AE threshold frozen at £10k for sixth time

AE threshold frozen at £10k for sixth time

The earnings threshold for UK workers to be auto-enrolled into a workplace pension has been frozen at £10,000 for the sixth year running, bringing roughly 8,000 additional savers into workplace pensions.

The Department for Work and Pensions said today (January 21) its decision to freeze the threshold reflected the need to balance affordability with giving people the opportunity to build up a meaningful retirement. 

The move represents a real terms decrease in the value of the trigger when combined with assumed wage growth, leading to thousands more being auto-enrolled into a pension.

The DWP added: “It also reflects the need for stability at this point in the light of the challenging economic circumstances arising from the Covid-19 pandemic and whilst we continue to learn from the increases in minimum contribution rates in April 2018 and April 2019.”

The government said it had accounted for the impact of both the National Minimum Wage and the National Living Wage when considering the earnings trigger and said it would continue to monitor this going forward.

Qualifying earnings band

Auto-enrolment inclusion is calculated based on a person's earnings, with the lower and higher thresholds being linked to National Insurance contributions' lower and higher earnings limits.

This means from April, the lower earnings limit for AE will remain unchanged at its 2020/21 value of £6,240 when rounded and the upper limit will be set at £50,270.

Kate Smith, head of pensions at Aegon, said: “The lower earnings limit remains unchanged from last year’s limit, purely due to rounding. 

“While the upper limit, after being frozen for a couple of years at £50,000 a year, has benefitted from a small increase. 

“The impact of these changes will mean a very small increase in the amount of auto-enrolment contributions, particularly for lower earners, who are being disproportionately affected by the pandemic.”

The 2017 review of automatic enrolment proposed the removal of the lower earnings limit, with the ambition to make this change in the mid-2020s, but for now it remains in place.

Ms Smith said: “Without the removal of the lower earnings threshold, as recommended in the 2017 review of auto-enrolment review, small changes to the threshold limits are likely to make very little difference to the amount auto-enrolled members save, and ultimately their retirement incomes.”

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