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Low-paid could be excluded from pension auto-enrolment

New pension income threshold could hit millions

Many could be excluded from pension auto-enrolment if the threshold rises. 

The minimum earnings trigger for pension auto-enrolment in could rise, excluding many low-earners and hitting thousands of women in particular.

Auto-enrolment limits 

From October 2012, millions of employees will begin to be automatically enrolled into a company pension scheme. This is part of a long-standing plan to bridge Britain’s serious ‘pensions gap’, where state pension falls short of what people need for a comfortable retirement, but fewer than half of the workforce currently puts money towards additional retirement income.

Auto-enrolment means that everyone who earns above a certain limit will have to join a scheme. At the moment this is set at the personal tax-free allowance, which is £7,475 for 2011-12. For 2012-13, this is due to rise to £8,105. If the earnings trigger rises in line with this, the DWP estimates that an extra 90,000 workers will be excluded, because they earn less than this. Of this total, figures suggest that 75,000 will be women.

The impact of tax reforms

The government is already committed to increasing the personal tax allowance to £10,000 by the end of this Parliament. It has recently been suggested that this could be brought forward in order to stimulate the economy. If this is the case, and the auto-enrolment earnings trigger remains pegged to the tax threshold, many more could fall outside the scheme.

The Trades Union Congress (TUC) has estimated that 1.9m female workers currently earn less than £10,000. It concludes that many will be fail to be automatically enrolled into a company pension scheme if the proposed increase in the threshold goes ahead.

‘Government should freeze lower earnings limit’

TUC general secretary, Brendan Barber said:   ‘The government should use its review of the thresholds to widen the earnings band each year by freezing the lower limit, while increasing the upper band limit in line with earnings. This would give a small manageable increase in the earnings band each year. It’s the pensions equivalent of fiscal drag – raising more tax by freezing tax thresholds.

‘In particular we urge the government not to raise the auto-enrolment earnings trigger in line with the income tax threshold, which the coalition is keen to raise to £10,000. Whether this is the best way to help the low-paid is an interesting debate, but it would be disastrous if it had the unintended consequence of excluding a significant proportion of women workers from pensions saving.’

Agreeing that the earnings trigger should remain lower, Which? Chief Advocate, Doug Taylor, said: ‘We believe that to meet the objectives of simplicity and maximising coverage, the trigger point should be set at National Insurance primary threshold of £7,605 and the earnings band lower limit should be the actual NIC LEL of £5,564.’

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