DWP consults on earnings trigger indexation

The DWP has launched a consultation on whether the earnings triggers for auto-enrolment should rise in line with CPI or the PAYE threshold and NIC lower earnings limit.

The Pensions Act 2011 requires the government to review the amounts set for the earnings trigger and the qualifying earnings band each year, changing the figures as appropriate. It is considering two broad approaches: uprating the figure in the 2008 Act by prices or earnings as appropriate or set the new levels at the corresponding thresholds for tax and or NICs at 2012/13 levels.

The DWP says it will consider three principles in the review – will the right people be brought in to pension saving? What is the appropriate minimum level of saving for people who are automatically enrolled? Are the costs and benefits to individuals and employers appropriately balanced?

Revising earnings triggers by CPI would see both employer contributions and savings fall – by around £12m and £45m respectively. However, of the £45m total reduction in pension saving, £5m is the result of excluding those workers who would earn less than the trigger. Using PAYE threshold and NICs LEL would produce an overall increase in employer costs of £45m against a net increase in pension savings of £117m.

The consultation closes on 26th January 2012.

Pensions minister Steve Webb says: “We want to make sure that employers automatically enroll as many as possible of the people who will benefit from saving into a pension; while trying to avoid the automatic enrolment of those who are unlikely to benefit. The key tool that we have available to get this targeting right is the earnings trigger which sets the amount that people need to earn before their employers automatically enroll them.The level of the trigger is a judgement, which is difficult because everyone’s personal circumstances will differ and will change over their lifetime. This is the first time that we have carried out this review and we look forward to hearing your views on our suggested approach.”