A lot more people earning £10k or less are “in” and some don’t even know it.


Don’t ignore it – Workie!

I was talking to an auditor recently who had questioned why someone who cleaned her client’s office in the morning and was on £120 pw had been considered an eligible jobholder – and auto-enrolled.

It turned out that the cleaner submits an invoice every month except the month  she takes a holiday when she submits two at once.

Since 2x £120x 8 is more than the pro-rated earnings limit for her AE pay reference period (phew!), she had spiked into eligibility the last time she produced a double invoice.

Her payroll hadn’t picked up on this, missed the chance to postpone her staging and now she was in, though she didn’t know it – and there was nothing her employer could do to get her out.

How many low paid employees (let alone personal service workers like this lady) have the odd month which makes them eligible?

How many AE modules will pick up on them and include them on the AE monthly schedule – an eligible jobholder ad infinitum?

How many employees and personal service workers will query this?

How many of these people will be enrolled into a net pay scheme?

How many will miss out on the Government’s tax incentive that they would have got if they’d been in a relief at source scheme?



Answers to these questions are easy to garner- we need to make a public information request and find out.

The FT estimated (using de Vere numbers that I sense checked) that net pay was a real problem for the low paid. They reckoned that the total relief being missed out on was around £85m, that’s about 1.6m people on £10k. This is a tough stat to verify, but if you include all those who’ve been spiked into eligibility and are still enrolled as they haven’t got the wit , understanding or energy to get out, you get a sense of whey the NET PAY problem is a real problem – and not de minimis – as some have suggested.

Of course there are ways that large employers can get round the problem, salary sacrifice being one (though this is hazardous for those on the minimum or even the living wage), pension scheme rules can be used to kick out those contractually enrolled but as my payroll guru reminds me.

 going back to the public sector  of course their employee contributions are much higher so the loss of tax relief is much greater, although calculating the loss must be a nightmare given such structures as the LGPS where there are 14 contribution levels

The De Vere numbers for the tax incentives lost by low earners on net pay are higher than the private (£100m plays £85m) ; some would say the public subsidy on public sector pensions is so huge what’s the loss of a little tax.

But the majority of the low-paid in the public sector are peripheral workers on short-term and/or part time contracts that do not give them admission to defined benefit arrangements

These disconnected public sector workers will find their way into net pay money purchase schemes where the lack of tax relief is material to their ultimate benefit (at least in terms of their pension spending power).

They too are being unwittingly enrolled much as they became PPI policyholders.


.Professional Pensions’ buzz survey leads this week with the question

“Should the minimum earnings threshold for auto-enrolment be lower than £10,000?”

I think it already is.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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23 Responses to A lot more people earning £10k or less are “in” and some don’t even know it.

  1. Andy Cheseldine says:

    I don’t know how the numbers have been arrived at (I know they are not yours Henry, so not blaming you) but they don’t add up. If 1.6 million people earn £10,000 pa, they would need to be paying an average 2.67% of total earnings in personal contributions to lose £85 million in tax relief (@ 20%).
    But to make this so they would all need to earn the full £10k pa. And that would all need to be pensionable – so not using Qualifying Earnings with its £5,824 offset. And no variable earnings from month to month.
    In practice most low earners in in minimum contribution schemes where they are only (currently) paying 1% of Qualifying Earnings so if the correct number is 1.6 million people, the loss is closer to £13 million (assuming their total earnings are still all £10,000 pa, which seems unlikely). So it might be accurate from October 2018 onwards – but only if employers suddenly start pensioning total earnings and on-one earns less than the full £10k pa.
    I assume you would want to exclude those in DB schemes (ie public sector types) as even the loss of tax relief seems a relatively small price to pay for DB accrual. For those in DC with variable earnings (as per your example) someone earning £120 pw but billing two months at once would be over the threshold every month (by about £33, so a 1% contribution would typically result in lost tax relief of £0.07 per month (and just over £1 in the month she has double earnings).
    We would also exclude those using NEST (and other MasterTrusts who use Relief at Source). They represent the majority of individual auto-enrolments so far and are likely to continue to expand their market share as we stage the remaining 1.8 million smaller employers.
    Net pay schemes are a real problem for the low paid, but we need to make sure we have access to realistic estimates of numbers affected and real losses.

