£10,000 auto-enrolment threshold ‘should be removed’

Joe Anderton, pensions research officer at Prospect, told the ‘Fixing the holes in auto-enrolment’ panel session that these two groups in particular had missed out on the success of auto-enrolment, despite the self-employed making up around 15 per cent of the UK economy.

Research carried out by Prospect showed that while 80 per cent of those eligible for auto-enrolment participated in a pension scheme, and 30 per cent of those ineligible did so, the participation rate for the self-employed was only 15 per cent.

Women, meanwhile, are far more likely to be in part-time work with earnings beneath the qualifying £10,000 threshold, a fact that contributes to the so-called ‘gender pensions gap’, which, at 40.3 per cent, is twice the level of the gender pay gap, Anderton said.

Some 770,000 men work part-time compared with 3.2m women. Although women working part-time tend to contribute more towards their pension than men, the net effect is that women are still disadvantaged.

“One of the things we really advocate for is either the lowering or removal of that £10,000 trigger,” he continued, pointing to research from the Pensions Policy Institute that suggested that 32 per cent of women do not qualify for auto-enrolment, versus 16 per cent of men.

“If you reduce the low earnings limit an extra 1.2m people could be brought into the scope of auto-enrolment, the vast majority of those being women,” he said.

Reducing or eliminating the lower earnings limit would likewise solve the problem of people who have more than one part-time job, but earning less than £10,000 in each and so missing out on auto-enrolment eligibility, he added.

People working multiple part-time jobs “could be earning £40,000 a year in theory but just not being auto enrolled because the current system isn’t really fit for purpose”, Anderton said.

However, Cara Pacitti, economist at the Resolution Foundation, pointed out that women and lower-income workers are more likely not to receive pensions, or to be underpaid, even if they are eligible for auto-enrolment.

Lowering or removing the threshold makes labour market enforcement — ensuring people get what they are entitled to — “even more important”, she said.

Chris Curry, director at the PPI, cautioned that the danger of lowering or removing the threshold “is you then start to automatically enrol people who maybe can’t afford the contributions required from their pay packet, or who potentially might not benefit from having that income in retirement as a result of means testing, for example”.

However, given they would have the ability to opt out if contributions really were unaffordable, he said they may still benefit from the change.

Another alteration mooted in the conference would see the minimum employer contribution raised for low-paid workers, but this was not so warmly received, not least because of the question of affordability in the post-Covid recovery, but also because “the money all comes from the same place anyway”, Curry said.

“If there’s higher pension contributions from employers, there’ll be lower pay settlements in the future, so it’s just the same money that is being directed in a different way, but it does make a really big difference when you look at the incentive for people to stay in a pension or to opt out.”

Anderton concurred, adding: “I’m not sure about separating different segments of society in terms of different contribution levels. Overall, there just needs to be real rebalancing of the contribution levels between employees and employers.”

*This piece has been amended to correct the "gender pensions gap" figure.