The successive freezes on tax thresholds by the government have triggered lots of discussions in recent months. However, there are other threshold freezes that are important to be equally aware of. Auto enrolment thresholds have also been frozen, having a knock on effect for millions of pensions.
One initiative that started under the previous Labour government, and was implemented by the Conservative government that followed, can count as a genuine success: automatic enrolment in workplace pensions. The latest data shows that there are now over 22 million people in workplace pensions, an increase of more than 10 million since automatic enrolment thresholds were introduced in October 2012.
When automatic enrolment thresholds were first introduced, the principle of the scheme established that any worker (with the exception of self-employed workers) fell within its scope if they were earning at least £8,105 a year. Once that automatic enrolment threshold was crossed, employer and employee pension contributions were based on earnings in a band between £5,564 and £42,475.
Since the scheme’s start in 2012, average weekly earnings have risen by about 60%, according to the Office for National Statistics. You might, therefore, expect that the key automatic enrolment earnings numbers have increased correspondingly, implying an earnings threshold of about £13,000 and an earnings band between roughly £8,900 and £68,000.
That is not the case. For 2025/26 and 2026/27:
- The earnings threshold is £10,000, unchanged since 2014/15.
- The lower limit of the earnings band is £6,240, unchanged since 2020/21.
- The upper limit of the earnings band is £50,270, unchanged since 2021/22.
There is a case to be made for the freeze in the earnings threshold, as it increases eligibility among part-time earners. However, those low earners would be entitled to a state pension of £12,548 in 2026/27 (assuming, at least, a 35-year record of National Insurance Contributions), so at the bottom end they could have more income in retirement than while working.
The effective shrinkage in the earnings band is harder to justify. In 2012, the upper limit was about 175% of average earnings, whereas it is now around 130%. The effect is to leave higher earners with proportionately less pension coverage.
The government’s argument is that: “These higher earners…are more likely to make personal arrangements for additional saving”.
In other words, if you fall into that ‘higher earner’ category, you need to look beyond the contributions that automatic enrolment mandates on you and your employer.
The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested.
Past performance is not a reliable indicator of future performance.
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