Workers saving up for their pension are set to see their contributions increase as the threshold for auto-enrolment has been maintained. The DWP has confirmed the trigger for auto enrolment will be maintained at £10,000 a year for the 2024 to 2025 tax year, while the point from which a person’s earnings are used to calculate their contributions has also been held, at £6,240.
As wages are increase, this means more low-income workers will be auto-enrolled for the first time while others who get a pay increase will see their contributions go up.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, commented on the news: “Auto-enrolment has been an enormous success, but care needs to be taken that only those who can afford to save into a pension do so.
“It’s a tricky balance to strike – boosting pension saving is hugely important but it can’t be at the expense of someone’s overall financial resilience.”
Pensions minister Paul Maynard said: “We want to ensure that our approach continues to enable individuals, for whom it makes economic sense, to save towards their pensions whilst also ensuring affordability for employers and taxpayers.
“The review has concluded that all auto-enrolment thresholds for 2024-25 will be maintained at their 2023-24 levels. This is consistent with our ambitions to build a stronger, more inclusive savings culture that enables people to have greater financial security in retirement.”
The DWP also released a report today showing low earners have some misunderstandings around how their pension contributions could affect their benefits.
Damon Hopkins, head of defined contribution workplace savings at Broadstone, said: “While many said they understood the importance of saving for their long-term financial security, there was a lack of understanding around the system as well as how it may impact their benefit entitlement.
“Unsurprisingly, shorter term financial pressures also impacted their ability or desire to save into a pension. It reveals the two key issues facing the country’s pension system at present – engagement with and understanding of how pensions work and the macroeconomic impact on disposable incomes.
“It demonstrates a significant opportunity for employers to support the financial wellbeing of their employees through greater financial education and providing access to solutions which improve both short and long-term financial security.”
Depite the impact of rising living costs, Ms Morrissey said there are some low earners who may be able to afford to save into a pension.
She said: “There are lower earners who potentially can afford to save into a pension – for instance, young people living at home, those who are part of a higher earning household or someone who may have more than one job.
“Making sure that these groups are aware they can choose to be auto-enrolled and build up a pension if they wish is really important and this will be further boosted when the measures contained in the Auto-Enrolment Extension Bill are finally introduced.”
This new law will allow workers to contribute towards their pensions on any amount they earn rather than on their income above the current thresholds.
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