Auto-Enrolment Thresholds 2022/23 – Frozen

Along with the freezing of a number of other payroll-related thresholds, we have had another one confirmed.? On 08 February 2022, the Department for Work and Pensions (DWP) produced their ‘Review of the automatic enrolment earnings trigger and qualifying earnings bands for 2022/23’ supporting analysis.? This is an annual review required under the Pensions Act 2008.

For 2022/23, the analysis confirmed:

• The Earnings Trigger will be frozen at ￡10,000 (though has been frozen at this value for years)
• The Lower Qualifying Earnings Band (QEB) will be frozen at 2021/22 limits (￡6,240 per annum)
• The Upper QEB will remain linked with the National Insurance Upper Earnings Limit (UEL), itself frozen at 2021/22 levels

The above annual values mean the following values per pay reference period:

It is worth noting that the Lower and Upper QEBs have always been aligned with the Lower and Upper Earnings Limits for National Insurance Contributions.? In 2022/23, the alignment with the Lower Earnings Limit (LEL) is broken, with the annual Lower Earnings Limit being ￡6,396 and the annual Lower QEB being ￡6,240.?

On a per pay reference period basis, this translates as follows:

The supporting analysis states that freezing the Lower QEB will ensure that workers ‘supports the principle of ensuring that everyone who is automatically enrolled would continue to pay contributions on a meaningful proportion of their income’.

However, the analysis also points to the December 2017 Automatic Enrolment Review which contains the ‘ambition’ to remove the Lower QEB altogether in the mid-2020s.? For workers in pension schemes where contributions are based on band earnings (between the Lower and Upper QEB), this will mean that pension contributions are payable from the first ￡1 of earnings.? Therefore, if the Lower QEB is to be abolished in a few years’ time, it would have been almost non-sensical to maintain the link with the LEL.

(Note that another mid 2020s ambition contained in the same review is that the lower age limit should be reduced from 22 to 18, thereby bringing more workers into pension saving.)

Another consideration, perhaps, is that there is no requirement for legislation to change.? The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021 and The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order (Northern Ireland) 2021 are not tax year-specific so will continue to apply.

Employers need to consider whether to engage with workers and explain this freeze.? Workers, and employers, might have expected to pay slightly less in pension contributions in 2022/23.? Now, the same contributions will be paid.

At the very least, payroll and reward professionals need to be able to explain this freeze to workers if it is queried.

I would suggest that the uncoupling of the Lower QEB from the Lower Earnings Limit value is not an issue where software has these as separate fields anyway.? However, when the two are linked to each other, this may be more of an issue.

The message is to check with your software provider.