In March 2023, The Department for Work and Pensions (DWP) backed a policy to expand pension savings to young and low earners which will enable millions more of employees to start saving earlier. Although the date in which these changes will go live has not been finalised, it is likely to impact employers from late 2020s, with some suggestions of this change being applied from the 2026-27 tax year.
Here, Jaspreet Bassi from our payroll team breaks it down.
The key changes proposed
- DWP review the earnings thresholds for automatic enrolment each year, and have proposed to lower the age at which eligible workers must be automatically enrolled into a pension scheme. The current age in which employees become eligible is 22 years old, and DWP have proposed to lower this to 18 years of age. This will make saving the norm for young adults and enable them to begin to save from the start of their working lives
- The bill also proposes to remove the lower earnings limit (also known as the qualifying earnings lower level), which will mean employers and employees begin contributing from the very first pound earned. This will support those who have low earnings or work multiple jobs and are currently not eligible for automatic enrolment
What this means for you
Removing the lower earnings limit will mean employers will be required to contribute from the very first pound earned for an eligible employee. Using the table below, this will mean an additional employer contribution of around £9,360 per annum for employers with around 50 members in a pension scheme.
Number of members in pension scheme | 25 | 50 | 100 | 500 |
Total additional pensionable pay (per annum) | £156,000 | £312,000 | £624,000 | £3,120,000 |
Total additional employer pension contribution (per annum) | £4,680 | £9,360 | £18,720 | £93,600 |
Total additional employee pension contribution (per annum) | £7,800 | £15,600 | £31,200 | £156,000 |
Based on your employer size and average annual salary, you may wish to review the scheme to operate. Salary sacrifice schemes for pensions are becoming more widely used and based on the proposed changes to pension, there will be greater employer annual savings to consider in comparison to a net deduction arrangement. Please see table below for reference.
*Figures are based on an average salary of £30,000 per employee, each exchanging 5% of their salary for a pension contribution. Employer and Employee yearly savings are the NI contributions that would be paid without salary exchange in place.
Salary Sacrifice arrangements do involve a complex HR element so we would recommend seeking HR support should you wish to implement this as well as discussing with a pension advisor prior to making any adjustments.
Number of members in pension scheme | 25 | 50 | 100 | 500 |
Total annual salary (pre salary sacrifice) | £750,000 | £1,500,000 | £3,000,000 | £15,000,000 |
Total salary sacrificed | £37,500 | £75,000 | £150,000 | £750,000 |
Employer national insurance contribution rate 2025/2026 | 15% | |||
Employer national insurance contribution saving (annual) | £5,625 | £11,250 | £22,500 | £112,500 |
Employee national insurance contribution rate 2025/2026 | 8% (if sacrificed amount falls between primary threshold and upper earnings limit for national insurance) | |||
Employee national insurance contribution saving (annual) | £3,000 | £6,000 | £12,000 | £60,000 |
If you are currently using our recommended pension advisors to assist you with the areas of automatic enrolment and compliance, they will be in touch with you to discuss your options moving forward at your next review meeting. If you are not using a pension advisor and would like to discuss this further, please do contact a member of payroll and we will be happy to assist.
