Pension auto-enrolment: Fewer workers will now be caught

Pension auto-enrolment: Fewer workers will now be caught

Published:

Author: Suzanne Burrell

Changes announced at the end of 2012 will result in fewer lower paid workers being subject to the new auto-enrolment pension regime.

The Government has confirmed its plans to increase the lower earnings trigger for automatic pension enrolment from £8,105 to £9,440 from April 2013, keeping the figure in line with the income tax threshold.

Only workers with an annual salary above the earnings trigger will have to be automatically enrolled into a workplace pension scheme by their employer. It is estimated that this change will therefore potentially exclude 420,000 people from auto-enrolment, 76% of whom will be women.

The Government also intends to raise the lower limit of the qualifying earnings band from £5,564 to £5,668 - rising in line with the National Insurance lower earnings limit.

This means that from April 2013 only those earning between £5,668 and £9,440 will be able to voluntarily opt in to an automatic enrolment pension scheme. If they do decide to opt in, their employer will have to make contributions to the scheme.

Additionally, the Government has confirmed that the upper limit on contributions to an auto-enrolment pension scheme will be reduced to £41,450, reflecting the upper earnings limit. Currently the limit is set at £42,475. This means that mandatory contributions to an auto-enrolment scheme will be based on earnings between £5,668 and £41,450.

However, the lower and upper limits represent the minimum required by an employer in order to meet its legal, auto-enrolment obligations. In practice, an employer may have pension arrangements in place where all earnings are taken into account when calculating pension contributions (subject to other applicable limits and subject to limits on contributions into NEST where NEST is used).

Comment

Many employers will no doubt welcome the alignment of pension earnings triggers and bands with other tax thresholds and earnings limits. However, the auto-enrolment regime was designed with the intention of providing lower paid workers with some pension provision. At a time when wages are stagnant, the effect of these changes is that a significant number of lower paid workers are likely to be removed from the ambit of the auto-enrolment regime.