The criteria for being automatically enrolled into a pension is changing, pushing thousands of people out.
Auto-enrolment, where workers are automatically entered into a pension which both their employer and the Government contribute to, is undoubtedly a good thing, helping to address the serious pension problems faced by many in the UK.
However, what's not such a good thing is that the earnings threshold for auto-enrolment into a pension is being increased to £10,000, meaning a further 170,000 workers will be excluded from joining.
Of those people, 120,000 are women.
Auto-enrolment
Millions of people in the UK aren’t saving enough, or anything at all, for their retirement. Auto-enrolment was launched to address that.
All employers are required to sign up, though the introduction of the scheme is phased, depending on the size of the employer. It is already live with large companies, and will start being implemented by medium-sized firms in the New Year.
Employees are automatically signed up to the pension scheme, if they are eligible. To be included you need to be aged 22 or over (and below State Pension Age) and, from April, earn more than £10,000. The equivalent of 8% of the worker's salary goes into the pension, of which at least 3% is from the employer. However, you can opt out if you wish.
For more, read Workplace pensions: what it means for you
Take control of your pension saving with a SIPP
Pushed out of pensions
Pensions Minister Steve Webb has confirmed the change to push up the ‘opt in’ limit from £9,440, which mirrors the personal tax allowance level, to £10,000.
Workers will still be able to ‘opt in’ to a workplace pension scheme if they’re earning less than the £10,000 threshold, though it's expected that take up will be low. The reason auto-enrolment was set up in the first place was because people weren't proactively setting up their own pensions. This problem still remains for those who are not eligible for the scheme.
[SPOTLIGHT]Tom McPhail, head of pensions research for Hargreaves Lansdown, said changing the limit is risky because those people earning below £10,000 may not be saving enough money to live on in retirement.
“The Government is increasingly in danger of making the same mistake that the previous Government did on stakeholder pensions in 2001, by assuming that low cost is a guarantee of a successful outcome. You can have all the price caps and defined ambition ideas you like, but if you don’t get people to spend less and save more it will all be a waste of time,” he said.
The average part-time salary is just under £9,000 a year, which means that the majority of the UK’s part-time workers won’t be enrolled automatically.
Frances O’Grady, general secretary of the TUC, said: “It is time to break the link between the income tax threshold and the auto-enrolment threshold unless we want to turn auto-enrolment into a pensions system that predominantly benefits men.”
The Government is also changing the lower limit of qualifying earnings from £5,668 to £5,772 and the upper limit from £41,450 to £41,865.
Take control of your pension saving with a SIPP