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.”
Last week, Now Pensions called for an urgent policy change to remove the £10,000 earnings trigger to bring more people into pension saving.
The provider also wants to see the minimum age lowered from 22 to 18 and the qualifying earnings threshold removed so people can start saving from the first pound of earnings, as proposed by the government's 2017 auto-enrolment review.
The government has already committed to extending auto-enrolment to low-income and younger workers by the mid-2020s but Now Pensions wants to see a concrete timeline.
This was after last month (January 26), Opperman failed to set out a timeline for reforming auto-enrolment in a parliamentary debate on the policy.
Tom Selby, head of retirement policy at AJ Bell, said: “The previous government proposed scrapping the auto-enrolment earnings bands – so every pound earned qualifies for a matched contribution – and extending the scheme to those aged 18 (the current minimum qualifying age is 22).
“Both these measures seem proportionate and sensible, and the current administration should clearly set out when this will happen so businesses have time to plan.”
Last month, Conservative MP Richard Holden tabled a motion in the House of Commons to expand auto-enrolment in line both with the DWP’s recommendations and those made by think tank Onward, which proposed a phased approach to the changes.
Under his proposals, the earnings trigger and age limit would be abolished in 2023, but the qualifying earnings limit would be reduced gradually and not be entirely removed until 2026.
amy.austin@ft.com
