New Auto-enrolment earnings thresholds announced

The government, in its response to consultation on the automatic trigger and qualifying earnings band for contributions to a workplace pension, has set new earnings thresholds for the tax year 2013/14.

The automatic enrolment earnings threshold - the figure above which a worker must be automatically enrolled into a pension scheme, has been linked to the personal tax allowance for that tax year, and will be set at £9,440.  This is an increase from the 2012/13 figure of £8,105.

In addition, the qualifying earnings bands have been amended, with the lower limit increasing from £5,564 in 2012/13 to £5,668 for the tax year 2013/14.  This is the same as the lower earnings limit for National Insurance purposes.

The upper limit for qualifying earnings has been lowered, again to align with the National Insurance upper earnings limit, from the 2012/12 figure of £42,475 to £41,450 for the tax year 2013/14.

These changes will mean that the earnings on which contributions must be based will decrease, and this will have the effect that the resultant benefits will decrease.

Further, it means that as many as 400,000 employees that would previously need to be automatically enrolled into a workplace pension will no longer be eligible, as they will fall under the threshold earnings amount.

The new limits will largely be welcomed by employers, as it will not only simplify administration by aligning the figures with NI earnings limits, but it will also reduce pensions costs, by reducing the contributions payable and removing some lower paid employees from the requirement to enrol them into a pension.

There will also be administrative effects for employers that have a staging date of 1 March or 1 April of 2013, as they will need to enrol workers on the 2012/13 figures, and then amend these to the 2013/14 figures by the start of the tax year.  Such employers may consequently wish to consider postponing auto-enrolment until after the start of the new tax year, as they are entitled to under the auto-enrolment legislation.

Posted on: 18/12/2012

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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