The government has proposed freezing the minimum earnings threshold for people being auto-enrolled for the 2015/16 year as one of four options up for consultation on the pay trigger for contributions.
It has begun a consultation to review the earnings threshold for people being auto-enrolled into a workplace pension ahead of making decisions for the April 2015 to March 2016 period.
The four options under consultation are:
• freezing the trigger at its current level of £10,000;
• raising the trigger by indexation (CPI or earnings);
• increasing the trigger to £10,500 in line with the threshold for paying income tax; or
• using the Pension Commission benchmark replacement rate to determine the trigger.
The income tax threshold for 2011/12 was announced as £7,475. It is currently at £10,000 and set to rise to £10,500 from April 2015.
The consultation paper noted that if the trigger is too high then people who should be saving, or should be saving more, may lose out, while setting it too low means other people may be driven to opt out.
“This is a balance, and in striking that balance we need to assess the equality implications and consider the impact on the low paid, of whom the majority are women.”
Given the number of employers who have now gone through the auto-enrolment staging process, the DWP stated that it hopes to gain some insight on the experiences of live running.
“We would also like to test whether maintaining the alignment between the earnings trigger and the income tax threshold remains right in the light of proposed increases to the threshold and suppressed earnings growth,” it added.
The Department for Work and Pensions reviews these earnings levels every year and has stated that it is interested in hearing from independent financial advisers, employers, trade unions, employee representatives and pension industry professionals before 25 November.
If changes are made, they will come into effect on 6 April 2015.
However, in order for as much of the process as possible to be automated, software providers will need advance notice of the government’s intentions in relation to the new thresholds, so the consultation will be responded to in December, around the time of the Autumn Statement.
peter.walker@ft.com
