No change to earnings trigger in auto-enrolment expansion bill

No change to earnings trigger in auto-enrolment expansion bill

A bill to expand automatic enrolment, to be debated in parliament on February 25, will not look to remove the £10,000 earnings trigger, contrary to initial expectations.

Details of the bill, published yesterday (February 24), show it will look to lower the age threshold for auto-enrolment from 22 to 18, but the £10,000 earnings trigger will not be scrapped.

The private member's bill had been tabled by Conservative MP Richard Holden in January, and at the time there were rumours the £10,000 earnings trigger would be scrapped in line with proposals from think tank Onward, with which he had previously worked.

A number of industry stakeholders had advocated the move, with Now Pensions calling in February for the earnings trigger to be scrapped in order to bring more people into workplace pensions.

Women and young people were said to be the biggest beneficiaries of such a move, as they were more likely to hold a number of part time jobs without exceeding the £10,000 threshold in any one them.

More modest proposals

The Onward report said the current system “results in a pension participation rate of just 20 per cent for 16-21 year-olds, 41 per cent for those earning £100-£199 per week, and 58 per cent for part-time employees”. 

The youngest employees - those aged 16-21 years old - "are currently five times less likely to have a workplace pension as middle aged employees,” it added.

Onward estimated that its proposals, if enacted, could add as much as £2.77tn to workplace savings over the lifetime of the current workforce, with younger workers gaining an extra £20,267 on average upon retirement, and a worker with two part-time jobs, each paying £190 a week, seeing their pension savings triple to £297,600.

It proposed a phased approach to the reforms, with the earnings trigger and age limit being scrapped in 2023 and the qualifying earnings limit being progressively lowered from 2024, then eliminated in 2026.

Holden’s bill, however, restricts itself to the proposals outlined in the government’s 2017 auto-enrolment review. It proposes expanding auto-enrolment to 18-year-olds and eliminating the lower qualifying earnings threshold, making earnings pensionable from the first £1 where people are enrolled or have opted in, but makes no mention of the £10,000 trigger.

It is in line with a written statement from pensions minister Guy Opperman, published earlier in February, confirming the government’s intent to maintain the earnings trigger and the qualifying earnings bands unchanged for 2022-23.

In a separate document analysing the impacts of the earnings threshold, the government warned that setting it too low would hit those for whom it makes little economic sense to divert money from their daily needs into pension savings.

The government said it was prioritising stability in the system, although industry commentators were dissatisfied. Canada Life's technical director Andrew Tully said at the time the decision failed “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”.