  2. henry tapper says:

    Andy- I see the numbers through the 3-4-1 lens, promoted by DWP not the 1-.08 -.0.2 problem we have today. I know there are a lot of people saying that this is just a blip and that Budge 2016 will make this academic but this is still a real problem.

    If Ros Altmann is serious about getting it sorted, then she should know the size of the problem -or at least be on the way to getting it!

    If no-one else is making the request for information, I will – but there is no point in duplicating effort.

    The number may be somewhere south of the £85/185 numbers in the FT and Express but as my correspondent points out, calculating it is going to be very hard and what’s most important is that we get the problem fixed.

    What are we doing about that? Other than what’s being reported on this blog?

    • Andy Cheseldine says:

      I agree with you that Government should have the data at its fingertips. Unfortunately I think you’ll fund that they don’t have a clue because:
      1 They can only guess what contributions are paid to occupational DC schemes based on ONS data (it doesn’t appear on a tax return for most people, that’s only true of RAS schemes). The gross amount of personal contributions is deducted from gross earnings so HMRC are mostly left in the dark. The taxable value of DB schemes is based on benefit rather than contribution, which confuses things further.
      2. They have to make further guesses in respect of the earnings bands of those individuals, making assumptions about correlations between earnings and contribution rates. There is no evidence that they have any insight to those with multiple employments (or self-employment on the side or with taxable benefits in addition)
      3 It is not clear they understand the difference between Occupational DC schemes under net pay and RAS (HMRC Table 3,8 lumps all OCSs together)
      4 It even less clear how they categorise cash balance schemes (which are DB in pension law but DC in tax law). The ONS data includes over 500,000 members of contracted in DB schemes for 2014 – many of whom we think are cash balance or career average schemes.
      5 There is no longitudional data on people with variable earnings (ie how many fluctuate between thresholds and what their gross earnings are year on year

      Best of luck anyway

      • henry tapper says:

        Are you sure this complexity is relevant? Surely were only talking tax relief on contributions?

        I’m pretty sure HMRC can pick up on pension payments( the data for AE enforcement).

        Isn’t the question whether they’ll treat a predominately Net-pay scheme RAS for the non tax payers!

      • Andy Cheseldine says:

        I don’t think HMRC has that level of granularity in its view – so relevant re understanding the numbers in advance.
        Having said that your latter point is important. I know of at least one large employer considering introducing a split OCS – part RAS part net pay with the latter only belong used for those on £20,000 pa or more. The key though is that its up to the employer/trustees to set it up, not HMRC
        Of course the problem will disappear if we end up with flat rate tax relief.

      • henry tapper says:

        If and when.. If we get it, and I think TEE as likely- it won’t be immediAte. Or do you think it will?

  3. Gerry Flynn says:

    Can you clarify, did she submit an invoice or a time sheet? If she submitted an invoice what was she doing on the payroll in the first place she surely would have been paid like any other supplier? Time sheet then yes she would be on the payroll and subject to AE, (possibly).

    • Peter D Beattie says:

      Gerry. This would be also my question to Henry as I fail to understand his statement ie, ‘It turned out that the cleaner submits an invoice every month except the month she takes a holiday when she submits two at once.’
      Usually staff employed under PAYE submit a ‘timesheet’ and get paid ‘in arears’ usually ‘monthly’! It is not clear what the length of the employee’s holiday is being taken but I would assume that this would be in this case ‘2 weeks consequently’?
      In this case I get the impression the cleaner gets paid ‘weekly’ in arrears/or not? But in this case an ‘invoice’ is being submitted for work so who is the ’employer’ and do they have a responsibility to collect any tax or is she ‘self-employed’ with an agreement to get paid in addition for ‘time off’? Does she submit a single invoice each month for the TOTAL hours worked during a month when conditions have changed for ‘auto-enrolment’ means that her employer should have reviewed the ‘work conditions’ so that a ‘weekly invoice/timesheet’ should have replaced the ‘monthly arrangement’ to fall in line with the new auto-enrolment rules. This is clearly the responsibility of ‘the employer’ to advise their staff accordingly!

