Frozen threshold for automatic enrolment to pension schemes
The government is freezing the earnings threshold for automatic enrolment into a workplace pension scheme.
By keeping the threshold in place at £10,000, more workers will be automatically enrolled into a pension scheme, by virtue of rising wages.
The £10,000 earnings trigger for 2022/23 is staying the same despite some calls for it to be scrapped altogether, which would have brought even more workers into pension schemes.
The announcement for a frozen threshold, announced in a written statement from pensions minister Guy Opperman, also included confirmation that the qualifying earnings bands of £6,240 and £50,270 will remain the same.
Under these rules, employees are automatically enrolled into a workplace pension if they earn more than £10,000 a single employment.
Contributions to a workplace pension are then calculated based on earnings between the lower and higher qualifying earnings bands.
In the announcement, Guy Opperman wrote: “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.”
Separately, the government published an analysis of the impact of keeping the thresholds the same and concluded that a higher earnings trigger would result in low to moderate earners who can afford to save for retirement missing out on a workplace pension.
However, an earnings trigger too low would mean those where there is little financial sense in saving into a pension would be included, removing money from their day-to-day spending needs.
Keeping the earnings trigger at £10,000 means the government is introducing a real-terms decrease of the threshold level because of earnings inflation.
The government said: “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.”
Pete Glancy, Head of Policy at Scottish Widows, said: “Keeping the trigger frozen at £10,000 will see more people auto-enrolled over time as earnings increase - but it will take a very long time for those whose earnings exceed £10,000 from more than one job to get some pension contributions from their employers. The trigger needs to go.”
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