You are here: Home - Retirement - Retirement planning - News -

Government tweaks pension auto-enrolment threshold

0
Written by: Paloma Kubiak
13/02/2020
The Department for Work and Pensions (DWP), has increased an earnings threshold which relates to the minimum contributions which have to be paid under auto-enrolment rules.

In order to be eligible for auto-enrolment, workers aged between 22 and State Pension age need to earn at least £10,000 per year from a single job. DWP has today announced this earnings trigger amount will remain unchanged.

However, employers also need to take note of a second threshold or ‘Qualifying Earnings’ figure which relates to how the minimum contributions are calculated in accordance with the auto-enrolment legislation.

For the 2020/21 tax year, the basic annual amount (Qualifying Earnings) has risen £104 to £6,240 while the higher amount remains unchanged at £50,000, DWP confirmed.

Someone earning £6,240 or under is entitled to join a pension scheme but the employer does not have to contribute. An employee earning between £6,240 and £10,000 (the pensionable income) is also entitled to opt-in to the auto-enrolment scheme and the employer must contribute (currently 3%).

Kate Smith, head of pensions at Aegon, said: “Freezing the earnings trigger at £10,000 a year means  more people will gradually be bought into auto-enrolment as people’s earnings rise. In turn, more people will benefit from their employer’s contribution helping to boost their pension savings and get them into the savings habit.

“It’s disappointing that the government is not applying the same principle to the lower limit for the qualifying earnings band. A freeze would increase the amount people would automatically save for their future. Removing the lower earnings limit altogether, as recommended by the 2017 review of automatic enrolment, would lead to higher pension savings, particularly for those on low to mid incomes.”

Auto-enrolment sums

If an employee earns an annual gross salary of £55,000 (above the higher qualifying earnings figure of £50,000), the pensionable salary for contributions is £43,760 (£50,000 – £6,240).

The minimum pension contribution under auto-enrolment is currently 3% from the employer and 5% from the employee (including 1% tax relief), meaning an 8% total contribution.

This means someone earning the average salary of £29,000 per year will have pensionable earnings of £22,760 (£29,000 minus £6,240) so they pay £1,138 into their pension and their employer contributes £682.80, with the total annual contribution at £1,820.80.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Lockdown easing roadmap: the key dates for you

The Prime Minister Boris Johnson has outlined his roadmap for the nation coming out of lockdown, with the ambi...
Lockdown easing roadmap: the key dates for you

YBS launches best buy regular savings account

Yorkshire Building Society’s Loyalty Regular Saver pays interest of 3.5%, with savers able to deposit up to £5...
YBS launches best buy regular savings account

Leaseholders consider bankruptcy after MP vote

A plan to protect leaseholders from extortionate costs of fixing fire safety problems has been rejected in par...
Leaseholders consider bankruptcy after MP vote

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

  • @YourMoneyUK Is this actually (very sadly) a bad news story @emmalunn? If the number of people qualifying for HTS i… https://t.co/bbWviJHfXx
  • RT @BoonBrokers: “Obviously, these practices are totally unacceptable and we would hope that most estate agents would be as horrified as us…
  • “Obviously, these practices are totally unacceptable and we would hope that most estate agents would be as horrifie… https://t.co/s8olBmyH9G

Privacy Preference Center

Necessary

Advertising

Analytics

Other

Read previous post:
Last minute February half-term car hire booking cuts bill by half

Holidaymakers who book car hire just two days before their getaway can save an average 50% off the cost, compared...

Close