28th March 2012
The earnings thresholds for automatic pension enrolment will be aligned with tax and national insurance contributions, the Government has confirmed following consultations.
Qualifying earnings will now be those between the lower threshold of £5,564 and the higher threshold of £42,475 for 2012/13. Employers will have to use this threshold to work out contributions owed to workers eligible for auto-enrolment.
However, the automatic enrolment trigger, at which employers must enrol their staff, will be aligned with the personal allowance of £8,105. Those earning between £5,564 and £8,105 must be given the option to opt in if they wish, and if they do opt in, must get an employer contribution.
Those earning less than £5,564 are entitled to join the pension scheme, but there is no requirement for the employer to contribute on their behalf.
Commenting on the alignment with tax and national insurance, the Department for Work and Pensions (DWP) said the move would 'make it easier for firms who will not have to negotiate another layer of complexity.'
The Government hopes that up to 10 million people will be automatically enrolled through the scheme, either into a workplace pension scheme or the new state-backed NEST scheme, which is to to be phased in from October this year.
Larger employers with 250 or more employees will be the first to auto-enrol members of staff, with smaller companies gradually being phased in until it is compulsory for all firms to do so from 1 January 2016.
Minister for pensions, Steve Webb, said: "The overwhelming response to our consultation was the call to align the automatic enrolment trigger with existing payroll thresholds. This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled.
"These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving."
However, talking to The Telegraph, Darren Philp, Policy director of the National Association of Pension Funds (NAPF), said that UK is facing a 'huge' pension crisis and that the increase in the lower limit would exclude those 'who desperately need to save for retirement.'
Steve Webb said: "People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer."
The thresholds rates will be reviewed by the Government each tax year.