The UK government has chosen to retain the automatic enrolment threshold, which consultants said is “no surprise” following the delay of the second part of the pensions review.
The introduction of auto-enrolment in 2012 has significantly increased workplace pension participation in the UK. By December 2021, over 10.6 million workers were automatically enrolled, and more than 1.9 million employers met their duties.
However, despite its success commentators have been calling to lower the threshold for auto-enrolment to get more people saving for retirement.
In 2023, a bill creating powers to scrap the lower earnings limit and reduce the age for auto-enrolment has been granted by Royal Assent, however, the government has not yet acted on introducing the changes.
The auto-enrolment trigger has been set at £10,000 (€11,800) annually since the 2014-2015 tax year and has remained frozen since then. The lower and upper thresholds, meanwhile, have been frozen for five years having been set at £6,240 and £50,270, respectively, since 2021/22.
The Department for Work and Pensions (DWP) yesterday issued its review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2025/26, retaining all three thresholds at their 2024/25 level. This means that the earnings threshold will remain at £10,000; the lower earnings limit will continue to sit at £6,240; and the upper earnings limit at £50,270.
Under the proposed thresholds, the overall level of pension contributions is estimated to be £89.8bn in 2025/2026.
Kate Smith, head of pensions at Aegon, said the new UK pensions minister’s decision to continue to freeze auto-enrolment thresholds comes as “no surprise” given the economic climate.
Smith said: “We had hoped that the government would begin implementing the 2017 auto-enrolment reforms by gradually reducing and eventually removing the £6,240 annual salary offset so pension contributions are made from the first [pound].”
However, she said there was an “upside” to the continued freeze. “As salaries rise, this means that many employees will be saving more in a pension, and automatically benefiting from a higher employer pension contribution, which is good news for their financial future,” she noted.
Smith added that in order to make a “significant” impact on the adequacy of auto-enrolment pension savings, the government needs to implement the 2017 reforms in the next couple of years and consider increasing auto-enrolment contributions in the next decade.
Damon Hopkins, head of DC workplace savings at Broadstone, agreed that the freeze is “no surprise” especially given the delay to the second part of the government’s Pension Review that was set to be on pension adequacy.
And while he said the update is a “reminder of some of the successes” of auto-enrolment with the DWP estimating that the overall level of pension contribution will be nearly £90bn in 2025/2026 under these thresholds, ultimately most workers are not saving enough.
Hopkins added that an urgent change is needed to achieve a comfortable retirement.
“The pension sector is seeing rapid innovation in a number of different areas but we would like to see a greater focus on more tangible initiatives and policy which can materially improve retirement incomes of future retirees,” he said.
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