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22 Dec 2014

Government Sets Auto-Enrolment Trigger At £10,000

The government has confirmed that the earnings trigger for entry into auto-enrolment will be frozen at £10,000, Money Marketing reports.

Back in October, the government launched a consultation regarding how the trigger should be set, amidst concerns that those on lower wages would not benefit from the reforms. Experts were asked for their thoughts on the issue and which bands could be used to calculate contribution amounts.

Prior to the consultation, pensions minister Steve Webb expressed the need to set the right starting point for auto-enrolment; and that striking “the right balance between simplicity for firms and making sure the right people are brought into pension saving” was an essential part of the plan to create a stronger economy.

The consultation itself discussed the following four options for 2015/16:

Freezing the earnings trigger at £10,000; raising the trigger by indexation (CPI or earnings); increasing the trigger to £10,500, in line with the income tax threshold; and using the Pensions Commission benchmark rate to determine the trigger.

It was decided to maintain the trigger at £10,000, which the government feels will cover both of the aims – to bring more people into the savings system whilst simplifying the administration involved.

However, it explains that: “The disadvantage of this option is that it will break the link between the earnings trigger and tax relief, [so] workers earning below £10,600 whose employers use net pay arrangements won´t be able to benefit.”

Furthermore, the lower limit will be set at £5,824 next year and the upper limit will be £42,385. The decisions are set to come into effect on 6 April 2015.

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