Lower earnings growth means only an extra 8,000 low income earners to be automatically enrolled in pensions this year.
The government confirmed this morning in supporting analysis of a review of the earnings trigger and qualifying earnings for automatic enrolment that it would leave the earnings trigger for automatic enrolment in a workplace pension at £10,000 for the 2021-22 tax year.
The estimated impact of freezing the earnings trigger is that 8,000 more low earners will be auto-enrolled in a pension this year, as earnings growth carries them above the threshold.
Last year, freezing the earnings trigger was estimated to bring in an additional 80,000 workers into auto-enrolment, as earnings growth forecasts were higher.
The earnings trigger has not risen since 2014. It rose from £8,105 in 2012, when automatic enrolment was first introduced, to £9,440 in 2013 and then to £10,000 in 2014 and has since remained unchanged.*
Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “At such a difficult time for people on low earnings and their employers, leaving the trigger for paying into a workplace pension unchanged makes sense.
“The government’s aim is to ‘bring as many people into automatic enrolment as possible who will benefit from saving, while avoiding the automatic enrolment of those unlikely to benefit.’
“So setting the trigger is a balance between taking income that people need now to meet current living costs and trying to ensure they have a chance of meeting future needs.
“Present needs are clearly high right now. However, the UK faces a retirement crisis, with people on low incomes now being among those at greatest risk of financial vulnerability when they reach retirement.
“The scale of this problem will only grow unless more people are brought into pension saving while they are earning. Losing ground on this progress could result in more poverty in retirement over the years.
“The problem of low earners who are above the trigger but below the Income Tax threshold and in net pay employer pension schemes – many of whom are women – remains unresolved. This group is auto-enrolled, but not receiving tax relief on their contributions and so missing out.
“The government closed a consultation on this issue in October last year and is due to report on its findings.”
According to DWP modelling, among a range of options, the government could have chosen to lower the earnings trigger to £9,568 in line with the NI threshold, bringing 49,000 more people into automatic enrolment, or uprated it in line with CPI inflation, which would have increased the number of newly auto-enrolled pension savers by a smaller 5,000. Increasing the trigger to the same level as the Income Tax Personal Allowance would have taken 175,000 people currently paying into a pension out of auto-enrolment.
The government also proposed aligning the Lower Earnings Limit with the National Insurance Lower Earnings Limit of £6,240 and aligning the Upper Earnings Limit with the National Insurance Upper Earnings Limit of £50,270 - £270 higher than the current level.
Notes to editors
- Automatic enrolment review https://www.gov.uk/government/publications/automatic-enrolment-review-of-the-earnings-trigger-and-qualifying-earnings-band-for-202122/review-of-the-automatic-enrolment-earnings-trigger-and-qualifying-earnings-band-for-202122-supporting-analysis
The Pensions Regulator historic thresholds data *https://www.thepensionsregulator.gov.uk/en/business-advisers/automatic-enrolment-guide-for-business-advisers/9-knowing-your-clients-ongoing-duties/automatic-enrolment-earnings-threshold
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