The government has opted to keep the earnings trigger for automatic enrolment at £10,000 for 2022-23, despite some in the industry calling for it to be scrapped to bring in more low earners.
In a written statement published today (February 8), pensions minister Guy Opperman also opted to keep the qualifying earnings bands at their current level of £6,240 and £50,270.
The auto-enrolment policy means employees can 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.
Opperman said: “An objective of this year’s annual review of the AE earnings trigger and qualifying earnings band (the AE thresholds) is the continued stability of the policy.
“We also want to ensure that our approach continues to encourage individuals to save towards their pensions whilst ensuring affordability. Our approach is designed so that everyone who is automatically enrolled continues to pay contributions on a meaningful proportion of their income.”
In a separate document, also published today, which analysed the impact of keeping the thresholds the same, the government said that if the earnings trigger was too high, then low to moderate earners who can afford to save may miss out on the benefits of a workplace pension.
But if it was set too low it will impact those for whom it would make little economic sense to save into a pension and would drive income away from their day to day needs.
By keeping it at £10,000, the government said it represented a real terms decrease in the value of the trigger.
It stated: “Therefore, as earnings continue to grow, keeping the earnings trigger at £10,000 will bring in an additional 17,000 savers into pension savings when compared to increasing the trigger in line with average wage growth.”
It also said its decision reflected the need for stability at this point in the light of the challenging economic circumstances arising from the Covid-19 pandemic.
But its analysis found if the earnings trigger was lowered from £10,000 to align with the national insurance lower earnings limit of £6,396 it would bring a further 214,000 people into pension saving, increasing total contributions by £124mn.
Conversely, raising the earnings trigger would decrease pension participation.
For example, aligning the earnings trigger with the personal income tax allowance (£12,570) would decrease the number of savers into a workplace pension by an estimated 119,000 people, reducing total pension saving by £111mn.
Calls for AE reform now
Some in the industry have called for reform to auto-enrolment and the earnings triggers to be made sooner rather than later.
Andrew Tully, technical director at Canada Life, said: “Freezing the AE threshold at £10,000 still means more workers will be auto-enrolled as their earnings increase above £10,000.
“However, it fails to address the major issue which is the many people – mostly women – who earn below £10,000, or have multiple jobs each of which are below £10,000, who aren’t auto-enrolled.
“We know automatically enrolling people in a pension has been a huge success, now we need to extend that coverage to more people who are currently missing the opportunity to benefit from their employer’s pension contributions.”