Auto-enrolment has been one of the most effective UK policy shifts for long-term saving. Participation is high and the process is familiar for most finance teams. Yet the policy is set to evolve again. The Pensions (Extension of Automatic Enrolment) Act 2023 gives ministers powers to bring more people in by reducing the lower age to 18 and removing the lower earnings limit so contributions are taken from the first pound of pay. Regulations to implement those powers have not been introduced at the time of writing for 2025/26, but the direction of travel is clear. If you run payroll, HR or reward, it makes sense to map the operational impact now so you can move quickly when the rules change.
Why think ahead? Because the changes will touch onboarding, contracts, payroll configuration, salary sacrifice, communication templates, opt-ins for multiple jobs and budgeting. The volume of additional eligible workers could rise, and contribution calculations will shift once the lower earnings limit is removed. Meanwhile, the current 2025/26 thresholds still apply: the automatic enrolment earnings trigger remains at £10,000, with the qualifying earnings band set at £6,240 to £50,270 for minimum contributions (Department for Work and Pensions, 21 January 2025). With nominal earnings growth forecast to ease to 4.3% in 2025 (OBR, March 2025), payroll costs and contribution modelling deserve a fresh look. And although participation has been strong for years, the Office for National Statistics recorded 79% of employees participating in workplace pensions in 2021, equivalent to 22.6 million people (ONS, 2022). Expanding coverage to more young and lower-paid employees will mean tightening processes, not just changing numbers.
What is changing and what is not
- Age threshold: Powers exist to reduce the lower age for automatic enrolment from 22 to 18. Regulations have not yet commenced, but employers should plan for onboarding 18–21-year-olds by default.
- Lower earnings limit: Powers also allow removal of the lower earnings limit so contributions are calculated from the first pound. Today, minimum contributions apply between £6,240 and £50,270. Until regulations change, keep using the current band (DWP, 2025).
- Earnings trigger: The trigger for automatic enrolment remains £10,000 in 2025/26. Below this, staff can opt in and, if they earn at least the lower earnings limit, qualify for an employer contribution.
Payroll configuration to schedule now
Payroll software updates: Confirm your system can switch to contributions from the first pound without custom patches. Test pay elements, irregular hours and off-cycle runs in a sandbox.
Assessment logic: Re-check the worker assessment rules your software uses. You’ll need profiles for 18-21-year-olds and for staff whose contributions will start below the current £6,240 floor.
Salary sacrifice: Map scenarios where sacrificing from the first pound affects National Insurance and net pay for lower earners. Model the impact on take-home pay and employer NI.
Multiple employments: Set a process for staff with more than one job who do not cross the £10,000 trigger in any single role but may opt in. Keep clean records across tax years in case thresholds update mid-year.
Starters and leavers: Update joiner packs, postponement letters and statutory templates so wording remains correct when the rules change. Archive old versions to avoid mix-ups on audit.
If you would like us to review your setup, our payroll and pensions team can help you test end-to-end processes and communications.
Data hygiene and communications
Employee data: Clean addresses, dates of birth and NI numbers so 18-21-year-olds are correctly assessed on day one. Inaccurate dates of birth are a common cause of AE errors.
Opt-in/opt-out controls: Make sure staff can opt in easily and that opt-out windows, refunds and re-enrolment dates are tracked automatically.
Plain-English comms: Draft short, factual notes to explain any change from “banded earnings” to “first-pound” contributions. Avoid jargon, set expectations on payslip changes and point staff to your pension provider’s tools.
Provider coordination: Confirm your scheme can accept contributions on all qualifying pay elements from pound one and can handle higher joiner volumes during the changeover.
If you need a second pair of eyes on your processes, see our accounts and bookkeeping service for management reporting and reconciliations that make audits easier.
Budgeting and forecasting
Workforce planning: Build headcount scenarios for younger workers and part-time roles. If age 18 becomes the new default, onboarding volumes may change in retail, hospitality and seasonal operations.
Cost modelling: Use your latest pay data to estimate employer contributions under three scenarios: today’s banded earnings, first-pound contributions, and first-pound plus a modest uplift in opt-in rates. Remember the OBR’s 4.3% nominal earnings growth forecast for 2025 when projecting payroll drift (OBR, 2025).
Cash management: Align pension payment dates, RTI submissions and funding cycles. Late or missed pension payments are a regulatory risk and can strain month-end cashflow.
Controls, audit and risk
Documentation: Keep a single source of truth for your AE policy, including assessment logic, postponement rules, opt-in/opt-out process and re-enrolment timetable. Version control matters if the law changes mid-year.
Provider SLAs: Confirm file formats, submission cut-offs and error handling. Run a test file with first-pound contributions to catch schema errors.
Compliance checks: Build a quarterly review into your finance calendar. Sample records to confirm assessment accuracy, contribution bands and on-time payments.
Systems access: Limit who can change pension configuration and keep an audit trail. Payroll permissions are a frequent weak point in small teams.
Practical checklist: Steps to take this quarter
- Identify impacted cohorts: Map likely new joiners. Lower-paid staff: Flag those under the current £6,240 floor who would start contributing from the first pound.
- Update documents: Include clear AE language. Policies: Replace banded-earnings wording with first-pound wording when the regulations land.
- Test payroll: Simulate first-pound contributions for a representative pay period. Edge cases: Include zero-hours, term-time, multiple posts and starters/leavers.
- Prepare comms: Give team leads a script for common questions. Employee FAQs: Cover payslip changes, opt-outs and how salary sacrifice interacts with benefits.
- Quarterly reviews: Add AE checks to your finance timetable. Year-end: Reconcile contributions to provider statements.
For the current year, keep applying the 2025/26 thresholds – earnings trigger £10,000, qualifying earnings £6,240 to £50,270 – until regulations are made.
Auto-enrolment: What to expect next
Policy direction points towards reducing the age threshold to 18 and taking contributions from the first pound. That would broaden coverage, simplify messaging for staff and make pensions more visible to younger and lower-paid workers. It will also increase employer contributions for some cohorts and raise the administrative bar on payroll accuracy.
You do not need to wait for regulations to start preparing. Focus on configurable payroll logic, clean data and clear communications. Keep an eye on fiscal conditions too, because pay growth, NI changes and benefit design all affect total reward. The Office for Budget Responsibility expects nominal pay growth of 4.3% in 2025, so even without reform, pension costs will move with pay over the year. For context, the ONS recorded 22.6 million employees participating in workplace pensions in 2021, a reminder of the scale of administration involved and the need for reliable processes as coverage extends.
If you would like tailored advice or a readiness review, we can help you prioritise the essential steps and implement them with minimal disruption. Speak to our team: Contact us. Or, if you prefer to start with a technical scoping session, our payroll and pensions specialists can assess your system and provider interfaces: Payroll and pensions.