“New tax cuts such as these can clearly generate additional saving opportunities for pension savers. However, for many people feeling the squeeze, this reprieve will not go far enough.”
The new national insurance threshold will particularly help women, who account for a higher proportion of lower earners, noted Melissa Blissett, senior consultant on pay gap analytics at Barnett Waddingham.
Between October and December 2021, 38 per cent of women in employment were working part-time, compared with 13 per cent of working men, according to the Office for National Statistics.
The increase forms part of changes, including a cut to fuel duty, that “should also help improve the gender pensions gap in the long run”, Blissett said.
“The change could make it more affordable for women to contribute more to their pensions, and will make salary exchange more effective.”
She called for the removal of minimum earnings requirements for automatically enrolled pensions to be introduced at the next Budget, a recommendation that was made in the government’s 2017 auto-enrolment review.
Removing the threshold would increase the number of employees automatically enrolled into schemes, which advocates argue would help lower earners to save for retirement.
Sunak also announced an increase in the national living wage from April for those aged 23 and above, from £8.91 to £9.50 — a move that will widen the scope of auto-enrolment.
The measure will push more savers into the minimum threshold for auto-enrolment — which stands at £10,000 — for those working at least 21 hours a week.
“We would encourage the chancellor and the [Department for Work and Pensions] to go further with auto-enrolment, and in time remove the £10,000 earnings trigger so that people have the option to benefit from pension contributions regardless of income,” said Colin Williams, managing director for pensions and savings at Standard Life.
“The same applies to the current age limit of 21, which we think could be reduced to 18, providing people with a longer time horizon to build their savings.”
Nothing for pensioners
In the run-up to Sunak’s announcement, the government committed to reinstating the triple lock on pensions, which was temporarily abandoned in 2021 as the coronavirus pandemic took its toll on public finances.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, warned that by lifting the national insurance threshold, “care must be taken that workers earning less than £12,570 per year do not lose access to vital national insurance credits for state pension”.
These credits help savers to maintain their national insurance records when they are not making national insurance contributions.
“The state pension forms the backbone of most people’s retirement, and therefore they should ensure they do not incur gaps unnecessarily that mean they end up with less in retirement,” Morrissey said.
