Automatic enrolment  

Govt maintains AE earnings trigger despite criticism

Govt maintains AE earnings trigger despite criticism
Guy Opperman, pensions minister

The government has opted to maintain the earnings trigger for automatic enrolment at £10,000 for 2020-21, despite long-held industry concerns that the current level is limiting pensions coverage among underprivileged demographics.

In a written statement published yesterday (February 12), minister for pensions and financial inclusion Guy Opperman also opted to keep the qualifying earnings bands in line with the national insurance thresholds of £6,240 and £50,000.

The policy means that employees must only be auto-enrolled if they earn more than £10,000 in a single job, with contributions then calculated on earnings falling between the two bands.

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“The main focus of this year’s annual review of the AE earnings trigger and qualifying earnings band (the AE thresholds) is to ensure the continued stability of the policy, while learning from the April 2019 AE contribution rate increase,” Mr Opperman wrote.

He said the government wanted to protect its own, and employers’, affordability, and praised the success of the auto-enrolment project so far.

However, the move was met with criticism from industry experts, who pointed out that while calculating pension contributions on negligible incomes was inefficient and of little value, the current trigger excluded many people from pension saving.

Gregg McClymont, director of policy at The People’s Pension, said: “While auto-enrolment has been a huge success so far, we cannot ignore that 10m people remain ineligible to save under the scheme.

“There is clearly a balance to be struck between increasing auto-enrolment coverage among the low paid and bringing in those on the very lowest salaries for whom it doesn’t make financial sense.”

The Peoples Pension’s calculations found that by reducing the auto-enrolment to the £6,240 threshold at which contributions begin to be calculated, an additional 1.2m people would be helped to save for their retirement.

In particular, this move would help people with multiple jobs, who may earn enough to make meaningful contributions but are ineligible because neither of their sources of annual income tops the £10,000 mark.

“A big majority of these people would be women, and a significant percentage from ethnic minorities, helping address stark gender and ethnicity pension gaps,” Mr McClymont said.

The government plans to publish the analysis behind its decision in due course.

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