The Government have confirmed it has increased the threshold for the automatic enrolment pension plan to include more higher earners.
The Government hope that by raising the pay threshold that between four and eight million more people will become eligible for the new scheme, or alternative pension schemes such as Nest.
The automatic enrolment scheme will begin in October this year and is expected to take six years to be fully phased in.
The idea for the automatic enrolment scheme came about following a commission by Lord Turner in 2008, in a bid to increase the level of pension savings for employees in the UK— particularly in the private sector.
When it was first announced, the threshold of earnings for those eligible was between £5,035 and £33,500.
This has now been amended after consultations led to the Government deciding to extend the scheme to those earning higher wages.
Along with the upper limit of earnings increasing, staff and employers are only obliged to make contributions once a person’s earnings exceed £8,105 — a move from a previous wages point of £7,475.
An annual limit for the contributions of the worker and employer combined has been set at £4,400.
A senior consultant at Tower Watson, a pension consultancy firm, Rudi Smith, said:
“Under the original legislation, all of the automatic enrolment thresholds would have increased with national average earnings each year.
“The government changed the law so it could adjust these numbers however it sees fit.” He continued.
“It is keeping its cards close to its chest when it comes to how this power will be used in future.”
Whilst the automatic enrolment pension scheme commences this autumn, only the very largest of companies will be enrolling their employees at this stage.
Companies will have to ensure that all eligible workers are offered the option to join their current company pension—so long as the scheme meets the required minimum standards—or have them join the National Employer Savings Trust (NEST) instead.
The Government wants the automatic enrolment scheme to be completed by the middle of 2017.
Once all employers have the scheme in place, staff and bosses will be obliged to make the minimum level of contribution of 8% of earnings combined. This phase is expected to be complete by October 2018.