Government aligns auto-enrolment with tax and NI thresholds

The government has aligned auto-enrolment rates for the next tax year with tax and national insurance (NI) thresholds.

The Automatic enrolment earnings thresholds review and revision has been published six months before the largest employers begin enrolling eligible staff into a pension scheme in October 2012.

The Pensions Act 2011 requires the government to review the auto-enrolment earnings trigger and the lower and upper limits of the qualifying earnings band each year.

Steve Webb, pensions minister, said: “The overwhelming response to our consultation was the call to align the automatic-enrolment trigger with existing payroll thresholds.

“This will help firms make a success of these reforms, because they will be able to better understand who is eligible to be enrolled.

“These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving.

“People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer.”

Zoe Lynch, partner at law firm Sackers, added: “The government announced recently that the rate at which an employee is entitled to be automatically enrolled will be aligned to the pay-as-you-earn (PAYE) threshold.

“This means that any eligible employee earning over their personal allowance of £8,105 this tax year will be automatically enrolled if those duties apply to their employer. The reason given for this is that simplicity is critical to the success of automatic enrolment. So far so good.

“But what happens when the personal allowance increases to £9,205 from April 2013 following the inflation-busting announcement in the Budget? In one fell swoop this will exclude 840,000 people from the benefits of automatic enrolment and pensions saving – the very people George Osborne claimed he was helping by increasing the personal allowance.”

Read more articles on auto-enrolment and the pension reforms