Draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016
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The Parliamentary Under-Secretary of State for Work and Pensions (Mr Shailesh Vara)
I beg to move,
That the Committee has considered the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016.
It is a pleasure to serve under your chairmanship, Mr Percy. I trust that the order will not be contentious, and I hope the Committee will not be detained for long. The order, which was laid before the House on 8 February 2016, reflects the conclusions of this year’s annual review of the automatic enrolment earnings thresholds, which was required by the Pensions Act 2008. The review considered both the automatic enrolment earnings trigger, which determines the point when someone becomes eligible to be automatically enrolled into a workplace pension, and the qualifying earnings band, which determines those earnings of which the enrolled employee and their employer have to pay a proportion into a workplace pension.
The order sets a new upper limit for the qualifying earnings band and is effective from 6 April 2016. The earnings trigger and the lower earnings limit are not changed. The lower earnings limit remains that set in the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015, and the earnings trigger remains that set in the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014.
Automatic enrolment is in its fifth year and has been very successful in reversing the decade-long downward trend in pension saving. Since its launch, more than 100,000 employers have complied with their automatic enrolment duties, and more than 6 million eligible employees have been successfully enrolled in a workplace pension. Last year saw the successful staging of the first tranche of small and micro employers and it is projected that by March 2017, more than 700,000 small or micro employers will have enrolled their employees into a workplace pension.
It is therefore more important than ever that, when deciding the thresholds for joining and contributing to a workplace pension, we strike the correct balance between minimising the administrative burden on employers and ensuring that as many people as possible save in a workplace pension.
The qualifying earnings band sets the earnings levels within which an automatically enrolled employee and their employer have to pay a proportion of the employee’s income into a workplace pension. Past reviews have generally linked that to the national insurance bands. As the Minister for Pensions signalled in her written statement on 15 December 2015, the lower limit for the qualifying earnings band will remain unchanged and aligned with the national insurance lower earnings limit of £5,824. However, the order will align the upper limit of the qualifying earnings band with the new national insurance upper earnings limit of £43,000.
Maintaining the alignment with the national insurance thresholds at the points where contributions start for low earners and are capped for higher earners keeps the overall changes to existing payroll systems to a minimum. The decision, therefore, both ensures simplicity and minimises the administrative burden of compliance for employers in 2016-17.
The order does not change the earnings trigger, which remains at the value set in the 2014 order. That trigger is the level of earnings at which individuals are eligible to be automatically enrolled into a workplace pension scheme by their employer. We have decided to maintain the automatic enrolment earnings trigger for 2016-17, so it will remain at £10,000.
Owing to anticipated wage growth and the maintenance of the existing trigger, we expect an additional 130,000 individuals to meet the earnings criteria and be brought into the automatic enrolment population. Individuals earning below the £10,000 earnings trigger, but above the lower earnings threshold will still have the option to opt in to a workplace pension and benefit from employer contributions, should they so wish.
The decision to maintain the earnings trigger at £10,000 will increase the number of low earners who meet the earnings criteria and are therefore automatically enrolled into a workplace pension. It will increase the total number of people saving into a pension and total savings. The decision to maintain the alignment of the lower and upper earnings qualifying bands with the national insurance contribution thresholds maintains simplicity and ensures that there are no new potential administrative burdens on employers at a crucial stage of the programme’s wider roll-out.
The order ensures that automatic enrolment will continue to provide greater access and opportunity for individuals to save into a workplace pension, while making sure that, once enrolled, they build up meaningful pension savings. I commend the order to the Committee.
Mr Vara
I am grateful for the various comments that have been made this morning and the general support for the order from the Opposition and hon. Members.
I was asked about the impact of freezing the trigger, particularly on women and minorities. It is estimated that the decision to freeze the trigger will make an additional 130,000 individuals eligible for automatic enrolment into a workplace pension in the course of next year, of whom 71%—or 91,000—are expected to be women. I think that that is good news.
As for the self-employed, if they wish to make retirement plans and save into a personal pension scheme, they will, of course, receive tax relief from the Government. However, I trust that the Committee will appreciate that the existing framework for auto-enrolment is not suitable for the self-employed because, by definition, the employer and the worker are the same person. It does not make sense to require a person to take action to enrol themselves and then have to opt out if they do not want to be in the pension scheme.
On the opt-in rate, the “Employers’ Pension Provision survey 2015” suggests that 5% of ineligible workers whose employers have staged choose to opt in to saving in a workplace pension, to which their employer contributes too.
The point about multiple part-time jobs is important, as are the other issues that have been raised. When an individual does not earn more than £10,000 in a single job, but earns more than the lower limit of the automatic enrolment qualifying earnings band of £5,824 in that job, they can choose to opt in to a scheme with a mandatory contribution from their employer for earnings over that level.
More than 90% of members who have been automatically enrolled into master trusts have been enrolled into schemes that have signed up to the master trust assurance framework. That provides additional protections, where appropriate. The immediate-term risks are lower in such schemes than elsewhere.
We urge employers to think carefully about which pension scheme is suitable for them and their staff. The Pensions Regulator has recently updated its guidance to employers and advisers to highlight which schemes operate a net pay arrangement versus a relief-at-source method of tax relief.
I commend my hon. Friend the Member for Amber Valley for his efforts to tempt me to say what will be in the Budget. My answer is the one he perhaps knew deep down that I would give: it would be premature for me to do so some three hours before the Chancellor stands up and says what he wants to say.
It has been a pleasure to serve under your chairmanship, Mr Percy, and I wish you well in your new post. This is the first time I have served under your chairmanship and I look forward to doing so again.
Question put and agreed to.