View more on these topics

When should auto-enrolment count from the first pound?

Chris-Curry-700x450.pngThe government has come under fire for increasing the lower earnings limit when it has been recommended to reduce it. But is it that simple?

Earlier this month, the Scottish National Party held a parliamentary debate, calling on the government to set out a timetable for the implementation of one of the key recommendations of the 2017 auto-enrolment review – the removal of the lower earnings limit for the calculation of minimum contributions.

This was set at £6,032 and increases to £6,134 this month. But is the government guilty of hypocrisy, as claimed by the SNP?

At first glance, increasing the limit while the recommendation is to reduce it does look counter-intuitive. However, as is always the case with pensions, there are many different factors at play.

Chris Curry: New evidence boosts auto-enrolment success story

There are a number of reasons why the auto-enrolment review recommended removing the limit.

One argument is simplicity. It will make the system much easier to understand – and to administer – if every £1 earned is eligible for a pension contribution. It also brings the system into line with expectations.

How many people realise their pension contributions are currently based on band earnings rather than all of their pay?

What is more, it increases the overall contribution levels without necessarily making the contribution rate look higher, and it has a disproportionate impact on lower earners. Removing the limit increases the contributions of everyone enrolled by the same cash amount, which is proportionately larger for low earners. In percentage terms, their contributions will increase more.

As well as better pensions for those in auto-enrolment, it can also boost the benefit of opting-in, which might become more common as workplace pension saving becomes the social norm.

However, removing the limit also means higher contributions from the employee as well. Care must be taken to ensure this does not lead to people stopping saving on affordability grounds. This is why the recommendation is for the limit to be removed gradually over time to avoid sudden changes.

This gradual approach is entirely in keeping with the way in which auto-enrolment has been introduced in the UK.

The staging of employers by size and the phasing in of contributions over time has so far been successful.

Wait and see
We have to remember that even this first part of auto-enrolment is not yet fully rolled out.

The final planned phasing of the minimum contribution level does not come in until April, and although the available evidence from the initial increase in contributions last April has been positive, it makes sense to see what happens with this one and to learn from that in implementing further changes.

In this context, it might also make sense to increase the lower earnings limit for contributions this year. The higher limit will partially offset the higher contributions, softening the impact of phasing.

If this helps retain people in workplace pension saving, it could be a good thing.

2018 in review: The year in pensions

So, there are good reasons for not rushing to remove the lower earnings limit.

However, there is also something to be said for the SNP approach. All the major changes to auto-enrolment have so far been very well signposted.

The auto-enrolment review recommendation is to remove the limit (and lower the age for auto-enrolment to 18 from 22) by the mid-2020s. We enter the 2020s next year.

No surprises
If the limit is to reduce gradually, the process needs to start before too much longer, and auto-enrolment implementation has shown that a policy of giving notice and no surprises can be very beneficial.

For this to happen, work on the precise way in which the limit is to be withdrawn and the timetable for withdrawal needs to start soon.

This could even start with a freezing of the limit at current levels.

Even if there is unexpected evidence of higher-than-expected behavioural change from the increase in minimum contributions next month, this would start to become apparent by the end of this year and should be factored in to planned changes. This would be easier than having to make changes more rapidly and potentially better than delaying implementation.

It is highly unlikely this will be the last change to auto-enrolment policy, and it could be just the next phase of the increase in the minimum contribution level rather than the final word.

While there should be no rush to remove the limit earlier than expected, it is important there is a clear plan and timetable for withdrawal of the limit to give the policy the best chance of success.

Chris Curry is director of the Pensions Policy Institute


neill macgillivray

Neil MacGillivray: Just how ‘unfair’ is doctors’ annual allowance hit?

Campaigners should tread carefully in calling for reforms for those in the NHS pension scheme Recent articles reporting the furore around the annual allowance and how it “unfairly” impacts individuals in public sector defined benefit schemes have piqued my interest. Adding fuel to the fire was news the British Medical Association is calling on the […]

Firms are changing bonus structure but slowly

The way advisers are paid is slowly shifting from a focus on individual performance to wider team objectives Roderic Rennison says. He made the point in a panel discussion on how to reward top advisers at Money Marketing Interactive today.   Fellow panellists Addidi Wealth managing director Anna Sofat and Standards International director Michelle Hoskin talked about the […]


Platforms adding needless tools in ‘paranoid’ bid for survival

Experts claim platforms are “running scared” and creating investment research tools that advisers do not want out of “paranoia” in a bid for self-preservation at Money Marketing Interactive today. The Lang Cat consulting director Steven Nelson says it is not surprising platforms keep adding investment tools that many advisers would prefer to buy in from […]

A DGT with 100% access and 100% discount?

Clare Moffat, Technical Manager, looks at the benefits of pensions from an IHT perspective. 100% access and 100% discount – what type of wrapper could this be? A pension! Post flexibility there is 100% access (for those over 55) and normally pensions are inheritance tax (IHT) free. With flexibility the options available on death mean […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. I deliberately set schemes up using banded earnings to promote longevity of membership for basic rate tax payers, who were less likely to be able to afford contributions once the higher tiered contributions come into force. Intentionally done so as to hopefully cost the employer more in the long run, despite being the agent of the employer! Banded earnings is also likely to be the required method of pensionable earnings for those impacted by the taper, which in years to come is likely to catch the highest earners with the direction of travel being to limit anything anyone can do with a pension if they earn more than £210k and the desire to increase from 8% contributions….

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm