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. 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. 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. 5. The baseline thresholds for 2020/21 are the 2019/20 thresholds uprated in line with forecast earnings growth. Conversely, women make up a much larger percentage of people earning below the equivalent of £10,000. For the 2020/21 tax year it's anything over £6,240 and up to £50,000. 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). Under the proposed thresholds, the overall level of pension saving amongst the eligible target population is estimated to be £19,410 million in 2020/21, £25 million lower than it would have been if the thresholds remained at 2019/20 levels in equivalent earnings terms. BME and disability estimates are derived from the Labour Force Survey 2018/19. Table 3 compares the impact of the baseline to the proposed thresholds on employers, individuals, and government. 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. 1. 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 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. 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. 3. ... (£6,240 to £50,000 for the tax year 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. They are slightly better represented in the newly eligible group, at 14%. 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]. Automatic enrolment changed this. Employer plus employee contributions with tax relief must total at least 8% of QE. This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. More information can be found here on the TPR website[footnote 13]. How much is the minimum contribution? There are no corresponding increases in April 2020, so the increase in the estimate of contribution costs this year relative to the previous year is largely driven by earnings growth. It was a huge relief when an email arrived on 31 January 2020 announcing the 2020/21 national insurance thresholds. If you pay tax at the basic rate of 20%, tax relief is paid into your pension automatically. The cost implications of the thresholds remain relevant and we need to factor in the continuing importance of simplicity. It is your earnings before tax (up to a maximum limit of £50,000 per year) – less the lower earnings threshold of £6,240. They therefore may not sum exactly. But if you’re younger, as long as you’re earning £6,240 or more (in tax year 2020-21), you can still opt in and benefit from extra money from your employer. You are free to choose a more generous pension but contributions can't be below a minimum percentage of Qualifying Earnings (QE). The Secretary of State has accounted for the impact of both the National Minimum wage and the National Living Wage when considering what the earnings trigger should be and continues to monitor the impact of this on low earnings and the automatic enrolment earnings trigger. 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. Everyone who is automatically enrolled should pay contributions on a meaningful portion of their income. The earnings trigger and the qualifying earnings bands are often jointly referred to as the automatic enrolment earnings thresholds. PDF 80KB , 3 pages Published: April 2017. Automatic pension benefits for the employed. This maintains the ability for the Secretary of State to exercise judgement on the appropriate levels to set the thresholds at each year, without being impeded by decisions that have been made previously. The current auto-enrolment regime requires employers to enrol workers who are at least 22 years old and earn over £10,000. Employers can meet these rules in different ways, such as paying the whole 8% themselves. The current (2019/20) and proposed (2020/21) automatic enrolment thresholds are displayed in Table 1. EPN596 - Employee and employer contribution rates for 2020/21 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. If a worker is automatically enrolled Employer contributions must be at least 3% of QE. 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’. 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. To estimate the baseline level of pension saving in 2020/21, these thresholds are uprated in line with earnings growth forecasts. We will work to maintain the consensus that has underpinned AE’s success, including giving employers and savers time to plan for future changes. 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. Retaining the link between National Insurance contribution levels and the qualifying earnings band limits, provides an important element of consistency for employers, the pensions industry and payroll services. Find out how this affects you. Freezing the threshold at £10,000 increases the number of individuals who are in the automatic enrolment target population by approximately 80,000 people. You can change your cookie settings at any time. Your employer has to pay at least 3% of your annual ‘qualifying earnings’ into your pension. 8. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. They are set in legislation and reviewed annually. This represented an increase of £7.0 billion on 2017/18[footnote 12]. We estimate both of these effects by multiplying the overall size of employer pension contributions by: All estimates of the contributions and tax relief associated with different thresholds are uncertain due to the use of modelling techniques that draw on a range of different data sources. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% was used. 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 are better represented in the newly eligible group – 20% of this group are disabled, according to estimates informed by the LFS. 