Freeze auto-enrolment thresholds to boost pensions saving, says TUC

Published on Wednesday, 08 February 2012 10:03
Posted by Scott Buckler

The TUC has today (Wednesday) urged the government to freeze the lower thresholds in the auto-enrolment regime - keeping the bottom of the earnings band on which contributions have to be paid (£5,564) and the earnings level at which auto-enrolment is triggered (£7,475) - at their current levels

The government is set to introduce a new earnings trigger for auto-enrolment, following their review, which recommended that workers should only be auto-enrolled once their earnings rose above the income tax threshold (£7,475). They would still pay contributions from the bottom of the earnings band.

However, the TUC argues that women would be the main losers from the new earnings trigger as the vast majority of workers with pay between the lower limit of the earnings band and the income tax threshold are women working part-time. The auto-enrolment trigger should therefore be frozen, says the TUC.

The TUC believes that linking auto-enrolment with the income tax threshold is particularly damaging given the coalition plans to increase it to £10,000.

A TUC analysis of official earnings data shows that the new earnings trigger could eventually stop around two million women from being auto-enrolled into pensions.

More than one in seven female workers (15.5 per cent or 1.9 million) currently earn more than the current lower earnings band (£5,564) but under £10,000. One in three female part-time workers (1.7 million) earn between the current lower earnings band and £10,000.

Men are less likely to be affected by this change as just half a million men earn between the current lower earnings band and £10,000, says the TUC.

Nearly one in five workers (4.4 million) currently earn less than £10,000, although this includes two million workers who earn less than the current lower earnings band and would never have been auto-enrolled into pensions.

The government could increase the band of earnings on which contributions have to be paid if it also increases the upper limit on the earnings band to £42,475, says the TUC. This would keep the link with the National Insurance Contributions upper earnings limit, as recommended by Lord Turner's Pensions Commission.

The TUC also argues that the government's decision to further extend the timetable for auto-enrolment will leave those in the first wave starting later this year on a one per cent employer contribution for a full five years.

This is because the law requires all employers to have auto-enrolled their staff for a year before the contributions increase to two per cent, and the final wave of small firms will not now auto-enrol until 2016. The final phase for contributions, when staff will pay four per cent and employers three per cent will not now start until 2018.

TUC General Secretary Brendan Barber said: 'Auto-enrolment is a huge advance. But no-one can pretend that contributions are good enough, particularly during the long wait before every company is covered by auto-enrolment and the two years after that before everyone gets their full contribution.

'The government should use its review of the thresholds to widen the earnings band each year by freezing the lower limit, while increasing the upper band limit in line with earnings. This would give a small manageable increase in the earnings band each year. It's the pensions equivalent of fiscal drag - raising more tax by freezing tax thresholds.

'In particular we urge the government not to raise the auto-enrolment earnings trigger in line with the income tax threshold, which the coalition is keen to raise to £10,000. Whether this is the best way to help the low-paid is an interesting debate, but it would be disastrous if it had the unintended consequence of excluding a significant proportion of women workers from pensions saving.'


The views expressed in the contents below are those of our users and do not necessarily reflect the views of GovToday.

Add comment