Pensions World

The Department for Work and Pensions (DWP) is finalising details for the thresholds which will be used for the first wave of auto-enrolment, starting in October this year. Its consultation on the starting thresholds closed on 26 January.

The DWP has proposed that the earnings trigger above which employees must be auto-enrolled should be set at £8,105 as this will tie in with the personal allowance threshold for paying tax for 2012/13.

Once an employee’s earnings exceed the earnings trigger, their auto-enrolment minimum pension contributions will be based on all their earnings above a minimum threshold. The DWP proposes that contributions are based on all earnings above the Lower Earnings Limit of £5,564.

The DWP proposes to base the upper ceiling for calculating minimum contributions on a figure of £39,853; this is the original upper ceiling proposed in the 2008 Act, revalued in line with average earnings.

Commenting on the proposals: Tom McPhail, head of pensions research at Hargreaves Lansdown, says:  “The rules and thresholds should be kept as simple as possible. The proposed earnings trigger of £8,105 and the minimum threshold of £5,564 both tie in with established tax and NI thresholds. We recommend that the DWP adopts a similar policy in relation to the upper earnings threshold and aligns this with the Upper Earnings Limit for National Insurance. This would put the upper ceiling at £42,475 for the 2012/13 tax year. We know that the 8% minimum contributions will be inadequate to a buy most people a decent pension, for this reason we believe the government should be looking for ways to increase contributions, rather than artificially reducing them.”

www.HL.co.uk