The Government has confirmed that it will keep the auto-enrolment earnings threshold at £10,000 and will not remove the lower earnings limit at this stage.
It says this represents a real terms decrease in the value of the trigger when combined with assumed wage growth and will result in an estimated additional 8,000 savers.
The Department for Work and Pensions (DWP) says the decision reflects the balance that needs to be struck between affordability for employers and individuals and the policy objective of giving those who are most able to save the opportunity to accrue a meaningful level of savings to use for their retirement.
It also cited the need for stability at this point in the light of the challenging economic circumstances arising from the Covid-19 pandemic.
The Secretary of State has decided to maintain the link with the National Insurance Contributions Lower Earnings Limit which remains unchanged at its 2020/21 value of £6,240 when rounded. The value of the lower limit of the qualifying earnings band for 2021/22 will therefore continue to be set at £6,240.
The 2017 Review of Automatic Enrolment proposed the removal of the lower earnings limit, with the ambition to make this change in the mid-2020s.
The National Insurance Contributions Upper Earnings Limit remains the threshold for the upper limit of qualifying earnings. Its 2021/22 value is £50,270, an increase from £50,000 this year.
DWP modelling shows the Government could have chosen to lower the earnings trigger to £9,568 in line with the NI threshold, bringing 49,000 more people into automatic enrolment, or uprated it in line with CPI inflation, which would have increased the number of newly auto-enrolled pension savers by a smaller 5,000. Increasing the trigger to the same level as the Income Tax Personal Allowance would have taken 175,000 people currently paying into a pension out of auto-enrolment.
interactive investor head of pensions and savings Becky O’Connor says: “Setting the trigger is a balance between taking income that people need now to meet current living costs and trying to ensure they have a chance of meeting future needs.
“Present needs are clearly high right now. However, the UK faces a retirement crisis, with people on low incomes now being among those at greatest risk of financial vulnerability when they reach retirement.
“The scale of this problem will only grow unless more people are brought into pension saving while they are earning. Losing ground on this progress could result in more poverty in retirement over the years.
“The problem of low earners who are above the trigger but below the Income Tax threshold and in net pay employer pension schemes – many of whom are women – remains unresolved. This group is auto-enrolled, but not receiving tax relief on their contributions and so missing out.
“The Government closed a consultation on this issue in October last year and is due to report on its findings.”