Pensions autoenrolment will now ignore one in four women
Today the TUC sets out why the rise in the income tax personal allowance does not help the low paid – in particular the one in four women who now earn less than the tax allowance. As they no longer pay any tax they will not gain from an increase in the allowance.
What is less well known is that every time the tax allowance rises, fewer women benefit from pensions auto-enrolment. This is because this government introduced an earnings trigger for pensions auto–enrolment that they linked to the income tax personal allowance (though there is no legal requirement to maintain this link).
Auto-enrolment pension contributions are calculated on a band of earnings. At present employers and employees both contribute one per cent of earnings between £5,668 and £41,450. The figures go up with the start of the new financial year next week. Originally people were auto-enrolled if they earned more than the lower earnings band. But as part of the review they undertook after the election this government introduced an earnings trigger. You have to earn above this before you are auto-enrolled, although once contributing how much you and your employer pay depends on how much of your pay is in the earnings band.
There is some sense in an earnings trigger. If you earn £5,669 the old approach would have triggered annual contributions of one pence from you and one pence from your employer.
But the rapid increase in the personal allowance (now up to £10,500) goes far too far in the other direction and now excludes one in four women from auto-enrolment.
I’d like to see the lower earnings band reduced as a first step in increasing contributions. This would give everyone a bigger contribution but proportionately give more benefit to the low paid. That is not however very likely in the short term I concede.
But ending the link between the personal tax allowance and the earnings trigger – as we have argued before – is entirely reasonable unless you do not think lower paid women should have a pension.