Round-up of recent developments in UK pensions.

Automatic enrolment: earnings thresholds and scheme quality tests unchanged

The DWP has completed its Automatic enrolment: review of the earnings trigger and qualifying earnings band for 2024-25. The lower earnings threshold, upper earnings threshold and earnings trigger have all been kept at the 2023-24 levels ((£6,240, £50,270 and £10,000 respectively). The review states that the DWP is looking to consult on the detailed implementation of the 2017 Review ambitions (ie removing the lower earnings threshold and reducing the minimum age from 22 to 18) "at the earliest opportunity", but "the right implementation" will "include giving employers and savers the time to plan for future changes".

Every three years, the DWP must review the alternative quality requirements for DC and DB schemes (the latter being essentially the cost of accruals test). The DWP has confirmed that there will be no changes to any of these tests for now. The relevant publication is somewhat misleadingly-titled Government response to Automatic enrolment: Alternative quality requirements for defined benefits and hybrid schemes being used as a workplace pension, as it not only contains a response to the DB/hybrid 2023 consultation but also CDC schemes and the DWP analysis of the position for DC.

WTW comment

DWP's decision means that the earnings trigger will be below the full rate of New State Pension for the second tax year running – so some people will be nudged into putting money aside for a time when their individual income (though not necessarily their household income) should be higher than it is now. The trend of more low-paid part-time workers being brought into pension saving will also continue: from April, the earnings trigger will be equivalent to a little under 17 hours work per week at the minimum wage, compared with over 30 hours in 2014.

There is still no timescale for implementing the next steps on the automatic enrolment reforms including the (potentially gradual) elimination of the lower earnings threshold. However, DWP confirms that the consultation on implementing the first tranche of the 2017 review changes will provide an opportunity to comment on the implications for both the DB and DC alternative tests. WTW's view is that for DC schemes, if the lower QE threshold is reduced to zero, it seems inevitable that there will be changes to sets 2 and 3, though it is less clear whether changes to Set 1 will be required. The position for DB rights is more complicated. Unsurprisingly, given the tone of the consultation, DWP have rejected making any changes to the DB test for now, but WTW is pleased that DWP indicates there might be "scope for proportionate easements" in association with any changes in relation to the 2017 review. WTW hopes that such changes could include expanding the pay definitions to cover more schemes, greater flexibility in defining groups of members to simplify checks for higher earning members and a new approach which would make it straightforward for the most generous schemes to qualify.

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