The recently announced 1.25 per cent rise in national insurance contributions (NIC), which will be used to fund social care costs and take effect from April 2022, could see changes to auto-enrolment (AE) “kicked into the long grass”, Aegon has warned.

The increase for employers and employees was announced yesterday (7 September) by Prime Minister, Boris Johnson, in a statement to the House of Commons, and will also see the introduction of a new Health and Social Care Levy.

However, Aegon suggested that in light of the national insurance hike, recommendations for AE reforms, which were on track for a mid-2020s timeline, may not be implemented until the "next decade".

The recommendations from the 2017 auto-enrolment review included reducing the minimum age to 18 and removing the lower earnings limit, as well as an increase in the 8 per cent minimum auto-enrolment contributions, which Aegon warned “now seems out of sight”.

Aegon head of pensions, Kate Smith, commented: “One possible side-effect of the Health and Social Care Levy, announced yesterday, is there may now be little chance that any of the proposed changes to auto-enrolment will happen this decade.

“Four years ago, an independent review of auto-enrolment recommended a number of improvements to the government’s flagship policy to be implemented by the mid-2020s.

“This included opening up auto-enrolment to younger workers by reducing the minimum age from age 22 to 18, so they could automatically benefit from employer pension contributions, and removing the salary offset, currently £6,240 a year, so that contributions were based from the first pound earned from the mid-2020s.

“Both these initiatives would have allowed more people, especially those on lower incomes to have saved more in the pension via their own and their employer’s contributions, improving their financial wellbeing over the longer term.

“For many, the 8 per cent minimum auto-enrolment contribution is unlikely be build a lifetime of financial security, and the harsh reality is that people will need to save more one way or another. The increase in national insurance contributions will make this more challenging for some."

Smith explained that faced with increased national insurance contributions, employers could "baulk" at any changes to auto-enrolment that would further increase their costs, "let alone any increase" in the 8 per cent contribution level.

“This in turn may discourage government from forcing employers to do this until the next decade," she added. "Instead it will be up to the pension industry to work with employers to encourage employees to save more, where they can afford to do so.”

Industry experts have previously urged the government to introduce the recommendations outlined in the 2017 AE review, with many expressing disappointment that the government failed to include any AE reforms in the 2021 Spring Budget, while others have called for a full review of the entire AE system.

These calls for action have been further compounded by the impact of the Covid-19 pandemic, with pensioner income figures from earlier this year showing that auto-enrolment pensions are "more important than ever".

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