Out-Law News 2 min. read
27 Mar 2012, 3:46 pm
In a response (33-page / 105KB PDF) to its consultation paper on the earnings thresholds, the Department for Work and Pensions (DWP) said that employers had expressed concern that the introduction of a new figure would prove too complex for payroll departments. It had originally proposed an upper limit based on average earnings.
"A key message to emerge from this consultation is that simplicity is critical to the success of automatic enrolment and that simplicity is best supported by aligning automatic enrolment triggers and thresholds with existing payroll thresholds," the DWP said in its response. "Alignment gives employers figures that they are familiar with and can explain. It will help them to understand who they will have to automatically enrol and on what portion of their workers' earnings they will contribute."
Employers will therefore pay contributions on their employees' earnings between £5,564 and £42,475 for 2012/13. A worker will be automatically enrolled into a workplace pension scheme if that person is earning more than £8,105 per year, up from the original trigger of £7,475 – the same threshold after which income tax will be charged. The Government must review these levels every year, however no announcement has been made on how this will be done in future tax years.
Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the DWP's original decision to use a figure uprated in line with average earnings had proved "controversial", particularly among payroll administrators who had been faced with the prospect of introducing a new fluctuating statutory figure into their systems.
"The DWP has sensibly accepted the objections," Tyler said. "This may mean that some employers will end up contributing more than they otherwise would have done for employees earning between £39,853 and £42,475 - however, in practice, many employers are unlikely to impose an upper limit on earnings in calculating contributions in any event. For those employers, changes to the upper limit of band earnings will have no impact."
In a statement, the Government described the announcement as "the final building blocks" for the automatic enrolment scheme, which will begin to take effect for larger employers from October this year. Employers will be required to automatically enrol 'eligible jobholders' aged between 22 and the State Pension age into an occupational pension scheme that meets the minimum requirements or the National Employment Savings Trust (NEST).
"The overwhelming response to our consultation was the call to align the automatic enrolment trigger with existing payroll thresholds," said Pensions Minister Steve Webb. "This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled."
Some respondents to the consultation had argued in favour of extending auto-enrolment to lower paid workers. However the DWP retained the original figures, which Webb said would "strike the right balance" between getting as many workers saving for retirement as possible and ensuring that those who would not financially benefit from saving would not be caught by the reforms.
"People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer," he added.
The Government announced in November that it would give small employers up to an additional year to prepare before they would have to begin automatically enrolling their employees into a pension scheme. The DWP published a further consultation (27-page / 91 KB PDF) seeking views on the changes this week.
Earlier this week, industry body the National Association of Pension Funds (NAPF) called on the Government to introduce "super trusts" that would enable savers to combine small pension pots from different employers into a single, easier to administer scheme. A Government consultation on the proposals closed on Friday.
