Govt freezes AE pension earnings trigger at £10,000 for sixth year running

The government has confirmed that the auto-enrolment (AE) earnings trigger will remain at £10,000 for the sixth year running, despite calls from the industry for the threshold to be lowered or removed.

It stated that this represents a real term decrease in the value of the trigger when combined with assumed wage growth, predicting that it will bring in an estimated 8,000 additional savers.

The government also emphasised that the Secretary of State for Work and Pensions, Thérèse Coffey, had considered the “latest analytical evidence” in concluding that the existing threshold of £10,000 remains at the correct level.

It stated: "The decision reflects the key 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 reflects the need for stability at this point in the light of the challenging economic circumstances arising from the Covid-19 pandemic and whilst we continue to learn from the increases in minimum contribution rates in April 2018 and April 2019.

"It provides consistency of messaging for both employers and jobholders."

The lower earnings limit of the qualifying earnings band has also been frozen, and will continue to be set at £6,240 for 2021/22.

The government acknowledged however, that the 2017 review of AE had proposed the removal of this limit in the mid-2020s.

It said that the report was "clear" that implementation should be subject to learning from the workplace contribution increases in 2018 and 2019 and finding an affordable implementation approach.

As such, the government stated that it will pay “close attention” to the impact and costs of making changes and consider the optimal approach on implementation in light of the impact of Covid-19 and the overall focus on the economic recovery, whilst still supporting long-term saving.

It also clarified however, that this does not pre-empt this year’s or any future annual thresholds review, and would be pending the introduction of legislation which would need to be enacted to remove the lower earnings limit.

The upper limit meanwhile, has seen a small increase to £50,270, compared to £50,000.

Commenting on the review, Aegon head of pensions, Kate Smith, stated: “For the sixth year running the auto-enrolment earnings trigger has been frozen at £10,000 a year.

“As one of the three factors which determines who is automatically enrolled into a workplace pension and gets the automatic right to an employer contribution, it’s an important one.

“Freezing the earnings threshold for another year, means that the real value of the threshold has fallen, allowing an estimated additional 8,000 employees to be auto-enrolled into their employer’s workplace pension."

She added: “The impact of these changes will mean a very small increase in the amount of auto-enrolment contributions, particularly for lower earners, who are being disproportionately affected by the pandemic.

“Without the removal of the lower earnings threshold, as recommended in the 2017 review of auto-enrolment review, small changes to the threshold limits are likely to make very little difference to the amount auto-enrolled members save, and ultimately their retirement incomes.”

Industry experts have continued to support the 2017 recommendation for the earnings trigger to be removed, recently highlighting the need for reform in order to protect those worst hit by the pandemic.

Research has also further compounded these calls, after highlighting seven under-pensioned groups who could benefit from further AE reforms.

In addition to this, the Association of Consulting Actuaries recently urged the government to publish a timeline for AE reforms, after research revealed "very strong" employer support for change.

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