Following a consultation last year, the Government has proposed the following figures, relating to automatic enrolment obligations, for the 2015/16 tax year:
- £10,000 for the automatic enrolment earnings trigger, unchanged from 2014/15,
- £5,824 for the lower limit of the qualifying earnings band, equal to the NICs Lower Earnings Limit, and
- £42,385 for the upper limit of the qualifying earnings band, equal to the NICs Upper Earnings Limit.
Background
When individuals are auto-enrolled into a pension arrangement, contributions aer paid as a percentage of their earnings within a “qualifying earnings band”. There is also an “automatic enrolment earnings trigger”: people earning less than this trigger do not have to be auto-enrolled.
The Government is required to review all these figures ahead of each tax year and to decide whether or not they should be changed. The review may take into account:
- personal taxation allowances,
- earnings thresholds and limits for National Insurance purposes,
- the level of the Basic State Pension and
- the general level of prices.
In addition, as in previous years, the Government considered the following principles:
- maximising the number of people brought into pension saving who will actually benefit from saving, while avoiding the automatic enrolment of those who are unlikely to benefit,
- the gap between the bottom of the qualifying earnings band and the earnings trigger should be such as to ensure so that all those who are automatically enrolled benefit from a meaningful level of contributions,
- costs and benefits to individuals and employers should be balanced appropriately.
The automatic enrolment earnings trigger
The level of the automatic enrolment trigger should strike a balance between maximising pension saving for those for whom saving is valuable and minimising the automatic enrolment of those for whom it is not. However, in recent years, the trigger has been raised each year in line with the threshold for Income Tax. Since 2012 this has resulted in an additional 590,000 people, mostly women, being excluded from automatic enrolment.
Originally the Government proposed raising the earnings trigger in the same way for 2015/16, to £10,600. However, the majority of the respondents to the consultation argued that the trigger is rising too fast and excluding too many people, for whom meaningful provision could be made, from automatic enrolment. The Government has, therefore, kept the trigger at the 2014/15 level for the coming year.
The qualifying earnings band
When the band of earnings was introduced through the Pensions Act 2008, the lower limit was aligned with the level at which individuals begin to pay National Insurance contributions (NICs) and the higher level with the NICs upper earnings limit. This principle has been retained each year, including now for 2015/16.