The government has confirmed auto-enrolment thresholds will be held at their current levels for the next year.
In a statement published today (January 26), Laura Trott, under-secretary of state for pensions, said the decision was taken to “ensure the continued stability of the policy in light of the impact of Covid-19 and prevailing economic factors”.
The 2023-24 annual thresholds mean the automatic enrolment earnings trigger will remain at £10,000 and the lower earnings limit of the qualifying earnings band will remain at £6,240 with the upper earnings band staying at £50,270.
Trott said: “We want to ensure that our approach continues to enable individuals, for whom it makes economic sense, to save towards their pensions whilst also ensuring affordability for employers and taxpayers.”
Speaking to FTAdviser on the back of the statement, Tom Selby, head of retirement policy at AJ Bell, said over the medium-term, boosting pension contributions will need to become a priority for either this government or its successor.
However, he said given the pressure facing individuals and businesses, it is understandable the government is equivocating over expanding auto-enrolment at this point in time.
“The reality is that millions of households are struggling to meet day-to-day living costs,” he said.
“There are signs that inflation will come down in the coming months, but the latest CPI figure remains in the double-digits and the Bank of England’s target of 2 percent still feels a long way away.
“Auto-enrolment opt-outs haven’t spiked dramatically as a result of this yet, but research we carried out towards the end of last year showed a third of workers could quit their workplace pension in response to rising living costs. This is the sort of scenario ministers will be desperate to avoid.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the statement will have come as “no surprise”.
“With budgets being squeezed like never before people are making difficult financial decisions based on balancing saving for their future with meeting their day-to-day living costs,” she said.
“Any move to increase the amount going into a pension by actively reducing or removing earnings limits may be enough to tip people over the edge and opt out.
“However, it’s worth saying freezing the trigger and lower earnings limits will see more people being brought into auto-enrolment if they get a pay increase.”
DC assets increase
Trott’s statement comes alongside analysis published today by The Pensions Regulator which showed aggregate asset values in occupational DC schemes are now £143bn.
We know the government is keen for more pension assets to be invested into infrastructure, unlocking this capital for the future of the country. David Brooks, BroadstoneThis is an increase of £29bn or 26 per cent since last year and 546 per cent since the beginning of 2012.
The data by TPR also revealed that there are 26.3mn memberships in occupational DC schemes, up 1,069 per cent since 2012.
Yet average assets per membership have fallen by 66 per cent since 2012.
In January 2023, they were £5,700 compared to £17,200 in 2012.
Morrissey said the data shows membership of DC schemes has soared.
“Aggregate assets have swelled but it is important to note that this is largely because more people are contributing – if we look at average assets per membership, they have gone down substantially though this could also be because we are seeing more people accumulate multiple pensions,” she said.
“It is clear there is more work to be done on auto-enrolment - we do need to find ways of getting people to contribute more and the government has come under pressure to outline a timetable for the introduction of the 2017 auto-enrolment review reforms which would certainly have a positive effect if they can be introduced at a point when this crisis has passed.”
The data also revealed that the number of occupational schemes dropped by two-thirds from over 3,660 in 2012 to less than 1,220 at the start of this year.
DC consolidation
David Brooks, head of policy at consultancy Broadstone, said the data reveals the significant extent of consolidation in non-micro DC pension schemes over the past decade.
Brooks said auto-enrolment “created a nation of pension savers”, which had a natural drag on average pot sizes as millions began their accumulation journey from scratch.
However, he said it is pleasing that we are now seeing average assets per membership start to tick up with an increase of 11 per cent over the past year as the ratcheting up of minimum contributions starts to take effect.
“The risk to auto-enrolment remains complacency around low contribution rates which is why we’re so disappointed by the government’s rejection of MPs' calls for a timetable setting out further increases to auto-enrolment contributions,” he said .
“It is a golden opportunity missed to capitalise on the burgeoning success of the programme and set workers on course for more comfortable retirements than is currently expected.”
Brooks added: “We know the government is keen for more pension assets to be invested into infrastructure, unlocking this capital for the future of the country. However, the statistics show that 97 per cent of members use the default fund where we know trustees are often reluctant to allocate towards infrastructure.
“This is the extent of the government’s challenge when making the case that infrastructure investments will create value for members.”
sonia.rach@ft.com
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