Employers’ duties to auto-enrol their employees into an occupational pension scheme are likely to be extended. New legislation is due to progress through Parliament this year to enact two of the key changes identified by the Department of Work and Pensions’ review of Auto-enrolment in 2017.

As currently drafted, the Pensions (Extension of Automatic Enrolment) Bill, which is set to have its second reading in the House of Commons in March this year, will have the effect of extending the definition of ‘eligible jobholders’ to employees aged between 18 and 22. Currently employers are only required to auto-enrol employees aged 22 and over, up to the State Pension Age. The change will therefore directly result in a greater number of employees having the right to be auto-enrolled, with a consequent increase in employer contributions and compliance issues.  

In addition, the Bill looks to remove the lower limit for qualifying earnings. Currently employers are required to make pension contributions calculated only on an employee’s qualifying earnings between £6,240 and £50,270. As drafted, the Bill will have the effect of reducing the £6,240 lower limit to zero, with the result that employer (and employee) contributions will have to be calculated on an increased level of qualifying earnings.  

There is, however, no suggestion that the eligibility criteria for auto-enrolment will be extended further to include those employees over State Pension Age. Nor is there any proposed amendment to reduce the ‘earnings trigger’, ie the level of earnings a jobholder must receive in a 12 month pay period to become an eligible jobholder, to below the £10,000 limit which has been in place since 2016.

The provisions of the Bill, if passed into legislation, will come into effect on a day set by the Government by means of additional regulations. Although the Bill was initially introduced as a Private Member’s Bill with, therefore, little chance of becoming law, the fact that it is now included in the Government’s legislative programme strongly suggest that its provisions will come into effect in the near future. 

Employers should begin to consider now what the impact on their businesses may be of an increase of the number of eligible jobholders and consequent increase in the number of employees they may have to auto-enrol into their occupational pension scheme.