Auto-enrolment thresholds frozen again

28 February 2025

Pensions minister Torsten Bell has confirmed that auto-enrolment thresholds will remain frozen for 2025/26 – and the decision has sparked plenty of discussion in the industry.

His announcement means that the automatic enrolment earnings trigger will remain at £10,000. Meanwhile, the lower and upper earnings limits of the qualifying earnings band stay at £6,240 and £50,270, respectively.

Simply put, it means that workers earning below £10,000 won’t be automatically enrolled into a workplace pension but can request to join if they choose. Those earning above £6,240 but below £10,000 can still benefit from employer contributions if they opt in. 

Meanwhile, for those earning above £50,270, employer pension contributions stop being required on earnings above this level, potentially limiting the amount saved for retirement.

With wages rising, keeping the threshold at £10,000 is expected to push private-sector pension participation to 15.7 million people. Total annual contributions are set to reach a hefty £89.8 billion.

A missed opportunity for reform?

While the freeze may be unsurprising given the economic climate, some had hoped for movement on the auto-enrolment reforms that were legalised in recent years but not yet implemented. 

In 2023, the Pensions (Extension of Automatic Enrolment) Act was passed to remove the lower earnings threshold of £6,240. This would mean that pension contributions would apply from the first pound earned. This could be particularly beneficial for those who work multiple lower-paid jobs. 

The legislation would also lower the minimum age for auto-enrolment from 22 to 18, empowering younger workers to start saving for retirement earlier. 

When these reforms will be introduced is unknown. No firm timeline has been announced yet, and a government review into pensions adequacy was shelved in December, with concerns about adding extra costs for employers after the Budget. However, experts say addressing this issue remains crucial.

Industry reaction: balancing act or kicking the can down the road?

Several industry experts have spoken out about the auto-enrolment thresholds remaining frozen.

Hargreaves Lansdown’s head of retirement analysis, Helen Morrissey, highlighted the delicate balance of setting the right earnings trigger. Quoted in Money Marketing, she said: “Where the earnings trigger is set is hugely important – auto-enrolment has been a massive success and care needs to be taken to make sure that only those who can afford to save are brought into the system.

“Setting the bar too low risks people struggling to make ends meet today, because they are saving for their retirement. Setting it too high means people who could be saving are missing out.”

She also stressed that tackling small and lost pension pots could be a “massive part” of ensuring savers stay engaged. She suggested that the government should explore a ‘lifetime pension’ to help people keep track of their savings.

Aegon’s head of pensions, Kate Smith, wasn’t shocked by the continued freeze but pointed out its potential benefits: “As salaries rise, this means that many employees will be saving more in a pension and automatically benefiting from a higher employer pension contribution, which is good news for their financial future.”

Ian Futcher, a financial planner at wealth manager Quilter, was quoted by Wimbledon Times as saying: “While freezing the thresholds provides stability for both employers and employees, it is still a missed opportunity to drive higher contributions that could secure better retirement outcomes for millions of workers.

“The Government’s decision puts the onus on individuals to ensure they’re saving enough for their future. While auto-enrolment has transformed pension saving, those relying solely on minimum contributions may find themselves falling short of the retirement they desire.”

AJ Bell’s head of public policy, Rachel Vahey noted that the freeze was in line with other tax and financial thresholds, but warned that it could lead to workers missing out on valuable pension contributions.

“If higher rate taxpayers’ employer pension contributions cut off at £50,270, millions could be losing out on valuable money to fund their later life,” she said.

She also criticised the government’s approach, suggesting the DWP’s annual check of the automatic enrolment thresholds “has the whiff of a tick-box exercise”. Instead, she believes that a thorough review of whether people in the UK are saving enough for retirement is needed, saying: “The government promised us this, but phase two of the pensions review appears to have been kicked into the long grass.”

Sources

Torsten Bell has confirmed that the auto-enrolment thresholds will remain frozen for 2025/26: Reaction as auto-enrolment thresholds remain frozen. Money Marketing. Accessed 13 February 2025.

Quote from Ian Futcher, financial planner at wealth manager Quilter: Earnings trigger for automatic enrolment into a pension will remain at £10,000. Wimbledon Times. Accessed 13 February 2025.