The Government is required to review annually the various automatic enrolment thresholds. On 14 December 2012 the DWP published the revised thresholds for the 2013/14 tax year. The earnings trigger (at which automatic enrolment duties start to apply) will increase to £9,440pa. Contributions will be payable on the band of earnings between £5,668pa and £41,450pa.
Automatic enrolment: a quick reminder
From 1 October 2012 all employers (starting with the largest) will be required to automatically enrol their eligible jobholders into a qualifying pension scheme and either pay minimum employer contributions or provide a minimum level of benefits. Employees are able to opt out of the scheme they are enrolled into but will need to be automatically re-enrolled approximately every three years.
The automatic enrolment thresholds: a quick reminder
Broadly speaking there are three thresholds which apply in relation to automatic enrolment. There is the earnings threshold which is one of the criteria used to determine whether or not an individual is an eligible jobholder. The other two thresholds are the upper and lower earnings band used to determine member and employer contributions.
For the 2012/13 tax year these thresholds are as follows:
- earnings trigger: £8,105 pa
- upper earnings band: £42,475 pa
- lower earnings band: £5,564 pa
The Government's review
The three policy principles which the Government used to review the thresholds were:
- will the right people be brought into pensions saving?
- what is the appropriate minimum level of saving for people who are automatically enrolled?
- are the costs and benefits to the individuals and employers appropriately balanced?
On the basis of the principles above (together with consideration of the consultation responses), the DWP has announced the following thresholds to apply for the 2013/14 tax year will be laid for approval before Parliament:
- earnings trigger: £9,440pa
- upper earnings band: £41,450pa
- lower earnings band: £5,668pa
The DWP comments that the upper and lower earnings bands have remained aligned with the National Insurance Contribution limits. This has led to a reduction in the upper earnings band for automatic enrolment purposes as a result of a reduction to the National Insurance upper earnings limit.
It is important that those employers planning for staging in the 2013/14 tax year factor in as quickly as possible the changes in these thresholds. In particular the threshold changes are likely to mean that some employees (mainly part-time employees) may fall outside the scope of the automatic enrolment regime. As was commented in the responses to the Government consultation this would appear to go against the Government's overriding policy of automatically enrolling as many people as possible into pension schemes.
It worth remembering, however, that the thresholds set by the Government are the minimum which apply. It is open to employers to contractually enrol all staff into pension saving and, indeed, to provide pension contributions from £1.