The government has confirmed grants to pay workers’ wages during the coronavirus crisis will also cover employer auto-enrolment (AE) pension contributions. ... Auto-enrolment contribution rates 2020. Finally, estimates of the equalities impacts of different thresholds are produced using 2018 ASHE data and the 2018/19[footnote 8] Labour Force Survey (LFS). The breakdowns of these demographics are presented in Annex A. The baseline thresholds in 2019/20 are the 2019/20 automatic enrolment thresholds. The Secretary of State has considered all review factors against the analytical evidence and has decided to maintain the link with the National Insurance contributions lower earnings limit at its 2020/21 value of £6,240 by setting this as the value of the lower limit of the qualifying earnings band for 2020/21. They can ask to join your pension scheme but you don’t need to pay money into their pension pots unless you’d like to. The LEL and UEL are held constant at their 2019/20 levels uprated in line with earnings growth, to isolate the impact of changes to the trigger. These volumes are informed by HMRC Pay As You Earn data and consistent with The Pension Regulator’s estimates, estimates of the bands of earnings on which individuals are making pension contributions, based on 2018 ASHE data. Millions of workers are being automatically enrolled into a workplace pension by their employer. It was a huge relief when an email arrived on 31 January 2020 announcing the 2020/21 national insurance thresholds. In the model, total individual and employer pension contributions in each scenario are estimated for the 2020/21 tax year using: private sector employees’ average earnings estimated using the Annual Survey of Hours and Earnings (ASHE) data[footnote 5]. 1. We account for evidence which suggests that some employers contribute on a band of earnings between £0 and the UEL, rather than the LEL and the UEL, contribution rates for employers and employees, where the minimum for a qualifying pension scheme in 2020/21 is 8% total contributions (including tax relief) on relevant earnings, of which at least 3% is from the employer. Analysis is presented for two groups: the population eligible for automatic enrolment (“the eligible population”)[footnote 9] and the population who are eligible but not currently saving in a qualifying workplace pension (“the target population”)[footnote 10]. They are better represented in the newly eligible group – 20% of this group are disabled, according to estimates informed by the LFS. 4. Other enquiries about the content of this document should be directed to: Latest “Automatic enrolment declaration of compliance” report can be found at www.thepensionsregulator.gov.uk/doc-library/research-analysis ↩, ‘The purposes of subsection (1) the Secretary of State may take into account any of the factors specified in subsection (4) (as well as any others that the Secretary of State thinks relevant). More than £10,000 per year, you must auto-enrol them in your workplace pension and both you and they must contribute. In total there will be 300,000 people who will be eligible to be automatically enrolled into a pension in 2020/21 who earn less than the personal tax allowance. This comparison is also made in Chart 1. The Pensions Regulator (TPR) provides guidance to employers on choosing a pension scheme for their staff in order to discharge their statutory obligations under automatic enrolment. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk. Women are under-represented in this group because they earn less than men[footnote 14]. To estimate the baseline level of pension saving in 2020/21, these thresholds are uprated in line with earnings growth forecasts. This means your ‘qualifying’ earnings for 2020-21 are £8,788 because dividend income doesn’t count. The Secretary of State has considered each of the above principles alongside an assessment of the relevance of the review factors set out in the Pensions Act 2008 in reaching a conclusion on the level at which to set each threshold for 2020/21. This represents a real terms decrease in the value of the trigger when combined with assumed wage growth and will bring in an additional 80,000 individuals into the target population. Volumes of savers in the eligible target group are rounded to the nearest 10,000. It is a statutory requirement that the Secretary of State reviews all 3 thresholds in each tax year. ↩, The LFS does not collect data on employer contributions to pensions so it is not possible to produce analysis for the eligible target population. All content is available under the Open Government Licence v3.0, except where otherwise stated, Automatic enrolment in workplace pensions, Automatic enrolment: review of the earnings trigger and qualifying earnings band for 2020/21, Annex A – Equalities impacts on affected