The earnings trigger for automatic enrolment is to be frozen at £10,000 for 2015/16, the Government confirms.
Following fears low earners were missing out on the flagship pension reforms, the Government launched a consultation in October asking for views on how to set the trigger for entry into auto-enrolment and the bands used to calculate contributions.
Experts warned pegging the trigger to the income tax threshold was pulling thousands of people out of auto-enrolment.
The Government’s response to the consultation says the decision to keep the trigger at £10,000 “strikes the right balance between ensuring that the people brought into pensions savings are likely to benefit and administrative simplicity”.
It adds: “The disadvantage of this option is that it will break the link between the earnings trigger and tax relief, [so] workers earning below £10,600 whose employers use net pay arrangements won’t be able to benefit.”
In addition, for 2015/16 the Government says the lower limit will be £5,824 and the upper limit £42,385, based on the National Insurance lower and upper earnings limits.
The Government rejected calls from some consultation respondents to remove the lower limit completely – which would have meant contributions would be due on every pound earned.
It says it wants to ensure contributions are “in pounds not pennies” and that the move would have placed a “large financial burden on employers” – boosting pension costs by £250m next year and £1.2bn a year from 2019/20.