auto enrolment pension rates 2020/21

Tax relief 1% of QE, claimed from HMRC by the pension company. The rate for Statutory Sick Pay (SSP) is £95.85 per week from 6 April … Let’s say you take a salary of £8,788 and a dividend of £20,000. Table 7 shows that approximately 37% of the eligible group under the baseline are women. Built specifically for auto-enrolment. If you pay tax at the basic rate of 20%, tax relief is paid into your pension automatically. income tax relief – individuals receive tax relief on their pension contributions. 15% of the eligible group under the proposed thresholds are disabled. 5. This publication is available at https://www.gov.uk/government/publications/automatic-enrolment-review-of-the-earnings-trigger-and-qualifying-earnings-band-for-202021/review-of-the-automatic-enrolment-earnings-trigger-and-qualifying-earnings-band-for-202021-supporting-analysis. Table 2 compares the pension contributions under the baseline thresholds in 2019/20 and 2020/21, showing a £668 million increase in pension saving. The earnings trigger and the qualifying earnings bands are often jointly referred to as the automatic enrolment earnings thresholds. The CPI measure of inflation was 1.8% in quarter 3 2019. Pension schemes under the employer duties - a thorough guide to what automatic enrolment means for pension schemes, including details on phased increases to minimum contributions. The baseline thresholds for 2020/21 are the 2019/20 automatic enrolment thresholds adjusted for earnings growth. Those from BME groups make up 12% of the eligible group under the baseline and the proposed thresholds. 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. 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. 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. In that way, we can help avoid any risk of deterring individuals from continuing to save or undermining employer engagement with the reforms. ↩, 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. This longer term policy direction does not pre-empt this year’s or any future annual thresholds review, pending the introduction of legislation which would need to be enacted to remove the lower earnings limit of the qualifying earnings band[footnote 4]. 3. 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). The government has confirmed grants to pay workers’ wages during the coronavirus crisis will also cover employer auto-enrolment (AE) pension contributions. The earnings trigger and UEL are held constant at their 2019/20 levels uprated in line with earnings growth, to isolate the impact of changes to the LEL. Therefore, demographic estimates for disability and ethnicity are for those eligible to be automatically enrolled, rather than those eligible and not saving (for example in the target group). You’ve accepted all cookies. ASHE was used to analyse the eligible target population by gender and age. In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,000 a year before tax. Automatic enrolment into a workplace pension with an employer contribution in addition to that of an individual is intended to build on the foundation of state pension entitlement. The earnings trigger and LEL are held constant at their 2019/20 levels uprated in line with earnings growth, to isolate the impact of changes to the UEL. These rates explain why over 9.24 million employees on low incomes, part-time workers or those too young or old are missing out on auto-enrolment savings, the association stated. Press enquiries should be directed to the Department for Work and Pensions press office. Within the review of the automatic enrolment earnings trigger and qualifying earnings band for 2020/21 the Secretary of State has some flexibility in the level to which the amounts for the earnings trigger and qualifying earnings band are set[footnote 2]. 2. 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. 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. You are free to choose a more generous pension but contributions can't be below a minimum percentage of Qualifying Earnings (QE). This survey does not have data on pension contributions, so it cannot identify whether one has a pension or not. 7. 3. This comparison is also made in Chart 1. They therefore may not sum exactly. As highlighted above, IFS analysis shows that automatic enrolment has increased pension participation amongst those outside of the eligibility rules. This was increased in April 2019. Research published by the Institute for Fiscal Studies (IFS) in 2016[footnote 3] showed that automatic enrolment had increased workplace pension membership by 29 percentage points among those earning under £10,000 per year (compared to a baseline of 18% prior to the reform). To use the above figures, choose the option 'Minimum Pension for Auto Enrolment (RAS)'. This is reduced for shorter reference periods: 2. They are therefore over-represented in the newly eligible group. The cost implications of the thresholds remain relevant and we need to factor in the continuing importance of simplicity. 1. It will take only 2 minutes to fill in. Finally, uprating the UEL according to price inflation would mean decreasing it slightly in real earnings terms, thereby marginally decreasing total pension saving by approximately £29m. ... Auto-enrolment contribution rates 2020. Understand the payment arrangements under the government's automatic enrolment pensions scheme with our comprehensive overview on automatic enrolment. Scenarios after the baseline present the change in contributions when compared to the baseline. Automatic enrolment changed this. 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. 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 also assessed the equality impacts associated with this decision which are detailed later in this report. 4. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief on the individual’s contribution. Automatic enrolment has been introduced gradually and is now in force for all employers and eligible workers. 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 will increase total pension saving by an estimated £39m. 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. This represented an increase of £7.0 billion on 2017/18[footnote 12]. The auto enrolment minimum is initially 2% of which at least 1% must be paid by the employer, over time this increases to a total of 8% of which at least 3% must be paid by the employer. 7. We will work to maintain the consensus that has underpinned AE’s success, including giving employers and savers time to plan for future changes. 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. Scenarios after the baseline present the change in costs when compared to the baseline. Workers who earn at least as much as the lower threshold each year are entitled to a minimum contribution into their retirement pot. 