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25 Mar 2013

Higher Personal Allowance May Take 200,000 People Out Of Auto-Enrolment

The planned increase in the personal income tax allowance in 2014, announced during George Osborne´s budget speech last week, could result in the exclusion of around 200,000 individuals from auto-enrolment schemes, the Citywire reported.

The personal allowance, which is the level above which income tax is levied on annual income, is already set to increase dramatically to £9,440 on 6 April, from £8,105 currently. In April 2014, the earnings trigger will be raised to £10,000, one year earlier than planned. While the move was described by the chancellor as a “direct boost to the income of people working hard to provide for their families,” it will also result in fewer people being pension scheme auto-enrolled as the auto-enrolment earnings trigger is pegged to the personal allowance.

PwC´s tax director John Harding noted that by the time the higher allowance is introduced, most large enterprises will have already enrolled their staff into a pension scheme, which means that the move will have implications for low earners at those companies when they move jobs again.

The auto-enrolment earnings thresholds are examined every year by the Department for Work and Pensions (DWP). According to its response to the consultation related to the 2013/14 thresholds, automatic enrolment should remained aligned with the point at which people reach the income tax threshold. Going forward, this could be changed towards pegging the earnings trigger to the pay-as-you-earn threshold, the DWP said earlier.

Copyright © M2 Bespoke 2013

John Calvert-Jones

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