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). 3. Automatic enrolment has been introduced gradually and is now in force for all employers and eligible workers. The qualifying earnings bands do not impact eligibility and are therefore not included in this analysis. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. Freezing the earnings trigger at £10,000 in 2020/21 whilst average earnings increase leads to a lower trigger in real-terms. The median age of the eligible group under the baseline is 39. 7. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% was used. 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. 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 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 CPI measure of inflation was 1.4% in quarter 4 2019. Auto-Enrolment Thresholds 2020/21 in Great Britain 12 March 2020 • On 27 February 2019, the Department for Work and Pensions (DWP) produced their ‘Review of the automatic enrolment earnings trigger and qualifying earnings bands for 2020/21’ supporting analysis. 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. 2. Those from BME groups make up 12% of the eligible group under the baseline and the proposed thresholds. (4) The factors are – (a) the amounts for the time being specified in Chapter 2 of Part 3 (personal allowances) of the Income Tax Act 2007; (b) the amounts for the time being specified in regulations under section 5 of the Social Security Contributions and Benefits Act 1992 (earnings limits and thresholds for Class 1 national insurance contributions); (c) the amounts for the time being specified in section 44(4) of that Act (rate of basic state pension) and in regulations under section 3(1) of the Pensions Act 2014 (full rate of state pension); (d) the general level of prices in Great Britain, and the general level of earnings there, estimated in such manner as the Secretary of State thinks fit.’ Pension Act 2008: http://www.legislation.gov.uk/ukpga/2011/19/contents/enacted ↩, IFS Working Paper (W16/19), ‘What happens when employers are obliged to nudge? 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). Built specifically for auto-enrolment. 1. Jill earns £620 for one month. 2. 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. More… 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. 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. Lowering the earnings trigger would open up eligibility for AE to more lower earners. These figures can be found in Table 7, along with the estimated size of each of these groups. ... you earn more than £10,000 a year in 2020-21; ... basic-rate taxpayers get 20% pension tax relief and higher-rate taxpayers can claim 40% pension tax relief. 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. Quarter 3 2019 is used to be consistent with how tax thresholds are uprated when using CPI. LFS was used to analyse the eligible population by disability status and ethnicity[footnote 11]. For example, aligning the LEL with the 2020/21 NI Primary Threshold of £9,500 would reduce total pension saving by £1,270m when compared to the baseline scenario. 3. It is now clear that employees will benefit from a primary class 1 threshold of £9,500, as promised in the Conservative party manifesto. These are isolated effects – both the LEL and UEL remain unchanged compared to the baseline. They therefore may not sum exactly. Qualifying earnings: This is the part of your annual pay that will be used to calculate your pension contribution under automatic enrolment. 2. ... (in the tax year 2020/21). 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). This is reduced for shorter reference periods: 4. Employer plus employee contributions with tax relief must total at least 8% of QE. The CPI measure of inflation was 1.8% in quarter 3 2019. The government has confirmed grants to pay workers’ wages during the coronavirus crisis will also cover employer auto-enrolment (AE) pension contributions. 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. 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. 1. 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 legal minimum for jobholders is currently 8 per cent of their qualifying earnings. 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. 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. Auto Enrolment qualifying earnings are the earnings you make between £6,240 and a limit of £50,000 (2020/21). Figures over £1,000m are rounded to the nearest £10 million. The DWP intends to make it mandatory for all DC pension schemes used for automatic enrolment to use simpler annual benefit statements. 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 lower limit of the qualifying earnings band sets the minimum amount that people have to start saving from and minimum employer contributions. 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. This survey does not have data on pension contributions, so it cannot identify whether one has a pension or not. This report sets out the methodology, analysis and outcome of this year’s review. Don’t include personal or financial information like your National Insurance number or credit card details. 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. 1. Of this, you need to pay at least 3 per cent. For example, aligning the earnings trigger with the Personal Income Tax Threshold would remove eligibility to automatic enrolment for an estimated 560,000 people, reducing total pension saving by £332m. If your pay changes throughout the year, your employer may decide to review your contribution rate at that time, rather than wait until the following April. 