AE thresholds to remain at 2023/24 levels

The Department for Work and Pensions (DWP) has confirmed that all automatic enrolment (AE) thresholds will be maintained at their 2023/24 levels in 2024/25, reiterating its intent to still consult on plans to remove the lower earnings limit "at the earliest opportunity".

The earnings trigger is one of the three key factors that ultimately govern who is enrolled into a workplace pension scheme through automatic enrolment.

If the trigger is too high, low to moderate earners who can afford to save may miss out on the benefits of a workplace pension, but if set too low, it could divert savers' income away from immediate day-to-day needs.

Given this, the DWP emphasised the need to balance 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 retirement savings.

In light of these considerations, the DWP confirmed that the £10,000 earnings threshold “remains the correct level” and will be maintained for 2024/25.

This decision also aims to reflect the need for stability in the light of the current prevailing economic circumstances and provide consistency of messaging for both employers and individuals.

In addition to this, the DWP confirmed that the qualifying earnings band lower earnings limit (LEL) will remain at the 2023/24 level of £6,240, while the upper earnings limit for will remain at £50,270.

This decision is expected to ensure that pension savings will be broadly maintained, and slightly increased, compared to 2023 to 2024.

It also aims to supports the principle of ensuring that everyone who is automatically enrolled would continue to pay contributions on a meaningful proportion of their income, and is consistent with the government’s ambitions to improve financial resilience for retirement, in particular among low and moderate earners.

Further changes are on the horizon, however, as the DWP took the update on the AE thresholds as an opportunity to underline its commitment to plans to remove the LEL, as recommended by the 2017 AE review.

A Private Member's Bill seeking two extensions to AE, abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled, received Royal Assent last year.

Whilst the government previously committed to consulting on the implementation of the new measures "as soon as humanly possible", with hopes this could be seen before the end of 2023, the consultation has yet to be launched.

However, the DWP's update said that "government remains committed to this, subject to discussions with employers and other stakeholders on the right implementation approach and finding ways to make these changes affordable".

"We will pay close attention to the impact and costs in order to develop an optimal approach on implementation which balances the needs of savers, employers, and taxpayers," the DWP stated.

"This will include giving employers and savers the time to plan for future changes to help minimise any risk of deterring individuals from continuing to save or undermining employer engagement.

"This longer-term policy direction does not pre-empt any future annual thresholds review, pending the introduction and enactment of legislation to remove the LEL."

Under the proposed thresholds, private sector participation is expected to stand at 15.8 million in total and total annual contributions at £76bn.

The proposed thresholds lead to contributions at no additional cost to employers, employees, or the Exchequer compared to the baseline.

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