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. Women are under-represented in this group because they earn less than men[footnote 14]. The government remains of the position that if the trigger is too high, then low to moderate earners who can afford to save (and who are the main target group of the policy), may miss out on the benefits of a workplace pension. An entitled worker is: – aged between 16 and 74 and – has earnings less than the lower earnings threshold (currently £6,240 a year/£520 a month/£120 a week for the 2020/21 tax year). Employer plus employee contributions with tax relief must total at least 8% of QE. 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]. The automatic enrolment earnings trigger determines who is eligible to be automatically enrolled into a workplace pension by their employer in terms of how much they earn. EPN596 - Employee and employer contribution rates for 2020/21 These are isolated effects – both the LEL and UEL remain unchanged compared to the baseline. The median age of the eligible group under the proposed changes remains unchanged at 39. We use this information to make the website work as well as possible and improve government services. Auto Enrolment qualifying earnings are the earnings you make between £6,240 and a limit of £50,000 (2020/21). 2. 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. From April 2020 you will only have to contribute to an employee’s workplace pension if they join your scheme and you pay them at the rate of £6,240 or more per year. Of this, you need to pay at least 3 per cent. £100 of this falls in the QE band, so the employer contributes £3, Jill £4 and HMRC £1. This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. They therefore may not sum exactly. Employers can meet these rules in different ways, such as paying the whole 8% themselves. 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. 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. 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). His earnings don't reach the QE band, so no pension contributions are made. For example, aligning the earnings trigger with the NI lower earnings limit would increase the eligible population by 1.32 million people, increasing total pension saving by £480m. 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. At what level does the trigger need to be set to avoid the automatic enrolment of those who are unlikely to benefit from saving? The upper limit of the qualifying earnings band caps mandatory employer contributions. 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. A person's qualifying earnings from an employment are their gross earnings in the qualifying earnings band in any pay reference period. 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. The Secretary of State has concluded that mandatory employer contributions should still be capped and decided that the National Insurance contributions upper earnings limit at its 2020/21 value of £50,000 is the factor that should determine the upper limit of the qualifying earnings band. The current (2019/20) and proposed (2020/21) automatic enrolment thresholds are displayed in Table 1. The earnings trigger is one of the three key factors which ultimately governs who gets enrolled into a workplace pension scheme through automatic enrolment. To ensure this, we need to maintain an appropriate gap between the lower limit of the qualifying earnings band and the earnings trigger. 5. They are slightly better represented in the newly eligible group, at 14%. Here are the pay bands and contribution rates that apply from April 2020. By 2020/21, we estimate here that there will be an extra £19.4 billion of workplace pension saving per year as a result of automatic enrolment, before the impact of threshold changes is taken into account. It is estimated by multiplying total pensions contributions from individuals by the appropriate income tax rates[footnote 6]. There is also a qualifying earnings band in respect of which contributions are made – the band is defined by the lower earnings limit and the upper earnings limit. The 2017 Review of Automatic Enrolment – Maintaining the Momentum – proposed the removal of the lower earnings limit. The lower earnings level of the band is also relevant to defining who falls into the category of ‘non-eligible job-holders’. Employer plus employee contributions with tax relief must total at least 8% of QE. (i) retaining the 2019/20 automatic enrolment earnings trigger (£10,000), (ii) aligning the LEL with the 2020/21 National Insurance lower earnings limit (£6,240) and, (iii) aligning the UEL with the 2020/21 National Insurance upper earnings limit (£50,000). LFS was used to analyse the eligible population by disability status and ethnicity[footnote 11]. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. New NIC thresholds. It is your earnings before tax (up to a maximum limit of £50,000 per year) – less the lower earnings threshold of £6,240. 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]. The median age of the eligible group under the baseline is 39. Disabled people make up 15% of the eligible group under the baseline scenario. Feedback from stakeholders also continues to suggest that many employers are contractually enrolling their non-eligible and entitled jobholders (for example, those earning at a level below that set by the earnings trigger) anyway. We’ll send you a link to a feedback form. Conversely, women make up a much larger percentage of people earning below the equivalent of £10,000. This guidance covers the choice between net pay and relief at source schemes, and the implications for employees who do not pay income tax. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. PDF 80KB , 3 pages Published: April 2017. Figures over £1,000m are rounded to the nearest £10 million. Raising the earnings trigger would exclude more people from the eligible population for automatic enrolment. As in previous years, the changes under consideration for the 2020/21 review are not expected to particularly affect individuals according to their marital status, sexual orientation, gender identity, religion or belief. Freezing the threshold at £10,000 increases the number of individuals who are in the automatic enrolment target population by approximately 80,000 people. 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. Table 6 shows the impact on employers, individuals and government associated with the baseline upper earnings limit and various options considered for its value in 2020/21, where these changes are made in isolation. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. The lower limit of the qualifying earnings band sets the minimum amount that people have to start saving from and minimum employer contributions. 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. 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. Total pensions contributions from individuals by the appropriate income tax relief auto enrolment pension rates 2020/21 their pension in... More information visit this section describes the estimated impact of the Open government Licence v3.0 except where otherwise stated and. A primary class 1 threshold of £9,500, as promised in the enrolment. So if your employer has to pay at least 22 years old and earn over £10,000 raising the earnings on! 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