The pensions industry has welcomed the news that the bill to extend auto-enrolment (AE) received Royal Assent as a "momentous" milestone, despite growing pressure for the government to go further on the changes.

The bill, which seeks two extensions to AE, abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled, was granted Royal Assent yesterday (19 September).

The news was welcomed by The Pensions Regulator, with a spokesman for the watchdog stating: “We are proud of our contribution to the successful roll-out of AE and look forward to continuing to work closely with Department for Work and Pensions (DWP) on the next steps to extend the AE framework for the benefit of millions of workers.

“We will ensure employers, pensions schemes and the wider supporting market are well-prepared to successfully implement these important changes.”

Work and Pensions Committee chair, Stephen Timms, also welcomed the news, after the committee previously recommended that the government implement the 2017 AE Review reforms “no later than the beginning of the next session of parliament”.

“Lowering the age threshold for auto-enrolment and removing the lower earnings limit on pension contributions will make a real difference to young people, part-time workers and workers in the gig economy,” Timms stated.

“We are pleased the government has listened to the committee and supported the legislation to implement recommendations that have the potential to make saving the norm and improve retirement outcomes for many.”

Industry groups have also celebrated the news, as Pensions Management Institute president, Robert Wakefield, stated: “The PMI is delighted that the AE Extension Bill has been given Royal Assent, and we offer our gratitude to those parliamentarians who have made this possible.

“Through being able to start pension saving earlier and by making more earnings pensionable, millions of workers will be able to accrue greater pension benefits and look forward to a more comfortable retirement."

Adding to this, The Investing and Saving Alliance (Tisa) head of retirement, Renny Biggins, praised the pace of the reforms and the legislative process in particular, stating that the group is "delighted by the extension of AE".

“We have long advocated for lowering the age threshold to 18 and removing the lower earnings limit, as these changes will enable more people to save for their retirement," he continued.

“We look forward to the implementation consultation that is due to be published this autumn. These changes may not seem significant at first glance, but throughout working life, they can make a substantial difference to the retirement outcomes of millions of workers, improving their financial security and well-being.”

AJ Bell head of policy development, Rachel Vahey, also highlighted the passing of the bill as a “significant step on the road to improving outcomes for millions of pension savers”.

However, Vahey emphasised the need for the DWP to "keep the momentum going" when looking ahead to the next stage of forming a plan to implement these changes.

"This has to strike the right balance," she continued. "Financial life is tough for many people right now, so changes need to be brought in at the right time and pace that supports pension savers and their employers.

“But the DWP cannot drop the ball, it needs to keep forging ahead as this new law will make a meaningful difference to people’s later financial lives.”

This was echoed by Aegon head of pensions, Kate Smith, who clarified that whilst the news is “momentous” in the journey of AE, the timing of the changes will need to be right to avoid unintended consequences.

"We believe this should be carried out over two to three years starting no later than April 2025 on a phased basis so that employers and employees can get used to the increased contributions," she stated.

"Otherwise, someone earning £12,480 would see their contributions double overnight."

In addition to this, Smith argued that, despite the latest reforms, further improvements are still needed to ensure members are saving enough.

"The 8 per cent auto-enrolment contribution, even without the offset, lures people into think they are saving enough to provide an adequate income in retirement. For many this this won’t be the case," she warned.

"Change takes years, from consultations, to legislation, and finally to implementation. It’s time to start thinking about increasing auto-enrolment contributions to 12 per cent of earnings, equally spilt between employers and employees, with solutions for those on the lowest incomes.“

Standard Life managing director for workplace, Gail Izat, agreed that while the changes introduced by the bill represent a “new era” for auto-enrolment, an 8 per cent contribution rate will only take savers so far.

“It’s clear that increasing both employee and employer contributions to 12 per cent when possible is the missing piece of the puzzle when it comes to reducing under-saving and boosting retirement incomes outcomes even further,” he stated.

Alongside this, Arc Pensions Law associate, Rhiannon Barnsley, points out that employees still need to earn over £10,000 per year to be within the scope of auto-enrolment.

“Many part-time workers (which many young workers may be) and those with multiple jobs still won’t be able to benefit,” she explained. “It also does nothing to address the current under-saving by many employees. The auto-enrolment minimum contributions will not provide the retirement lifestyle many look forward to.”

"It is a difficult balance," Barnsley acknowledged. "In the current climate it is understandable why many employees choose to opt out of pension saving, instead wishing to use the money now.

"However, research shows that most people are not saving enough for retirement and raising minimum contributions is one way to solve that, but it will only work if savers are prepared to contribute more so any raising of minimum contributions should be carefully phased in.”

And others have suggested that this could represent an opportunity to take stock, as Now Pensions CEO, Patrick Luthi, argued that a formal review of AE is "essential" to establish a consensus on issues such as scope and contribution levels, so AE continues to evolve and remains relevant and fit for purpose.

“This is an important step in the right direction, but it’s equally important that government keeps its eyes on the wider challenge of long-term strategy and adequacy which must still be tackled to create a pensions system which is fair for all," he continued.

"We believe the policy needs to work for all eligible workers to avoid millions falling short of the retirement they deserve.”

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