Understanding the Extension of Automatic Enrolment

The landscape of pension contributions in the UK is set for a significant overhaul with the proposed Pensions (Extension of Automatic Enrolment) Bill. Two key amendments stand poised to expand the reach of retirement savings:

Lowering the Age Threshold

The government proposes to reduce the age for automatic enrolment from the current 22 years to 18. This move aims to incorporate a younger demographic into the pension savings framework, ensuring that they start to save for retirement earlier in their working life.

Abolishing the Lower Earnings Limit

Many employers use Qualifying Earnings (QE) as the basis for their pension contributions. QE is banded earnings, and when used, pension contributions are calculated on pay between the Lower and Upper earnings limits.

The Lower Earnings Limit is set to be scrapped, and instead, contributions will be based on all earnings.

What This Means for Employers

Increased Contributions

Employers will see an immediate uptick in pension costs due to a higher number of employees being enrolled and a rise in the amount contributed per employee.

Sectors at a Glance

  • Retail and Hospitality: These sectors are expected to feel the impact more acutely due to their younger workforce demographic.
  • SMEs: Small and medium-sized enterprises may also experience a significant rise in pension-related expenditures.

Employee Contributions

Employees will contribute more of their earnings to pensions, but those on lower incomes will benefit from contributions on their entire earnings, enhancing their retirement savings.

Broader Implications

Consultations and Feedback

The Department for Work and Pensions (DWP) is set to release consultations, allowing employers and other stakeholders to provide input on the implementation of these measures.

Payroll Adjustments

Businesses must prepare for adjustments to payroll systems and budgets to accommodate the higher contribution levels.

Minimum Wage Considerations

The interplay between increased pension contributions and any changes to the National Minimum Wage will need careful consideration to avoid undue financial strain on both employers and employees.

Planning Ahead

Employer Strategy

Employers are advised to:

  • Engage with the consultation process.
  • Assess the financial impact on their business.
  • Consider the timing of implementation, especially if operating across the UK and Northern Ireland.

Employee Communication

Communicating these changes to employees will be critical to ensure they understand the benefits and the increased deductions from their wages.


The extensions to automatic enrolment represent a commitment to enhance retirement readiness among the UK workforce. While the changes promote long-term financial security, they require short-term adaptation. As such, active participation in upcoming consultations, informed decision-making, and strategic planning are essential steps for all stakeholders involved.