New pensions minister Torsten Bell has confirmed that auto-enrolment thresholds will remain frozen for 2025/26.
In a written statement published today (21 January), Bell said that the automatic enrolment earnings trigger will stay at £10,000.
The lower earnings limit of the qualifying earnings band will remain at £6,240, while the upper earnings limit will be kept at £50,270.
Rising wages mean that keeping the earnings trigger at £10,000 will see private-sector pension participation hit 15.7 million and total annual contributions reach £89.8bn.
In 2023, legislation was passed to lower the minimum age for automatic enrolment from 22 to 18 and to remove the lower level of qualifying earnings
A government review into pensions adequacy was shelved in December amid mounting concerns about loading extra costs onto employers following the Budget.
Hargreaves Lansdown head of retirement analysis, Helen Morrissey, said: “Where the earnings trigger is set is hugely important – auto-enrolment has been a massive success and care needs to be taken to make sure that only those who can afford to save are brought into the system.
“Setting the bar too low risks people struggling to make ends meet today, because they are saving for their retirement. Setting it too high means people who could be saving are missing out.
“It’s a tricky balancing act that is helped by the ability for anyone earning above the lower earnings limit to request that they be enrolled if they can afford to do so.”
Morrisey said that the issue of adequacy remains “vital” and will be central to the government’s ongoing pension review.
The latest findings from HL’s Savings and Resilience Barometer show that only 36% of households are currently on track for a moderate retirement income.
Morrissey said that measures aimed at dealing with small and lost pension pots will play a “massive part” in making sure people keep tabs on how much they are saving.
However, she said Hargreaves Lansdown would like to see the government continue to explore the potential for the lifetime pension.
“Enabling people to keep one pension throughout their career could be a gamechanger in terms of helping people feel ownership about what they have, which will boost engagement,” she added.
“Looking at how people can be incentivised to save more for retirement will also be key.
“One approach we have called for is for employers to boost their contributions for employees who are willing to increase theirs.
“This means that extra spend could be well targeted at those in a position to save more rather than potentially forcing those who can’t afford to save more to do so.”
Aegon head of pensions, Kate Smith, said Bell’s first decision to continue the freeze on auto-enrolment thresholds “comes as no surprise, given the economic climate”.
“For five years, the qualifying earnings lower and upper thresholds used to calculate the minimum 8% auto-enrolment contributions have remained at £6,240 and £50,270 a year.
“Meanwhile, the earnings threshold to qualify for auto-enrolment has been frozen at £10,000 a year for over a decade.
“We had hoped that the government would begin implementing the 2017 auto-enrolment reforms by gradually reducing and eventually removing the £6,240 annual salary offset so pension contributions are made from the first pound.
“But there is an upside to the continued freeze. As salaries rise, this means that many employees will be saving more in a pension and automatically benefiting from a higher employer pension contribution, which is good news for their financial future.
“To make a significant impact on the adequacy of auto-enrolment pension savings, the government needs to implement the 2017 reforms in the next couple of years and consider increasing auto-enrolment contributions in the next decade.”
AJ Bell head of public policy, Rachel Vahey, said: “At a time when other tax and financial thresholds are frozen, it comes as no surprise that the government has chosen not to increase automatic enrolment thresholds in 2025-26.
“However, workers’ salaries are under no such paralysis. Instead, as wages continue to go up, more people could be missing out on valuable pension contributions on the part of their salary above £50,270.
“Employers do not have to pay pension contributions on any salary above £50,270 – the same level when the higher rate of income tax kicks in.
“But HMRC’s own stats show the number of higher rate taxpayers is expected to have increased by over 40% since 2020-21.
“If these workers’ employer pension contributions cut off at £50,270, millions could be losing out on valuable money to fund their later life.”
Vahey said that the DWP’s annual check of the automatic enrolment thresholds “has the whiff of a tick-box exercise”.
Instead, she said, a thorough review of whether people in the UK are saving enough for retirement is needed.
“The government promised us this, but phase two of the pensions review appears to have been kicked into the long grass,” she added.
“It needs to pick this back up again, along with plans to put into action the changes already agreed to lower the auto-enrolment minimum age to 18 and count contributions on the first pound of salary upwards.
“Asking people and employers to put more towards pension saving is always going to be tough. But the longer Labour postpones addressing the crucial problem of pensions adequacy, the worse this problem is likely to become.
“If we are to help people enjoy a decent income in retirement, it’s something the government is going to need to get to grips with sooner rather than later.”
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