Anticipated Pension Automatic Enrolment Changes in 2024

Anticipated Pension Automatic Enrolment Changes in 2024 and Their Impact on Your UK Business

Anticipated changes to the UK’s Automatic Enrolment pension regulations in 2024 are set to significantly impact businesses and employees alike. The proposed amendments include lowering the enrolment age from 22 to 18 and removing the lower earnings limit for contributions.

These changes aim to increase pension scheme participation and enhance retirement savings, particularly for younger and lower-income employees. In this article, we provide you with a brief overview of the current rules, the anticipated changes, and their potential impact on UK businesses. It also offers practical advice on how businesses can prepare for these changes and ensure a smooth transition to the new regulations.

In collaboration with our long-standing partner Chase de Vere, an Independent Financial Adviser, we discussed these upcoming changes to Automatic Enrolment in the UK and their implications for businesses:

Lower Age Threshold

The minimum age for automatic enrolment will be reduced from 22 to 18 years. This change means that businesses will need to enrol younger employees, increasing participation in pension schemes from the start of their careers. Employers will need to take this into account when actioning their payroll and applying automatic enrolment to this younger workforce.

Removal of the Lower Earnings Limit

Earnings above a certain threshold are currently considered for pension contributions. With the removal of this limit, employers and employees will be required to pay in more. This change aims to enhance retirement savings for lower-income employees but requires businesses to reassess their payroll processes to accurately calculate pension contributions across all earnings.

What are the current rules?

In the UK, both full-time and part-time employees are automatically enrolled into their workplace pension scheme under certain conditions.

These conditions include the ability to work in the UK, earning more than £10,000 per annum, not being a member of a qualifying workplace scheme already, and being at least 22 years old and not having reached the state pension age.

It’s important to note that even if an employee earns less than £10,000 but more than the Lower Earnings Limit (LEL) of £6,240, they still have the right to opt into the scheme and make contributions. Qualifying earnings are all earnings between £6,240 and £50,270. This includes basic salary, holiday pay, bonuses, and overtime, so an individual's total p60 earnings would be included in this calculation.

What are these anticipated changes for pension automatic enrolment?

The automatic enrolment criteria will largely stay the same but the major difference being you will automatically have to enrol your employees who are between 18 years of age or above and below state pension age.  Furthermore, modifications to the Lower Earnings Limit (LEL) will result in a broader inclusion of employees in the banding. Therefore, employers will be required to increase their contributions.

Here is a quick breakdown of the pension automatic enrolment criteria:

• Work in the UK
• Earn more than £10,000 pounds per annum
• Are not already a member of a suitable workplace pension scheme
• Are at least 18 years old and have not reached state pension age.
• Qualifying earnings between £0 and £50,270.

How can I plan for these changes?

When planning, it’s crucial to consider the budget for an additional four years of contributions for employees aged 18 to 22. You can assess your workforce to calculate its impact, some important questions to consider: How many employees do you have under the age of 22? Is this something that you’re likely to be considering in the future? This may be relevant to you if you take on interns, apprentices, or school leavers.

As it stands, 18-year-olds earning over £6,240 have the option to join the pension scheme, however, they are not automatically enrolled. The data shows that people who are put into a qualifying workplace scheme and choose to opt-out if they wish is around 5-15%. Most people who are automatically enrolled in a pension scheme will remain in that scheme. Additionally, casual or temporary contracts may now be included under new regulations, so consider whether postponement could be a viable option if it’s not already in use.

It’s important to assess your workforce to understand the impact of these contributions; Keeping administrative processes current is essential. Pay Check’s Auto Enrolment Services can facilitate this by conducting assessments, and guaranteeing all employee communications contain accurate information about the Lower Earnings Limit (LEL) or equivalent.

You can budget for additional ER contributions based on an extra £6,240 of pensionable salary. This is an extra £187.20 annual employer contribution and £312 (gross) for employees. You’ll want to consider how you will communicate this change to existing members to enable them to budget accordingly, your Independent Financial Advisor or our partner Chase de Vere can assist you with communications such as email or letter templates.

After these changes have been implemented, we will discover if the changes result in increased opt-out rates or will improve pension savings as the government anticipates. Time will tell but ensure that you capture current opt-out rates in your governance process so you can measure this as it will be useful information for a review.

Salary Exchange is something to consider if you haven’t done this already – it can help with EE and ER costs. Watch the Salary Exchange webinar with Chase de Vere here.

Impact on UK Businesses

These changes will necessitate updates or reviews of your current payroll systems and processes for UK businesses. Key actions for employers include:

• Assessing Financial Impact: Calculating the financial implications of enrolling younger employees and removing the lower earnings limit.

• Updating Payroll Systems: Ensuring payroll systems reflect these changes, including adjustments to age thresholds and earnings calculations.

• Communication and Training: Educate HR and payroll staff about these changes to ensure smooth implementation and compliance.

• Reviewing Pension Providers: Consulting with pension providers and financial advisers to ensure alignment with the new regulations.

Planning Ahead

Proactive planning is essential for businesses as the regulatory landscape in the UK continuously evolves. Pay Check is here to help you navigate these upcoming changes. We see these regulatory shifts as chances for businesses to become more efficient. Our team ensures that you stay compliant with regulations, provides extra support for your payroll needs, and keeps your payroll processes running smoothly

We collaborate with financial advisers such as Chase de Vere, to bring expert guidance and strategies to navigate these regulatory adjustments effectively. By preparing in advance, businesses can ensure compliance, support their employees' retirement savings, and minimise disruptions to their payroll processes.

Conclusion

The anticipated changes to Automatic Enrolment in 2024 represent a significant shift in UK pension regulations. Lowering the enrolment age to 18 and removing the lower-earnings limit for contributions can substantially impact businesses. Employers must take proactive steps to update their payroll systems, assess financial implications, and communicate these changes to their staff. Engaging with financial advisers can help businesses navigate these changes and ensure a smooth transition to the new regulations.

If you have any additional questions or concerns surrounding the anticipated pension automatic enrolment changes, please contact us at Pay Check or Chase de Vere to learn more.