Morten Nilsson, CEO of NOW: Pensions, comments on the announcement that the DWP will consult on the qualifying earnings trigger and qualifying earnings band for auto enrolment. “It’s good news that the DWP is acknowledging that aligning auto enrolment to income tax thresholds might not be the most sensible approach.
Since the introduction of auto enrolment, the tax-free personal allowance has crept up from £7,454 to £10,000 with a further increase to £10,500 scheduled for the 2015/2016 tax year.
One of the consequences of this is that more people have been unintentionally excluded from auto enrolment.
With both the Conservative party and Liberal Democrats stating at their recent party conferences that they will increase the tax free amount further - £12,500 by 2020 for the Conservatives and £11,000 by 2016 for the Liberal Democrats, the time for a review is ripe.
But, rather than tinkering with the earnings trigger our preference would be for all workers to be auto enrolled as soon as they start paying National Insurance and for contributions to be based on all salary rather than a band of earnings currently set by the DWP between £5,772 and £41,865.
Band earnings significantly erodes savers pension pots and disadvantages everyone – particularly penalising those on low incomes. The sad truth is, no saver actually gets an 8% contribution, the most anyone gets is 6.9% if they are at the top of the earnings band, with somebody earning £10,000 only receiving a total contribution of 3.4% which is woefully inadequate.
We urge the DWP to extend the scope of its consultation to include band earnings as well as the earnings trigger to ensure savers get a fairer deal.”
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