The important pension perks that could arise from the expansion of auto-enrolment

If you have been in one or multiple working roles since 2012, it is highly likely that you will have been automatically enrolled into a pension scheme. 

Auto-enrolment requires employers to sign certain employees up to a pension scheme when they begin working. As of August 2023, those who fall into the bracket of auto-enrolment are:

  • Workers who are over the age of 22 but under State Pension Age, which currently stands at 66, and is set to rise to 67 by 2028
  • Employees earning between £10,000 and £50,270 a year. Earnings over £6,240 are automatically counted as pensionable pay.
  • Those who are not already in a suitable workplace pension scheme.

Auto-enrolment has allowed many employees, who previously would have had to opt into their pension scheme manually, to begin paying pension contributions from day one. 

If you are on the road to retirement, paying attention to your pension contributions is essential. Your defined contribution (DC) pension is likely to make up a large portion of your retirement income, so it’s vital to maximise your payments while you can.

Importantly, the government is set to expand auto-enrolment rules in the coming years, meaning workers could boost their pensions even further before stopping work.

Read on to find out how these plans to enhance auto-enrolment could have a positive impact on your DC pension, and how a financial planner can help you make the most of it.

Auto-enrolment is set to be expanded, giving savers the chance to boost their pension

According to FTAdviser, the government is set to extend auto-enrolment to include even more employees in the scheme. 

The Pensions (Extension of Automatic Enrolment) (No.2) Bill is being debated on an ongoing basis in the House of Commons, and the date at which it may be passed is yet unclear.

Under the new rules, auto-enrolment would cover:

  • Those aged between 18 and State Pension Age
  • All earnings up to £50,270, rather than starting at £6,240 as they do now.

The FTAdviser report reveals that this move “has the potential to improve retirement outcomes by between 7% and 13% for up to 3 million people”.

While broadening auto-enrolment could serve young people most effectively, this expansion could be hugely beneficial for your DC pension at any stage of your working life. Seeing as all of your pay up to £50,270 would newly qualify for auto-enrolment, your increased contributions could help your pot grow over the years before you retire.

What’s more, these new rules could have particular advantages for women. Alice Guy, the head of pensions and savings at Interactive Investor (ii), says that “Expanding auto-enrolment may particularly benefit women, who are more likely than men to be working part-time on a low income and more likely to be living in poverty in retirement.” 

Indeed, the reduction of the minimum earnings from £6,240 to £0 could make a big difference to women who work part-time while raising a family or return to lower-paid work after time away. This new legislation, if it is brought in, could take us one step closer to narrowing the 35% gender pensions gap.

No matter who you are, though, these new auto-enrolment rules could provide even greater opportunities for you to make pension contributions throughout your working life.

Working with a financial planner can help you maximise pension opportunities before you retire

If you are on the runway to retirement, these final career years can be crucial in supplementing your later-life income – especially if auto-enrolment is expanded as planned.

What’s more, there have already been two key developments in pension legislation in 2023. These are:

  • The removal of the Lifetime Allowance (LTA) tax charge. In the spring Budget, Chancellor Jeremy Hunt announced that the tax charge applied to those drawing from pensions that surpassed the LTA would be removed. The LTA previously stood at £1,073,100. The removal of this charge means that you can save a potentially unlimited amount in your pension without facing a higher tax bill than normal when you draw the funds.
  • The increasing of the Annual Allowance. The Annual Allowance limits how much can usually be contributed to your DC pension while benefiting from tax relief. Standing at £40,000 in 2022/23, this has increased to £60,000 (or 100% of your earnings, whichever is lower) in 2023/24, giving savers even more opportunities to make tax-efficient contributions.

These changes could be instrumental in boosting your retirement savings – and with professional guidance, you may be able to work them into your financial plan straight away.

I can help you:

  • Review all the pensions you hold, and assess their value as you approach retirement
  • Look at your current personal pension contributions and assess whether they can be increased
  • Plan a tax-efficient drawdown method for when you do retire
  • Factor other forms of income into your retirement plan, such as investments, cash savings, an inheritance, and the State Pension.

If you are soon to retire, now is the time to begin making plans – especially with the potential expansion of auto-enrolment offering a possible increase in contributions.

Get in touch

To discuss what you’ve read here, or any other aspects of retirement planning, email me at a.douglass@grosvenorconsultancy.co.uk or call my office on 01793 766 123. Alternatively, call my mobile on 07525 177 046. 

While I offer high standards of service and will work with you to ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

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