The Government has to review annually the various automatic enrolment thresholds. On 14 December 2012 the DWP published the new thresholds for the 2013/14 tax year. The earnings trigger (where the employer duties kick in) will increase to £9,440pa. Contributions will be payable on the band of earnings between £5,668pa and £41,450pa.
The way things are
From 1 October 2012 all employers (starting with the largest) are being required to automatically enrol their eligible jobholders into a qualifying pension scheme and either pay minimum employer contributions (DC) or provide a minimum level of benefits (DB). Employees are able to opt out of the scheme they are enrolled into but will need to be automatically re-enrolled every three years. This is known in our offices as the “hokey cokey”
How those sexy thresholds work!
There are three thresholds for automatic enrolment. There is the earnings threshold which is the main criteria used to work out whether or not someone is an eligible jobholder. The other two thresholds are the upper and lower earnings band which are used to work out member and employer contributions.
For the 2012/13 tax year these thresholds are :
- earnings trigger: £8,105 pa
- upper earnings band: £42,475 pa
- lower earnings band: £5,564 pa
Why the change?
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 right minimum level of saving for people who are automatically enrolled?
- are the costs and benefits to the individuals and employers properly balanced?
Using these principles (and feedback from consultations), the DWP have said that these new thresholds will apply for the 2013/14 tax year :
- earnings trigger: £9,440pa
- upper earnings band: £41,450pa
- lower earnings band: £5,668pa
The DWP pointout that the upper and lower earnings bands are the same as the National Insurance Contribution limits. The upper earnings band for automatic enrolment is reducing along with National Insurance upper earnings limit.
What this all means!
Employers staging in the 2013/14 tax year need factor in these threshold changes asap. Some employees (mainly part-time) will not need to be enrolled. While this may disappoint the more evangelical enrollers in the DWP- it seems a pragmatic move and one that will please people like me and Alan Pickering who see no reason to force square pegs into round holes.
Anyone expecting the thresholds to continue at these levels should think again, the linkage of thresholds to NI bands means that the pension will remain the donkey’s tail and the rules of the hokey cokey are still being worked out!
Nobody said it was easy!
But it’s worth remembering that the thresholds set by the Government are the minimum which apply. Employers can contractually enrol all staff into pension saving and many say that’s what they’ll do to make for an easy life!
Poor deluded fools!
- Earnings trigger exclude 400,000 automatic enrolment pensions (thisismoney.co.uk)
- Workplace pensions: A guide to auto-enrolment (confused.com)
- Right direction – wrong speed! Defining a “good” workplace pension. (henrytapper.com)
- ISS – confused? – I am! (henrytapper.com)
- RDR and AE – what future for commissions and advisor-charging? (henrytapper.com)