since the start of automatic enrolment in 2012, more than
10.2 million workers have been automatically enrolled;
- By 2018, the number of eligible employees participating in a
workplace pension had increased to 18.7 million (87 per cent), up
from 10.7 million (55 per cent) in 2012;
- Opt-out rates have remained low, at around nine per cent.
Although for these reasons the policy is widely viewed to have
been a success, there are concerns that an estimated 12 million
people may still be under-saving for retirement. To go some way
to address this, a review of the policy in 2017 recommended
lowering the age threshold for auto-enrolment from 22 to 18 and
removing the lower limit of the ‘qualifying earnings’ band, so
that contributions are payable from the first pound earned. The
Government said it intended to implement these changes in the
mid-2020s. It would also consider the case for moving beyond the
8 per cent minimum contribution rate (Cm 9546, December
2017).
Employers’ auto-enrolment duties continue to apply during the
Coronavirus outbreak. Those who have furloughed staff under the
Coronavirus Job Retention Scheme can claim a grant to cover 80%
of wages up to £2,500, with an additional grant to cover the
statutory minimum auto-enrolment employer contribution on those
wages, as well as employer National Insurance (The Pensions
Regulator, Automatic enrolment and
pension contributions. COVID 19 guidance for
employers, 9 April 2020).
The background to the reforms is covered in more detail in
Library Standard Note SN 4847 Pensions: auto-enrolment –
background (September 2012).
