Pension: DWP confirms automatic enrolment rules for 2021 in light of a ‘retirement crisis’

Martin Lewis gives his advice on state and private pensions

Pension automatic enrolment rules were introduced from 2012 in a bid to get savers to build up their private pension pots while they were still working. Under the existing rules, eligible workers will be enrolled into a workplace scheme regardless of whether they work full or part time.

Employers must enrol their staff into a scheme and contribute to it if workers:

  • Work in the UK
  • Are not already in a suitable workplace pension scheme
  • Are at least 22 years of age but under state pension age
  • Earn more than £10,000 a year for the 2020/21 tax year

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Today, the DWP released their review of the automatic enrolment earnings trigger and qualifying earnings band for 2021/22.

For the year, ahead the Government has decided to keep the earnings trigger unchanged, as the following confirmed: “The earnings trigger is one of the three key factors which ultimately governs who gets enrolled into a workplace pension scheme through automatic enrolment.

“The government’s view remains that if the trigger is too high, then low to moderate earners who can afford to save (and who are the main target group of the policy), may miss out on the benefits of a workplace pension.

“Set it too low, however, and the predominant impact will be upon people for whom it could make little economic sense to save into a pension and thereby divert income away from their day to day needs.

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“The Secretary of State has considered the latest analytical evidence and the policy objectives and has concluded that the existing threshold of £10,000 remains the correct level at this point in the establishment of automatic enrolment and will not change for 2021/22.

“This represents a real terms decrease in the value of the trigger when combined with assumed wage growth and will result in an estimated additional 8,000 savers.

“The decision reflects the key balance that needs to be struck between affordability for employers and individuals and the policy objective of giving those, who are most able to save, the opportunity to accrue a meaningful level of savings to use for their retirement.”

It should be noted the earnings trigger has not risen since 2014.

When first introduced, the trigger rose from £8,105 in 2012 to £9,440 in 2013, eventually reaching £10,000 in 2014.

Becky O’Connor, the Head of Pensions and Savings at interactive investor, reflected on the DWP’s decision: “At such a difficult time for people on low earnings and their employers, leaving the trigger for paying into a workplace pension unchanged makes sense.

“The Government’s aim is to ‘bring as many people into automatic enrolment as possible who will benefit from saving, while avoiding the automatic enrolment of those unlikely to benefit.’

“So setting the trigger is a balance between taking income that people need now to meet current living costs and trying to ensure they have a chance of meeting future needs.”

Becky concluded: “Present needs are clearly high right now. However, the UK faces a retirement crisis, with people on low incomes now being among those at greatest risk of financial vulnerability when they reach retirement.

“The scale of this problem will only grow unless more people are brought into pension saving while they are earning. Losing ground on this progress could result in more poverty in retirement over the years.

“The problem of low earners who are above the trigger but below the Income Tax threshold and in net pay employer pension schemes – many of whom are women – remains unresolved.

“This group is auto-enrolled, but not receiving tax relief on their contributions and so missing out. The Government closed a consultation on this issue in October last year and is due to report on its findings.”

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