Gov’t mulls changes to auto-enrolment upper earnings limit

The Department for Work and Pensions has proposed changing the upper earnings limit that will be used from October to calculate employer auto-enrolment contributions to decouple this from the upper earnings limit for National Insurance, which is set to fall by more than £1,000 next year.

In a consultation on the earnings limits that will apply in the 2013-2014 tax year, DWP said it was considering either freezing the rate or even raising the upper earnings limit in line with inflation as proposed by an independent review.

This October, businesses with more than 10,000 staff will begin automatically enrolling employees into an occupational pension scheme. This will apply to all staff on a salary above the lower National Insurance earnings limit of £5,564, with the contribution minimum once full contribution levels are reached being 8 per cent, of which 3 per cent must come from the employer.

To fulfill policy intentions of targeting low to medium earners without a pension, employer contributions will be capped at the upper National Insurance salary level of £42,475. The government said it would review these levels on an annual basis.

The upper National Insurance earnings threshold is set to fall by £1,025 to £41,450 for the 2013-2014 financial year - when the second wave of employers with more than 250 staff will be ‘staged’ in.

DWP said it was considering either continuing with the upper earnings threshold at the lower level, freezing it at the current level or increasing it in line with inflation, as proposed by a previous independent review.

It added that it is seeking to conclude the consultation by November of this year, around the time of the Autumn Statement.