Employees aged 18 to 21 who earn more than £10,000 should join the auto-enrolment pension system, according to a recent government review.
The change would affect about 900,000 young people, with the government aiming to reduce the minimum enrolment age to 18 by the mid-2020s.Currently, staff are eligible for auto-enrolment into their employer’s workplace pension scheme if they are aged between 22 and the state pension age. Staff outside of this age range are able to opt in if they earn between £5,876 and £10,000.
Pension contributions must be paid by auto-enrolled staff, and staff who have opted in, on annual earnings between £5,876 and an upper level of £45,000. The government intends for contributions to be calculated from the first pound earned, rather than from the lower earnings limit of £5,876, again from the mid-2020s. This will increase incentives for people with more than one job to opt-in, and simplify the way employers assess their workforces and calculate contributions.
Both announcements have received criticism. The reduction of auto-enrolment to age 18 has been deemed too slow, whilst the removal of the lower earnings limit threatens to add cost and bureaucracy for smaller employers.
Rise in contribution levels
The contribution rates for auto-enrolment pensions are also increasing in two phases:
Date Employer minimum contribution Staff contribution Total minimum contribution
Until 5 April 2018 1% 1% 2%
6 April 2018 to 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%
The government will review contribution levels after the implementation of the 8% contribution rate in 2019.
Employers and employees should ensure they’ve planned for these increased contributions.