An analysis of the most pressing concerns based on insights from 1,000 UK business leaders.
13 February 2025
Insights
Background
The earnings trigger
This is the level of earnings from which jobholders are automatically enrolled into a workplace pension scheme. It is currently set at £10,000 (and is unchanged since the 2014/15 tax year)1.
The QEB
Employers are obliged to automatically enrol jobholders meeting age criteria and the earnings trigger and pay at least a minimum level of contributions based upon a band of qualifying earnings. For many years, the QEB was aligned with the lower earnings limit (LEL) and upper earnings limit (UEL) for National Insurance contributions (NIC) purposes.
What has the DWP decided?
The earnings trigger
The DWP states that retaining the £10,000 threshold in 2025/26 “represents a real terms decrease in the value of the trigger”. This is exactly the same conclusion that was reached last year. The view is that “as earnings continue to grow, keeping the earnings trigger at £10,000 will see private pension participation at 15.7 million in total”.
The message of previous reviews is then repeated with the DWP saying that the decision reflects “the key balance that needs to be struck between affordability for employers and individuals, and the policy objective of giving those who are most able to save the opportunity to accrue a meaningful level of retirement savings”. Additionally, it provides “consistency of messaging for both employers and individuals”.
The qualifying earnings band (lower limit)
Workplace pension saving is one of the building blocks for retirement income. As in previous reviews, the DWP confirms that automatic enrolment with both employer and employee contributions “is intended to build on the foundation of State Pension entitlement”. The lower limit of the QEB drives the minimum amount that people have to save and minimum employer contributions.
The decision to freeze the lower limit in 2025/26 at £6,240, which in 2022/23 cut the link with the LEL for NICs, “supports the principle of ensuring that everyone who is automatically enrolled would continue to pay contributions on a meaningful proportion of their income”. The DWP states that keeping the lower limit at this level would mean that “pension savings will be broadly maintained – and slightly increased – compared to 2024/25”.
The 2017 review of automatic enrolment proposed the removal of the lower limit altogether, and this was legislated for in September 2023 by the Pensions (Extension of Automatic Enrolment) Act 20232.
The last government had said it intended to consult on the detailed implementation of this measure, alongside the reduction in the age of enrolment, at the earliest opportunity, which didn’t take place before the general election. However, this latest annual review merely states that “for the future, the government is committed to looking at further steps to improve security in retirement” with no reference to the message in last year’s review concerning “the introduction and enactment of legislation to remove the [lower limit]”.
The qualifying earnings band (upper limit)
The upper limit of the QEB caps mandatory employer contributions. As in previous reviews, the DWP repeats the message that it distinguishes “the automatic enrolment target group of low to moderate earners from earners in a higher tax band … [who] might reasonably be expected to have access to a pension scheme that offers more than the minimum and are more likely to make personal arrangements for additional saving”.
For 2025/26, the upper limit of the QEB will continue to be frozen at the existing level of £50,270 which was first set in 2021/22.
Comment
The lack of change in the thresholds may be welcomed (in terms of stability and consistency of messaging). However, we still await details of how and when the long-awaited changes proposed in the DWP’s review in 2017 will come into force, despite now being midway through the 2020s (when the previous government had originally committed to making changes).
There appears to be broad political consensus about the need to implement these changes, and the previous government introduced primary legislation to remove the lower limit of the QEB and reduce the minimum age of eligible jobholders that automatic enrolment applies to. However, the long-awaited regulations to bring these changes into effect has yet to be consulted on.
This delay is compounded by the recent (yet to be officially confirmed by the government) postponement of the second phase of the pensions review that was due to be unveiled by the end of 2024. This was expected to focus on adequacy and include consideration of the need to increase the minimum contributions payable under automatic enrolment.
To date, automatic has generally been deemed to be a success. The government needs to ensure that this success isn’t compromised by not pursuing necessary improvements to the regime (or at least fully investigating the need for them).
