From April 2016, the Department for Work and Pensions (DWP) is raising the qualifying earnings upper limit for auto-enrolment from its 2015/16 value of £42,385 to £43,000 in 2016/17. The lower limit qualifying earnings band will remain at £5,824 and the earnings trigger will be frozen at £10,000 for 2016/17.
The qualifying earnings band sets the minimum contribution levels for money purchase schemes. The minimum of the band is also relevant to defining who can opt in if they earn under the earnings trigger. The upper limit caps mandatory employer contributions.
In an analysis paper, the DWP commented on keeping the auto-enrolment earnings trigger at £10,000 and said: “It was felt that this struck the right balance between administrative simplicity and ensuring that the people brought into pensions saving are likely to benefit.”
However, it added that small and micro employers should talk to their auto-enrolment provider about pension tax relief systems as ‘net pay’ arrangements do not have a mechanism for those earning below the income tax threshold of £10,600 to claim tax relief on contributions.
Under the proposed arrangements, the Government estimates that the overall level of pension saving will be £2,380 million in 2016/17, which is £23 million higher than it would be if the thresholds remained at 2015/16 levels. Around £12 million of this increase would be from higher employer contributions, whilst approximately £9 million would be from higher individual contributions and £3 million would be from increased tax relief on individual contributions.