The DWP has today (6 February) confirmed that the existing threshold for the auto-enrolment earnings trigger will be maintained for 2024 to 2025.
The AE earnings trigger, the point at which an individual’s salary opts them in for automatic enrolment to their workplace pension scheme, has been kept at £10,000.
Similarly, the DWP will continue to freeze the lower earnings limit, the point from which an individual’s earnings are used to calculate the amount of pension contributions that will be paid into a scheme, at £6,240.
It also released a report on workplace pension saving for lower earners, which reveals that the complexity of the pension system and a lack of support from their employer are deterring them from saving into a pension.
There was also a degree of misunderstanding that pension saving could lead to an erosion or elimination of benefit entitlement.
However, the report also found low earners viewed saving into a pension as “desirable and important”.
Broadstone head of DC workplace savings, Damon Hopkins, said: “The decision to maintain the lower earnings trigger for auto-enrolment will ultimately see more people enrolled in workplace pension schemes as their salaries rise, which is good news.
“However, supporting research documents released by the DWP today expose the issues that lower earners face in building up adequate retirement savings.
“While many said they understood the importance of saving for their long-term financial security, there was a lack of understanding around the system as well as how it may impact their benefit entitlement.
“Unsurprisingly, shorter-term financial pressures also impacted their ability or desire to save into a pension.
“It reveals the two key issues facing the country’s pension system at present – engagement with and understanding of how pensions work and the macroeconomic impact on disposable incomes.
“It demonstrates a significant opportunity for employers to support the financial wellbeing of their employees through greater financial education and providing access to solutions that improve both short and long-term financial security.”
Quilter head of retirement policy Jon Greer added: “Given we are nearing an election and the nation is still dealing with a cost-of-living crisis, it is unsurprising that the DWP has opted not to rock the boat with its automatic-enrolment review.
“However, the economy is not frozen and therefore keeping these measures frozen has some not insignificant impacts.
“However, by opting to keep the lower earnings level and earnings trigger frozen there will in fact be an increase in the number of people auto enrolled.
“Similarly, keeping the earnings trigger frozen means there will be an increase in earnings due to wage growth.”
He added: “Drilling down into the data further, we can see that total employer contributions will increase by an estimated 4.5% and total employee contributions by 3.7% simply as a result of freezing these measures.
“Similarly, had the trigger been increased to be in line with the personal allowance there would have been a decrease in the number of savers by approximately 152,000.
“Maintaining the trigger at £10,000 for 2024 to 2025 will see private-sector participation at 15.8 million in total and total annual contributions at £76bn.”
Greer said that following the success of auto enrolment there is a “growing sense that some changes need to be made” to help the policy continue to help boost pension saving.
However, he added that currently “the timing clearly is not right” as reducing the earnings trigger or lower-earnings limit could effectively amount to a pay cut when people are already struggling.
“While saving for retirement is key, low-income workers must balance this need with hanging on to as much of their money as possible to stay afloat in this economic climate,” Greer said.
“That said, we do need to have a timeline for tweaking this successful policy to ensure it works for people.”
