A powerful coalition of trade unions, providers and directors are uniting to demand the auto-enrolment earnings trigger is lowered.
Last month, the Government launched a review of the auto-enrolment earnings trigger, raising the possibility of scrapping the link with the income tax threshold.
Income tax personal allowance has risen dramatically over this parliament from £6,475 in 2010 to £10,500 next April – it is £10,000 today.
The Department for Work and Pensions consultation set out four options for reform – freezing the earnings trigger at the current level of £10,000; raising the trigger by indexation (CPI or earnings); increasing the trigger to £10,500, in line with the income tax threshold; or using the Pensions Commission benchmark replacement rate to determine the trigger.
But experts warn the options do not go far enough and call for more radical action from policymakers.
The Institute of Directors wants to abolish all limits and the Trades Union Congress wants a level below the national insurance threshold. Meanwhile, Hargreaves Lansdown wants auto-enrolment to start at £7,800.
Pension providers Aegon and Standard Life favour freezing the threshold at £10,000, but the Confederation of British Industry says it should remain linked to income tax until 2018.
IoD senior adviser on financial services Malcolm Small says: “Our members regard the rules set around band earnings as way too complicated to understand.
“We would argue not to alter the levels but to abolish them so if I earn a £100 this week then 3 per cent goes into my pension – it should be automatic and needs radical simplification. We don’t want to debate the level but to get rid of it.”
Aegon regulatory strategy manager Kate Smith also calls for a simple solution but says the trigger should be frozen at £10,000. Standard Life head of pensions strategy Jamie Jenkins says freezing the threshold is a reasonable compromise.
TUC pensions policy officer Tim Sharp says: “The auto-enrolment thresholds were done for good reason but it was not envisaged that income tax thresholds would rise so fast.
“It is right to re-consider it but my concern is the four options for reform are not that radical. The Government should think wider than the options outlined.
“One in four women earn less than £10,000 so there is concern about gender inequality.”
Hargreaves Lansdown head of pensions research Tom McPhail says now is the moment to change thresholds.
He says: “With so much going on with pensions, it’s not surprising that the Government is losing track of some of its policies; it makes no sense for the DWP to carry on blindly increasing the thresholds when the rules of game have fundamentally changed.”
But CBI head of public services reform Jim Bligh says the level should remain linked to income tax and rise to £10,500 next April.
He says: “If we change the thresholds now then it will create significant administrative burdens for existing employers who have already gone through auto-enrolment.
“They will have to re-enrol people. It is also for employers getting ready for auto-enrolment now. There are 84 per cent of employers are preparing their systems for auto-enrolment so the last thing we want to do is change the rules at this stage. If anything changes we want it to happen in 2018 when it is fully rolled out but certainly not now.”