Louise Mulgrew
3 minutes length
Posted: 21st January 2015

Auto enrolment earnings threshold proposal

The Department for Work and Pensions (DWP) have submitted their proposed revisions for the auto enrolment earnings trigger and qualifying earnings bands. The proposed Qualifying Earnings Lower Limit is £5,824, the proposed Qualifying Earnings Upper Limit is £42,385 and the minimum amount that someone must earn to become eligible will stay at £10,000.

Following the legislation back in October 2012, all businesses have to automatically enrol their employees into a qualifying pension scheme when they arrive at their staging date. This is down to the government ruling that as a society, we weren’t saving enough for our retirements.

Coupled with a climbing life expectancy and an increasing ratio of workers to those of a retirement age, the legislation was introduced to help us better prepare for life after work.

However, there are differing thresholds and criteria that employees must meet in order to become eligible for auto enrolment. One example would be an employee’s qualifying earnings is greater than the proposed auto enrolment trigger. These figures need to be changed each year due to a number of different economic factors, i.e. inflation and minimum wage increases . The thresholds do not just define auto enrolment eligibility, either.

The reason that the auto enrolment threshold figures are carefully revised each year is because if they were set too high, then people who should be saving; or saving more than they are; will be losing out . If the figure was too low then you are then in danger of penalising those who can’t afford to save for a pension on their current earnings.

The revisions that have been proposed are as follows (taken from the DWP proposal):

  • £5,824 for the lower limit of the qualifying earnings
  • £42,385 for the upper limit of the qualifying earnings
  • £10,000 is the minimum someone must earn to be auto enrolled into a pension scheme

 You can find more information on these figures by visiting their website.

 Please note that these figures are currently under review by parliament and may be subject to change. You can keep updated on the Department for Work and Pensions website or The Pension Regulators website.

What does this mean for businesses?

Fortunately for businesses, the minimum threshold that someone must be earning to be auto enrolled into a pension scheme is not increasing. However, this also means that it is no longer linked to the income tax threshold which makes things slightly more complicated for businesses and employees alike. However due to this change, this is no longer the case and this may mean that your payroll software may need to be tweaked slightly to accommodate this.

Accounting web state: “If a firm’s payroll software has a qualifying earnings option, employers will need to check that it has been updated to £10,000 and that it is not going to increase in line with the lower earnings limit from April. Come April, employers will need to double check again that the qualifying earnings is correct. If qualifying earnings is not used, employers will need to select the manual options and check that these are all correct.”

You can visit the IRIS auto enrolment insight page for any further questions you may have.

Are you prepared for auto enrolment or are you still finding difficulties with it? Why not book a free demo of the IRIS AE Suite™ and see how it can save you time and money.

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In addition to this why not find out 7 ways to streamline your auto enrolment process with our free whitepaper by clicking the link below.

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