Pensions minister Guy Opperman has today confirmed the key thresholds that will apply to its flagship automatic enrolment reforms.
You can read the details here: http://qna.files.parliament.uk/ws-attachments/1019590/original/AE%20Earnings%20Trigger%20and%20Qualifying%20Earnings%20Band%202019%20Review%2004.12.18.pdf
Key points:
• Auto-enrolment earnings trigger frozen at £10,000 for 2019/20
• Personal allowance rising to £12,500 at the same time, meaning more low earners risk missing out on valuable pension tax relief
• Lower qualifying earnings band limit to increase to £6,136; upper limit rising to £50,000
Tom Selby, senior analyst at AJ Bell, comments:
“The ‘net pay’ auto-enrolment problem looks set to get worse before it gets better as the gap between the point at which members pay income tax and the earnings level at which they get automatically enrolled widens from April next year.
“Over a million people in net pay schemes are already thought to have been affected by this anomaly, which robs them of the valuable tax relief they are entitled to when saving in a pension. It is particularly cruel that this flaw in the system affects the lowest earners.
“The DWP has now passed the buck to HMRC, hoping that the shift to becoming ‘one of the most digitally advanced tax administrations in the world’ will provide a ready-made solution. But until that happens this pension tax injustice will continue.”
The net pay problem in a nutshell
Pension scheme savers are entitled to tax relief at their marginal rate.
Members of ‘relief at source schemes’ get basic-rate relief of 20% automatically regardless of how much they earn, with higher and additional-rate taxpayers able to claim extra through their tax returns.
Non-earners are entitled to receive tax relief on contributions worth up to £2,880.
However, where contributions are taken from net pay – as is the case with some major workplace schemes – tax relief is only provided to those who pay tax in the first place.
So those earning above £10,000 (the auto-enrolment earnings trigger) but below the personal allowance (2017/18: £11,850; 2018/19: £12,500) miss out.