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. Raising the earnings trigger would exclude more people from the eligible population for automatic enrolment. 1. 15% of the eligible group under the proposed thresholds are disabled. 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. The methodology outlined above looks only at those eligible to be automatically enrolled. 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. Sets out the required criteria for a pension scheme to be an automatic enrolment scheme and / or a qualifying scheme. Pension auto-enrolment is the government scheme that helps you save into a pension. The baseline thresholds are the 2020/21 AE thresholds uprated in line with the OBR’s earnings growth forecasts. The survey data from 2012 is used to represent the pension landscape prior to the implementation of automatic enrolment, estimates of the proportions of private sector employees for and from whom additional contributions are due in 2020/21, based on DWP modelling using ASHE data, existing volumes of the number of employees working for employers who have undergone the automatic enrolment process. They therefore may not sum exactly. Millions of workers are being automatically enrolled into a workplace pension by their employer. Table 7 shows that approximately 37% of the eligible group under the baseline are women. By the end of December 2019, over 10 million workers have been automatically enrolled and more than 1.6 million employers have met their duties[footnote 1]. The demographic breakdowns for the following characteristics are presented: c) those from black and minority ethnic (BME) backgrounds. 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 proposed changes remains unchanged at 39. The OBR’s March 2019 forecast for earnings growth between 2018 quarter 4 and 2019 quarter 4 of 2.69% was used. 5. There is also a qualifying earnings band in respect of which contributions are made – the band is defined by th… 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. 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 Secretary of State has also assessed the equality impacts associated with this decision which are detailed later in this report. 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. This statutory review will continue each year as the law requires. 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). 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. New rates of Statutory Pay. Here are the pay bands and contribution rates that apply from April 2020. The baseline thresholds for 2020/21 are the 2019/20 automatic enrolment thresholds adjusted for earnings growth. 2. And what are the equality implications of the different options? Scenarios after the baseline present the change in contributions when compared to the baseline. 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. 2020/21 tax year - the qualifying earnings band is earnings from £6,240 to £50,000 for pay reference periods of a year. 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. 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. Automatic enrolment earnings bands All employers will need to know the earnings bands that apply for 2020/21 for the purposes of automatic enrolment under the Pensions Act 2008. Jack earns £110 for one week. This comparison is also made in Chart 1. Increasing the UEL increases total pension saving, because it increases the amount of income on which employers and employees pay contributions. To date, it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for this population. Total pension saving is the sum of employer contributions, individual contributions, and income tax relief. The eligible population increases because some people’s earnings will increase to take them above the £10,000 trigger in 2020/21. 2. ↩, 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. They are also less likely to work full time and more likely to work part-time[footnote 15]. 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. Workers who earn at least as much as the lower threshold each year are entitled to a minimum contribution into their retirement pot. Increasing the LEL would reduce total pension saving. As an employee you have to pay in at least 5% of your annual ‘qualifying earnings’, which includes 1% tax relief from HMRC. 4. Like the LEL, the UEL does not affect who is eligible for AE so population impacts are not included. His earnings don't reach the QE band, so no pension contributions are made. ↩, 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. 3. More than £10,000 per year, you must auto-enrol them in your workplace pension and both you and they must contribute. The lower earnings level of the band is also relevant to defining who falls into the category of ‘non-eligible job-holders’. 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. 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. It will take only 2 minutes to fill in. 5. The breakdowns of these demographics are presented in Annex A. Whilst decisions are made for this year and the government can set out policy objectives and the principles that should inform the setting of the thresholds, it cannot pre-determine the approach for future years, consistent with current legislation. The DWP review also confirmed that legislation will change to allow 18-year olds to qualify for auto-enrolment – a move it predicts will result in additional pension savings totalling £3.8bn by 2020-21. 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