The confirmation that the auto-enrolment threshold will rise to £10,000 for 2014/15 means a majority of part-time workers will not now be automatically enrolled.
The changes mean another 170,000 people are excluded from being enrolled, of whom 120,000 are women.
The TUC is calling for the linking of the qualification threshold to the income tax personal allowance to be broken.
A report from TPR yesterday announcing 2m people have now been automatically enrolled also showed that 3m people have been excluded from auto-enrolment because they were either too young, too old or not earning enough.
The DWP has confirmed the increase of the earnings threshold in line with the income tax personal allowance. Band earnings remain linked to the NI lower earnings limit of £5,772 and the upper earnings limit of £41,865 for 2014/15.
Under the proposed thresholds, the overall level of pension saving is estimated to be £1.38bn in 2014/15, around £9m lower than it would be if the thresholds remained at 2013/14 levels. Around £4m of this decrease would be from lower employer contributions, around £4m from lower individual contributions and around £1m from reduced tax relief on individual contributions.
TUC General Secretary Frances O’Grady says: “Every time the government raises the auto-enrolment threshold another group of workers, most of whom are women, drop out of saving for their pension.
“With the average part-time salary just under £9,000 a year, the majority of the UK’s six million part-time workers will no longer be automatically enroled into a workplace pension.
“It is time to break the link between the income tax threshold and the auto-enrolment threshold unless we want to turn auto-enrolment into a pensions system that predominantly benefits men.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “There is an increasing risk that failure could yet be snatched from the jaws of success. Millions of workers are being excluded from the enrolment process and many of those who are being put into a pension won’t be saving enough. Auto-enrolment has not eliminated the need to communicate effectively with all employees and to engage them in planning for retirement. “The government is increasingly in danger of making the same mistake as the previous government did on stakeholder pensions in 2001, by assuming that low cost is a guarantee of a successful outcome. You can have all the price caps and defined ambition ideas you like but if you don’t get people to spend less and save more it will all be a waste of time.”