Budget 2013: £10k allowance could cut 200k from auto-enrolment

Up to 200,000 people could be excluded from auto-enrolment as a result of the personal allowance increasing to £10,000.

Chancellor George Osborne announced the personal income tax allowance would increase from £9,440 to £10,000 from April 2014.

However, while he hailed as a tax giveaway to low earners, fewer people will be auto-enrolled as a result of the move because the auto-enrolment earnings threshold is tied to the personal allowance.

John Harding, tax director at PricewaterhouseCoopers, estimated up to 200,000 low earners could be excluded from auto-enrolment as a result of the change.

‘Around 260,000 people will be taken out of income tax as a result of the threshold rising. Since those aged under 22 and above 75 are excluded from auto-enrolment then that leaves around 200,000. However it must be remembered that the biggest companies will have already enrolled their workforces by April 2014, so it will only affect low earners at those businesses when they move jobs again.’  

The Department for Work and Pensions (DWP) reviews the auto-enrolment earnings thresholds each year. In its response to the consultation over the 2013- 14 thresholds it decided to keep the link with the personal allowance.

It also said the link would not necessarily be maintained in future years, and that the earnings trigger should be aligned with the PAYE threshold in future years.

Zoe Lynch, partner at pension law firm Sackers said raising the personal allowance was a ‘doubled edged sword’ for low earners.

‘Raising the allowance means they will miss out on employer contributions and we have seen a lot of evidence that that is a powerful incentive to save because they are getting free money from their employer which they will miss out on if they are not auto-enrolled.’