The Department of Work & Pensions has confirmed that the auto-enrolment earnings trigger will remain at £10,000 for the 2022/23 tax year.
It is also freezing the lower qualifying earnings limit at £6,240 and the upper limit at £50,237.
Although people are only automatically enrolled into a workplace pension scheme once their salary tops £10,000, contributions are based on earnings between this lower and upper limit.
However, those earning above this lower limit, but less than £10,000 have the option to opt into their workplace pension.
There was disappointment though across the pension industry, as many have been calling for the earnings trigger to be lowered, so those on lower incomes, particularly women working in part-time employment, are brought into the AE net. There have also been calls to remove the lower qualifying earnings band completely so pension contributions are based on every pound of salary.
This was one of the key recommendations into a review of the AE system undertaken in 2017. The government has pledged to remove the lower earnings limit by the mid-2020s.
The DWP says that freezing these lower qualifying earnings band and the earnings trigger band will mean pension savings will be slightly increased, when compared to 2021/22. It says that this decision will give stability and help employers control costs.
Hargreaves Lansdown estimates that freezing these levels will being an extra 17,000 people into AE, with an extra £26m in pension contributions. It says around seven out of 10 of these new participants are likely to be women.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “The decision comes at a time when government is under increased pressure to move forward with the findings of its 2017 Auto-Enrolment review. In it, government pledged to remove the lower earnings limit by the mid-2020s — a move that would bring many more people into workplace pensions.
“It is an issue the pensions minister was questioned about in the House of Commons recently and while freezing the lower limit will boost auto-enrolment the pressure will continue on government to say when it will move forward with its recommendations.”
She adds that the government has a tricky balancing act of boosting auto-enrolment while giving savers and employers time to plan and budget.
“Government will also be hesitant to pile extra costs on people just as we face the biggest squeeze on the cost of living in years. However, the clock continues to tick on this issue, and government will face increasing calls about when a timetable will be put in place.”
Canada Life technical director Andrew Tully says: “Freezing the AE threshold at £10,000 still means more workers will be auto-enrolled as their earnings increase above £10,000.
“However, it fails to address the major issue which is the many people – mostly women – who earn below £10,000, or have multiple jobs each of which are below £10,000, who aren’t auto-enrolled.
“We know automatically enrolling people in a pension has been a huge success, now we need to extend that coverage to more people who are currently missing the opportunity to benefit from their employer’s pension contributions.”
Announcing this decision the DWP says: “The decision to freeze the AE lower earnings limit this year supports the principle of ensuring that everyone who is automatically enrolled would continue to pay contributions on a meaningful proportion of their income.
“It is consistent with the government’s ambitions to improve financial resilience for retirement, in particular among low and moderate earners. Freezing the LEL helps ensure pensions savings would be broadly maintained – and slightly increased – compared to last year.”