groups, nationalarchives.gov.uk/doc/open-government-licence/version/3, www.gov.uk/government/organisations/department-for-work-pensions, www.thepensionsregulator.gov.uk/doc-library/research-analysis, http://www.legislation.gov.uk/ukpga/2011/19/contents/enacted, https://www.gov.uk/government/publications/automatic-enrolment-review-2017-maintaining-the-momentum, www.ons.gov.uk/ons/taxonomy/index.html?nscl=Annual+Earnings, https://www.gov.uk/government/publications/employers-pension-provision-survey-2017, https://www.gov.uk/government/statistics/workplace-pension-participation-and-saving-trends-2008-to-2018, https://www.thepensionsregulator.gov.uk/en/business-advisers/automatic-enrolment-guide-for-business-advisers/6-choosing-a-pension-scheme/what-to-consider-when-choosing-a-scheme#d9567402515148d9a1e35201574bc728, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2019, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/january2020, Coronavirus (COVID-19): guidance and support, Transparency and freedom of information releases, Current trigger (2019/20) uprated by earnings inflation, Uprate by estimate earnings inflation (baseline), the percentage of employers who indicated that they behaved in that way, and, the appropriate tax rate, either employer. They therefore may not sum exactly. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief on the individual’s contribution. 15% of the eligible group under the proposed thresholds are disabled. Employer tax relief represents the tax no longer paid by employers who respond to the additional pension contribution requirements of the workplace pension reforms by reducing profits or wages paid to their employees. Quarter 3 2019 is used to be consistent with how tax thresholds are uprated when using CPI. Employer tax relief represents the tax no longer paid by employers who respond to the additional pension contribution costs of the workplace pension reforms by reducing profits or wages paid to their employees. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% is used. It is your earnings before tax (up to a maximum limit of £50,000 per year) – less the lower earnings threshold of £6,240. 8. The lower limit of the qualifying earnings band sets the minimum amount that people have to start saving from and minimum employer contributions. Automatic enrolment (AE) obliges employers to enrol all workers who ordinarily work in Great Britain and who satisfy age and earnings criteria into a qualifying workplace pension and pay at least the minimum level of contributions. 2. Like the LEL, the UEL does not affect who is eligible for AE so population impacts are not included. 1. In April 2019 the minimum contributions for a qualifying pension scheme rose to 8% (on a band of earnings). The methodology outlined above looks only at those eligible to be automatically enrolled. 2. The cost implications of the thresholds remain relevant and we need to factor in the continuing importance of simplicity. The CPI measure of inflation was 1.8% in quarter 3 2019. 5. ↩, The target population consists of eligible individuals who are either (i) not saving in a pension scheme, or (ii) saving in a pension scheme where the employer contributes less than 3% of the individual’s salary, and is not a defined benefit scheme. They therefore may not sum exactly. The PLSA says an 18-year-old can accumulate savings 15% greater than a … Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. Employer plus employee contributions with tax relief must total at least 8% of QE. This was increased in April 2019. This includes overtime and bonus payments. Relief at source arrangements are used by personal and stakeholder pensions (that is, pensions set up with an insurance company) and some auto-enrolment workplace pensions. To use the above figures, choose the option 'Minimum Pension for Auto Enrolment (RAS)'. They are set in legislation and reviewed annually. It also reflects the need for stability at this point whilst we continue to learn from the increases in minimum contribution rates in April 2018 and April 2019 and provides consistency of messaging for both employers and jobholders. 6. Gender and age estimates are derived from ASHE 2018; as this does have data on pension contributions, the splits for these variables are in terms of proportions in the eligible target group. For the 2020/2021 tax year, this range is between £6,240 and £50,000 a year (£520 and £4,167 a month, or £120 and £962 a week). The government recognises the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the personal allowance. We use cookies to collect information about how you use GOV.UK. Auto Enrolment Under ‘Automatic enrolment’ rules, any employer (with at least one member of staff) must automatically enrol every employee between the age of 22 and State Pension age and earning in excess of £10,000 a year (2020/21 tax year) into a ‘Workplace pension scheme’. Find out how pensions auto-enrolment works, when you'll be enrolled and how much you contribute. In this case, the deductions from pay include a higher pension contribution (5% of QE) and lower tax, assuming the employee earns enough to pay tax. mse launches energy market game-changer – the uk's first auto compare-and-switch service NS&I TO SLASH SAVINGS RATES AND PREMIUM BOND PRIZES 10 January 2010 at 6:37PM edited 30 November -1 at 1:00AM in Water Bills Total pension saving increases as the LEL decreases (compared to the baseline), as pension contributions are paid on a larger proportion of an individual’s income. The lower earnings level of the band is also relevant to defining who falls into the category of ‘non-eligible job-holders’. Section 14 of the Pensions Act 2008 also sets out certain factors which the Secretary of State may take into account in reviewing these amounts. 