  4. henry tapper says:

    It’s a really interesting point Gerry. If you are dependent on one customer for your income -even if you are self-employed, you are deemed a personal service worker and you need to be assessed for auto-enrolment. This person did not initially have enough earnings to be enrolled as an eligible jobholder but continued to be assessed each month – even though she was not on payroll.

    These off payroll workers are a separate problem. You can see what HMRC would like – have them on payroll and under PAYE! It is surely only a matter of time!!!

  5. Gerry Flynn says:

    Henry agree with your point about self employed but what if she had set her self up as a LTD company and that company submitted the invoice for her services?

    • henry tapper says:

      If she was the sole Director – she would probably have been exempt from auto-enrolment! Such technicalities matter – as with those who work in the UK but have contracts originating from Sark (or similar) who lose their rights to membership of and employer contributions to a Workie.

  6. henry tapper says:

    The offshore workers get enrolled in 2017 and typically miss 3-4 years membership for their pains

  7. Gerry Flynn says:

    Henry on a similar subject, I worked for an organisation that had a lot of weekly paid employees who were part time who under normal circumstance would not qualify for AE because they are below the weekly earnings threshold. However, come Christmas they were paid for the week they worked plus either one or two weeks in advance to cover them over the holiday period which would have the affect making them eligible for AE.

  8. henry tapper says:

    Yes – this is particularly the case with Christmas bonus’ for weekly paid staff who can all get catapulted in to spend the rest of the year on low income while nursing the hangover of that one great week

  9. Peter D Beattie says:

    Gerry and Henry. Once again as the employer is responsible for a pension via the government new scheme, surely the ’employer is responsible’ to inform their workers how payment arrangements need to change to accommodate new government regulations. Am I right or not?

  10. henry tapper says:

    I double like that comment Peter as it gives me the chance to agree with you and to plug Pension PlayPen which is a website that helps employers understand what they are buying into (by way of workplace pensions). smart employers with lowly paid employees would do well to avoid net pay schemes at the moment

  11. Mike Nicholas says:

    A key issue is appropriate utilisation of postponement in cases such as the cleaner to avoid the earnings spikes causing enrolment. The onus falls on the employer, and then the software in use and/or the agent running the payroll. There may well be a grey area here with the employer being ignorant of the implications and not having processes in place to catch these ‘spikes’.

  12. Peter D Beattie says:

    Mike. There is no excuse for an employer to be ignorant like any citizen ‘ignorance’ has no status in English law. Its really up to Directors of companies to ‘come up to speed’ and if necessary train their staff accordingly and stop the practice of just recruiting staff trained elsewhere. I do not see much of this in England?

  13. Mike Nicholas says:

    Peter, I agree ignorance is never an excuse but AE is still relatively new – and certainly unknown for very many small/micro businesses. Where an employer uses a bookkeeper, agent or bureau to process the payroll how many of these will contact the client to check in the cleaner circumstances outlined above whether postponement is to be undertaken? And of course, I doubt every payroll software package has the functionality to identify and notify such opportunities for postponement.

    • henry tapper says:

      Payroll will trigger!

    • Peter D Beattie says:

      Mike. I still say that the ’employer’ is the responsible person that should be contacting/advising staff on their pension/payment conditions. It cannot be an excuse that by delegating a task outside ones area of control/business could be viewed as a means of avoiding responsibility to a worker! If an employer is unable to cope because of new government regulations there should be a means for contacting AE about the problem and inform government that deductions would not be made from workers without their knowledge until proper safeguards are in place by an employer in conjunction with government overlook! No worker should be contacted directly by others outside his employers pension arrangements!

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