Autumn Statement 2012: The increase in the personal allowance announced by Chancellor George Osborne could result in fewer low earners being auto-enrolled into workplace pension schemes.
This is because the qualifying earnings thresholds for auto-enrolment are linked to pay-as-you-earn (PAYE) thresholds.
Zoe Lynch, a partner at pensions law firm Sackers, said: “For anyone who falls within the personal allowance, it’s good news on one level, because they don’t earn enough pay tax, but the downside is they don’t earn enough to be enrolled automatically in a pension scheme.
“It’s a bit of a double-edged sword in that increasing the personal allowance could take people out of pensions saving.”
She added that this could particularly impact women who might be more likely to work in part-time or lower-paid roles.
Steps to increase the income tax personal allowance to £9,440 from next April is to be welcomed. However, if this translates into a rise in the threshold at which individuals are auto-enrolled into pension schemes, then fewer people will be enrolled into pension schemes going forward, who might otherwise benefit from employer pension contributions. There is also the risk of a cliff edge impact; with employees in the largest UK companies to be auto-enrolled before April 2013 being treated differently from those that work in mid-sized organisations that are required to enrol later.
As long as the employee does not become an ‘entitled’ person, there is no reason why those who are already in a pension scheme cannot continue to contribute into it and receive a company contribution too. Raising the bar on ‘auto-enrolment’ might mean a few don’t join, but I would suspect that those who don’t would also opt out if auto-enrolled anyway. If the bar on the LEL is raised sufficiently, then that may cause a problem.