1. These principles were endorsed by stakeholders and the government’s view is that they remain relevant: In particular, at what level will the earnings trigger bring in as many people as possible who will benefit from saving? The current auto-enrolment regime requires employers to enrol workers who are at least 22 years old and earn over £10,000. Unlike the earnings trigger, the LEL does not impact the number of people who are eligible for AE target group and as such, population effects are not included. As a result of automatic enrolment, millions of people now have a workplace pension. They are also less likely to work full time and more likely to work part-time[footnote 15]. Qualifying earnings: This is the part of your annual pay that will be used to calculate your pension contribution under automatic enrolment. Out of hours: 07659 108883 (journalists only), Website: www.gov.uk/government/organisations/department-for-work-pensions, Follow us on Twitter: www.twitter.com/dwppressoffice. These are isolated effects – both the LEL and UEL remain unchanged compared to the baseline. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% was used. If an employer chooses to pay the minimum and the pension scheme uses Relief at Source (the tax relief used by NEST) then the minimum contributions are. ↩, Eligible employees in 2018/19 are defined as those: 1. ordinarily working in Great Britain; 2. aged at least 22 and under State Pension Age; 3. earning more than £10,000 a year. For each of the groups analysed three figures are presented: a) the demographic breakdown of private sector pension savers under the baseline, earnings-adjusted 2019/20 thresholds, b) the demographic breakdown of private sector pension savers who are newly eligible under the proposed threshold changes in 2020/21, c) the demographic breakdown of all private sector pension savers under the newly proposed thresholds for 2020/21. More… The ‘Uprate by price inflation’ effect is calculated by uprating the 2019/20 annual rate by also using quarter 3 2019 CPI and rounding to the nearest £1. 4. The decision reflects the key balance that needs to be struck between affordability for employers and individuals and the policy objective of giving those, who are most able to save, the opportunity to accrue a meaningful level of savings with which to use for their retirement. Percentage figures are rounded to their nearest percentage point. They therefore may not sum exactly. Analysis for the BBC has examined how pay will be hit when higher contribution rates for those with auto-enrolment pensions kick in. The Office for Budget Responsibility’s (OBR’s) March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% was used. Don’t include personal or financial information like your National Insurance number or credit card details. At what level does the trigger need to be set to avoid the automatic enrolment of those who are unlikely to benefit from saving? 7. ... (in the tax year 2020/21). 2. Automatic enrolment if you’re 21 or under Automatic enrolment only applies to workers aged 22 or over. Raising the earnings trigger would exclude more people from the eligible population for automatic enrolment. Your employer has to pay at least 3% of your annual ‘qualifying earnings’ into your pension. A person's qualifying earnings from an employment are their gross earnings in the qualifying earnings band in any pay reference period. Conversely, women make up a much larger percentage of people earning below the equivalent of £10,000. For the 2020/21 tax year, QE is a band of earnings starting at £520/m (or £120/wk) and ending at £4,167/m (or £962/wk). They therefore may not sum exactly. 3. 6. PDF 80KB , 3 pages Published: April 2017. As highlighted above, IFS analysis shows that automatic enrolment has increased pension participation amongst those outside of the eligibility rules. ASHE was used to analyse the eligible target population by gender and age. The government’s 2019 manifesto included a commitment to conduct a comprehensive review to look at how to fix this issue. Alignment as far as possible with recognisable tax and National Insurance contributions (NICs) thresholds simplifies system builds, provides compatibility with existing payroll systems and makes automatic enrolment as easy as possible to administer and explain. The Secretary of State has considered the latest analytical evidence and the policy objectives and has concluded that the existing threshold of £10,000 remains the correct level at this point in the establishment of automatic enrolment and will not change for 2020/21. We use this information to make the website work as well as possible and improve government services. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. It is now clear that employees will benefit from a primary class 1 threshold of £9,500, as promised in the Conservative party manifesto. If you pay tax at the basic rate of 20%, tax relief is paid into your pension automatically. To help us improve GOV.UK, we’d like to know more about your visit today. ↩, EPP 2017 Survey https://www.gov.uk/government/publications/employers-pension-provision-survey-2017 ↩, The data sets: April – June 2018, July – September 2018, October – December 2018 and January – March 2019 were combined to represent 2018/19. Continuing to align the upper earnings limit for National Insurance contributions would mean freezing it at 2019/20 limit and represent a real term decrease. The baseline thresholds are the 2020/21 AE thresholds uprated in line with the OBR’s earnings growth forecasts. You are free to choose a more generous pension but contributions can't be below a minimum percentage of Qualifying Earnings (QE). Scenarios after the baseline present the change in contributions when compared to the baseline. Press enquiries should be directed to the Department for Work and Pensions press office. Aligning the lower limit of the qualifying earnings band with the National Insurance lower earnings limit of £6,240 represents a slight decrease against the baseline threshold, so it results in an increase in pension saving by around £24 million when compared to the baseline scenario. Three quarters of those who will become eligible for automatic enrolment will be women, as their incomes grow above £10,000 between 2019/20 and 2020/21. This will increase total pension saving by an estimated £39m. Jill earns £620 for one month. People in this group can opt-in to their employer’s workplace pension and will received a mandatory employer contribution if they earn between the lower earnings limit and the earnings trigger. This decrease consists of £10 million fewer in employer contributions, £12 million in employee contributions, and £4 million in income tax relief on the individual’s contribution. The current (2019/20) and proposed (2020/21) automatic enrolment thresholds are displayed in Table 1. It will take only 2 minutes to fill in. Caution should be exercised in interpreting the figures presented. Under the proposals an estimated 39% of the eligible population are women. The qualifying earnings bands do not impact eligibility and are therefore not included in this analysis. New rates of Statutory Pay. Here are the pay bands and contribution rates that apply from April 2020. Automatic enrolment changed this. 3. Broadly, we model three different types of options for each threshold for comparison against the baseline. 7. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. Auto-enrolment example calculation. In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,000 a year before tax. For more information visit this section of The Pension Regulator’s website. The Secretary of State remains of the view that voluntary opt-in provides the most appropriate option for those earning less than the earnings trigger who wish to save. ... (£6,240 to £50,000 for the tax year 2020/21). To calculate the NI lower earnings limit for 2020/21, HMT rounded the uprated the 2019/20 weekly threshold down to the nearest £1. The Department for Work and Pensions (DWP) published Automatic enrolment: review of the earnings trigger and qualifying earnings band for 2020/21 on 27 February 2020. This information is also presented in Chart 1. Automatic enrolment has been introduced gradually and is now in force for all employers and eligible workers. Of this, employers would approximately contribute £34m less while employees would contribute £42m less, with the rest coming from a reduction in income tax relief by the government. Scenarios after the baseline present the change in costs when compared to the baseline. Figures over £1,000m are rounded to the nearest £10 million and figures below are rounded to the nearest £1 million to reflect uncertainties associated with the modelling used. Jack earns £110 for one week. Volumes of savers in the eligible target group are rounded to the nearest 10,000. Employer plus employee contributions with tax relief must total at least 8% of QE. As a result of maintaining the earnings trigger at £10,000, we estimate that an additional 40,000 people will be eligible to be automatically enrolled into a pension for the first time in 2020/21, whilst earning below the personal tax allowance of £12,500.
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