For the seventh year running there will be no change to the auto-enrolment earnings trigger in the UK, it became clear last week.
The earnings trigger will continue to be £10,000 (€12,017) for 2020-21. There is also no change to the lower and upper limit of the qualifying earnings band.
In a written statement to parliament, Guy Opperman, minister for pensions and financial inclusion, said the main focus of this year’s annual review of the auto-enrolment thresholds was “to ensure the continued stability of the policy whilst learning from the April 2019 auto-enrolment contribution increase”.
“We also want to ensure that our approach continues to enable individuals, for whom it makes economic sense, to save towards their pensions whilst also ensuring affordability for employers and government,” his statement continued.
Many in the pensions industry believe the auto-enrolment earnings trigger should be lowered.
Gregg McClymont, director of policy at defined contribution master trust The People’s Pension, cited previous government analysis that lowering the auto-enrolment earnings trigger to the national insurance threshold of just over £6,000 was estimated to help an additional 1.2 million people save for their future, including those with multiple jobs currently ineligible.
“A big majority of these people would be women, and a significant percentage from ethnic minorities, helping address stark gender and ethnicity pension gaps,” added McClymont, who is also a former Labour party pensions spokesman.
Steve Webb, partner at LCP and a former UK pensions minister, has a different view on the earnings level triggering an auto-enrolment requirement.
“The repeated freezing of the £10,000 threshold for automatic enrolment will be good news for lower-paid workers, more of whom will be brought into the scope of automatic enrolment as earnings rise,” he said.
“This will be particularly true for those covered by the national living wage who have seen substantial real increases in recent years.”
Speaking to IPE, Webb also said keeping the threshold at £10,000 made sense given the level of the state pension, which is just over £9,000.
He also argued that lowering the threshold to around £6,000 would lead to a situation where individuals would be enrolled in workplace pension schemes only to make very small contributions – “pennies” – and that it was important to bear in mind that employers offering jobs on these wages were not sophisticated corporates but could include childminders, carers or possibly even private citizens.
Webb said he did not want to dismiss the issue of individuals working multiple mini-jobs whose cumulative earnings would trigger auto-enrolment, but suggested this could be tackled by the UK’s tax, payments and customs authority.
“HMRC could do something, through the national insurance system or through NEST,” he said. “It’s the one organisation that knows about both the jobs, and they have this thing called real time information, where employers are constantly telling them what they’re paying. It knows a lot more than it used to, quite quickly.”
PIC completes capital raise
The Pension Insurance Corporation (PIC) is to receive £750m in investment to support the specialist defined benefit insurer’s activity in the growing pension risk transfer market.
The money was drummed up by PIC’s ultimate parent company in a previously announced capital raise.
PIC has said it believes it to be the largest private capital raise in the UK over the last two years.
Tracy Blackwell, CEO of PIC, said: “The money we have just raised from our long-term, supportive shareholders will allow us to help increased numbers of defined benefit pension scheme trustees move their risks to a specialist insurer, guaranteeing their members’ benefits for life.
”This significant investment by our existing shareholders is a vote of confidence in our growth plans.”
Nearly two-thirds (60%) of the total funds invested will be available to PIC’s parent company immediately, with the remaining 40% callable upon request before 26 January 2021.
Consultants and insurers are estimating £30-40bn worth of pension risk transfer deals a year for the next few years in the UK, after a record year last year.
Two deals for more than £2.7bn in total have been announced this year so far alongside a smaller, £2.3m buyout.
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