Government to raise auto-enrolment threshold

The government has proposed raising the pensions auto-enrolment earnings threshold from £9,440 for 2013/14 to £10,000 for 2014/15.

It has also proposed a rise in the lower and upper limits of the qualifying earnings band.

Its Review of the automatic-enrolment earnings trigger and qualifying earnings band for 2014/15: support analysis, includes analysis of costs to employers, employees and government for the proposed thresholds and the various options considered.

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The auto-enrolment earnings trigger determines who is automatically enrolled into a workplace pension. These thresholds are reviewed by the government each year and revised if appropriate.

Its proposals include:

  • A rise in the auto-enrolment earnings trigger from £9,440 to £10,000.
  • A rise in the lower limit of the qualifying earnings band from £5,668 to £5,772.
  • A rise in the upper limit of the qualifying earnings band from £41,450 to £41,865.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “There is an increasing risk that failure could yet be snatched from the jaws of success.

“Millions of workers are being excluded from the enrolment process and many of those who are being put into a pension won’t be saving enough.

Auto-enrolment has not eliminated the need to communicate effectively with all employees and to engage them in planning for retirement. The government is increasingly in danger of making the same mistake as the previous government did on stakeholder pensions in 2001, by assuming that low cost is a guarantee of a successful outcome.

You can have all the price caps and defined ambition ideas you like, but if you don’t get people to spend less and save more it will all be a waste of time.”

Frances O’Grady, general secretary at the Trades Union Congress, added: “Every time the government raises the auto-enrolment threshold another group of workers, most of whom are women, drop out of saving for their pension.

“With the average part-time salary just under £9,000 a year, the majority of the UK’s six million part-time workers will no longer be automatically enrolled into a workplace pension.

“It is time to break the link between the income tax threshold and the auto-enrolment threshold, unless we want to turn auto-enrolment into a pensions system that predominantly benefits men.”