The DWP has announced that the automatic enrolment Earnings Trigger and Qualifying Earnings Band will stay the same in 2025/26 as it was in 2024/25. These affect eligibility and contribution levels and mean that:
- the amount of annual earnings a person needs (in any single job) to be eligible for automatic enrolment is going to remain at £10,000 for the next year, and
- the lower level of income on which contributions must be paid by employers for workers who do not opt out is staying at £6,240.
This means that as earnings increase, more people will be eligible for automatic enrolment, and people will receive and pay more in contributions. The freeze will help women and people from some ethnic minority groups, particularly black African/Caribbean/British, Pakistani ,and Bangladeshi people. However, people from these groups are still less likely to be eligible and will make less in contributions when enrolled.
In 2024, the median pay gap for women was 7.3% and for ethnic minorities was 23.6%, with Bangladeshi, Pakistani, Asian “other”, and black people more likely to be in the lowest quintiles of earnings. In 2024, Men’s full time weekly median wage was £773 and women’s £672. For part time men’s was £241 and women’s £273. However, women are far more likely to work part time than men, with around 5.5m women in part time work in 2024, compared to around 2.1m men (ASHE).
So a part time woman on median earnings will just make it over the earnings threshold in that job, but many of the 50% of women with part time earnings below that level will not be eligible. People from Pakistani and Bangladeshi groups are also more likely to work part time and less likely to be eligible for automatic enrolment.
Those on lower earnings may also find it harder to afford contributions. This latest report from IFS suggests that employer contributions should be made whether the employee contributes or not.
Which brings me onto whether or not we might see the recommendations of the 2017 automatic enrolment review implemented soon. The review recommended that the age of eligibility be lowered to 18, and that contributions be made from the first pound, not the current lower level of £6,240. Is this freeze an indication that the Government is seeking to implement these changes soon, so there is little point raising the lower level? If contributions are made on the first pound, those on lower earnings will be the key beneficiaries.
But everyone is worried about affordability for these groups. Especially in a cost of living crisis. That’s why I think the IFS idea has merit. If employers make contributions of 3% whether employees contribute or not, this cost should not be as significant as raising contributions across the board. This move would help issues around participation (those with affordability issues would not need to opt out) and then could be followed by gradual contribution increases for employees and employers who contribute. The increases would need to be made over time to ensure no significant immediate costs to either group.
And I think we need to get more comfortable with the concept of pensions as deferred salary. If, say, contributions are increased by 1% every three years, with a corresponding reduction in pay increase. This could hopefully be smoothed so that neither employer nor employee experiences a significant loss.
There’s a lot going on right now, and the adequacy review has been delayed. But that doesn’t mean we should stop thinking about how to increase contributions and help those who struggle with affordability. Freezing automatic enrolment threshold levels is a great first step. Let’s think carefully about what the next ones should be.
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