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Automatic enrolment if you’re 21 or under Automatic enrolment only applies to workers aged 22 or over. ↩, Workplace Pensions Participation and Saving Trends 2008 to 2018 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 ↩, See analysis of the pay differences between men and women published by the Office of National Statistics: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2019 ↩, See ONS statistics: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/january2020 ↩. The breakdowns of these demographics are presented in Annex A. 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]. They are better represented in the newly eligible group – 20% of this group are disabled, according to estimates informed by the LFS. Table 2 compares the pension contributions under the baseline thresholds in 2019/20 and 2020/21, showing a £668 million increase in pension saving. 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]. 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. This means your ‘qualifying’ earnings for 2020-21 are £8,788 because dividend income doesn’t count. (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). Conversely, women make up a much larger percentage of people earning below the equivalent of £10,000. Caution should be exercised in interpreting the figures presented. To help us improve GOV.UK, we’d like to know more about your visit today. The methodology outlined above looks only at those eligible to be automatically enrolled. As before, these are the impacts of isolated LEL changes. 7. 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. They therefore may not sum exactly. Let’s say you take a salary of £8,788 and a dividend of £20,000. Women are under-represented in this group because they earn less than men[footnote 14]. The qualifying earnings bands do not impact eligibility and are therefore not included in this analysis. 5. 6. They are set in legislation and reviewed annually. They are: 1. freezing the thresholds at their 2019/20 level, 2. setting the thresholds in line with relevant 2020/21 National Insurance or tax thresholds, 3. uprating the 2019/20 thresholds by a relevant index (for example, earnings, consumer price index (CPI) etc). 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]. 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. 4. 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. It is estimated by multiplying total pensions contributions from individuals by the appropriate income tax rates[footnote 6]. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. You are free to choose a more generous pension but contributions can't be below a minimum percentage of Qualifying Earnings (QE). Understand the payment arrangements under the government's automatic enrolment pensions scheme with our comprehensive overview on automatic enrolment. At the same time, the minimum total auto-enrolment contribution rose to 8% (that's the total you and your employer together must put in). Jack earns £110 for one week. Your employer has to pay at least 3% of your annual ‘qualifying earnings’ into your pension. 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). 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. 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. In most automatic enrolment schemes, you’ll make contributions based on your total earnings between £6,240 and £50,000 a year before tax. This assumption has a minimal impact on the aggregated estimates present, although the distinction is important for a small group of individuals. 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. Raising the earnings trigger would exclude more people from the eligible population for automatic enrolment. The DWP intends to make it mandatory for all DC pension schemes used for automatic enrolment to use simpler annual benefit statements. 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). Those from BME groups make up 12% of the eligible group under the baseline and the proposed thresholds. AE and pension saving in the UK’: https://www.ifs.org.uk/publications/8723 ↩, https://www.gov.uk/government/publications/automatic-enrolment-review-2017-maintaining-the-momentum ↩, For more details on ASHE methodology, see the ONS documents at www.ons.gov.uk/ons/taxonomy/index.html?nscl=Annual+Earnings ↩, As in last year’s report, this calculation assumes that all savers are in a Net Pay Arrangement (NPA), rather than a Relief at Source (RAS) system. Of this, you need to pay at least 3 per cent. 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 government recognises the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the personal allowance. These figures can be found in Table 7, along with the estimated size of each of these groups. For the 2020/21 tax year, the workers minimum contribution rate will be 5 per cent, 1 per cent of this is paid by HMRC as basic rate tax relief… As highlighted above, IFS analysis shows that automatic enrolment has increased pension participation amongst those outside of the eligibility rules. This information is also presented in Chart 1. Percentage figures are rounded to their nearest percentage point. 2. 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). I understand the age tax allowance will be reduced if your income is £19500 in a year. 5. For more information visit this section of The Pension Regulator’s website. The upper limit of the qualifying earnings band caps mandatory employer contributions. 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. Impacts are calculated by comparing a modelled baseline scenario in 2020/21 against one where changes to the 2020/21 thresholds are made. Analysis for the BBC has examined how pay will be hit when higher contribution rates for those with auto-enrolment pensions kick in. 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. Automatic enrolment changed this. 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). 2020/21 tax year - the qualifying earnings band is earnings from £6,240 to £50,000 for pay reference periods of a year. 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. ↩, The LFS does not collect data on employer contributions to pensions so it is not possible to produce analysis for the eligible target population. Contributions and funding Further information on funding, with key points for employers going through automatic enrolment. The baseline thresholds for 2020/21 are the 2019/20 thresholds uprated in line with forecast earnings growth. The legal minimum for jobholders is currently 8 per cent of their qualifying earnings. The CPI measure of inflation was 1.8% in quarter 3 2019. 5. 4. Millions of workers are being automatically enrolled into a workplace pension by their employer. This represented an increase of £7.0 billion on 2017/18[footnote 12]. Find out how this affects you. 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 baseline thresholds are the 2020/21 AE thresholds uprated in line with the OBR’s earnings growth forecasts. 5. 1. The Department for Work and Pensions (DWP) has proposed that all 18-year-old workers will be automatically enrolled into a workplace pension scheme by 2020. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% is used. 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. 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. The earnings trigger is one of the three key factors which ultimately governs who gets enrolled into a workplace pension scheme through automatic enrolment. 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