Govt keeps AE earnings trigger despite calls to scrap it

In a written statement published on February 8, pensions minister Guy Opperman also announced that the qualifying earnings bands will be kept at their current level of £6,240 and £50,270, respectively.

The current policy means employees can only be auto-enrolled if they earn more than £10,000 in a single job, with contributions then calculated on earnings falling between the two bands.

Opperman said: “An objective of this year’s annual review of the AE earnings trigger and qualifying earnings band (the AE thresholds) is the continued stability of the policy. 

“We also want to ensure that our approach continues to encourage individuals to save towards their pensions while ensuring affordability. Our approach is designed so that everyone who is automatically enrolled continues to pay contributions on a meaningful proportion of their income.”

In a separate document, which analysed the impact of keeping the thresholds the same, the government said that if the earnings trigger was set too high, then low-to-moderate earners who can afford to save may miss out on the benefits of a workplace pension.

But if the earnings trigger was set too low, it will impact those for whom it would make little economic sense to save into a pension and would drive income away from their day-to-day needs.

By keeping it at £10,000, the government argued that it represents a real terms decrease in the value of the trigger.

It stated: “Therefore, as earnings continue to grow, keeping the earnings trigger at £10,000 will bring in an additional 17,000 savers into pension savings when compared with increasing the trigger in line with average wage growth.”

It also said that its decision reflected the need for stability at this point, in the light of the challenging economic circumstances arising from the Covid-19 pandemic.

But the government’s analysis found if the earnings trigger was lowered from £10,000 to align with the national insurance lower earnings limit of £6,396, it would bring a further 214,000 people into pension saving, increasing total contributions by £124mn. 

Conversely, raising the earnings trigger would decrease pension participation. 

For example, aligning the earnings trigger with the personal income tax allowance (£12,570) would decrease the number of savers into a workplace pension by an estimated 119,000 people, reducing total pension saving by £111mn.

Some specialists in the industry have called for reform to auto-enrolment and the earnings triggers to be made sooner rather than later.

Andrew Tully, technical director at Canada Life, said: “Freezing the AE threshold at £10,000 still means more workers will be auto-enrolled as their earnings increase above £10,000. 

“However, it fails to address the major issue which is the many people — mostly women — who earn below £10,000, or have multiple jobs each of which are below £10,000, who aren’t auto-enrolled. 

“We know automatically enrolling people in a pension has been a huge success, now we need to extend that coverage to more people who are currently missing the opportunity to benefit from their employer’s pension contributions.”

On February 2, Now Pensions called for an urgent policy change to remove the £10,000 earnings trigger to bring more people into pension saving.

The master trust also wants to see the minimum age lowered from 22 to 18, and the qualifying earnings threshold removed so people can start saving from the first pound of earnings, as proposed by the government’s 2017 auto-enrolment review.

The government has already committed to extending auto-enrolment to low-income and younger workers by the mid-2020s, but Now Pensions wants to see a concrete timeline.

This comes after Opperman failed to set out a timeline for reforming auto-enrolment in a parliamentary debate on the policy in January.

This article originally appeared on FTAdviser.com