NEST members’ panel calls on government to reduce AE earnings threshold

Kim Kaveh...

The NEST members’ panel is calling on the government to start reducing the £10,000 auto-enrolment (AE) earnings threshold, before the move to start contributions from the first pound earned.

The Panel – which was set up by the Pensions Act 2008 to give a voice to NEST members – is due to send its annual report to Department for Work and Pensions’ (DWP) secretary of state Thérèse Coffey, which will include the call for this change.

In the AE review in 2017, the government noted its intention to change the framework for AE so that pension contributions are calculated from the first pound earned, rather than from a lower earnings limit, which currently sits at £6,136.

It said it would likely not do this until the mid-2020s, but it is arguable that the upcoming general election on 12 December is a good opportunity for parties to set out an AE reform policy.

Writing for RP’s sister magazine Professional Pensions, chairman of the NEST Members’ Panel and member of the advisory panel to the AE review Nigel Stanley said a phased reduction in the earnings trigger “must start now”.

According to Stanley, the government can start reducing the trigger by £1,000 or £2,000 a year now, “even if we have yet to decide whether it will go down to zero or stop at a few thousand a year”.

Stanley said: “Rightly, changes in AE have been phased and staged. But they have also been subject to delay.

“It is entirely possible that moving to the first pound will be gradually phased and get hit by delays. The worry is that only when this has finished will ministers turn to the earnings trigger on the old argument that there should not be more than one change at the same time.”

Even with the current lower earnings band there is a “strong case that the trigger could be lower and still ensure that contributions were worthwhile”, he added.

He also argued that reducing the threshold will start to reverse the discrimination against women workers “baked into the current trigger, and gradually enrol more low paid workers each year”.