The Department for Work and Pensions (DWP) has proposed to bring the auto-enrolment earnings thresholds into line with the personal tax limits for 2013/14.
It also wants to align the qualifying earnings bands, which set minimum contribution levels, with the National Insurance contribution (NIC) lower and upper earnings limits.
Explaining the need for qualifying earnings bands, the DWP said in the consultation: "The difference between the earnings level that triggers automatic enrolment and the minimum contributions threshold produces a de-minimis mechanism.
"This helps everyone who is auto-enrolled to pay contributions on a meaningful portion of their income.
"For 2012/13 the de-minimis gap is £2,541, based on the trigger of £8,105 and the lower limit of the qualifying earnings band of £5,564; minimum overall contributions for someone earning just over the trigger would be around £4 a month."
However, the DWP asked the industry for opinions on linking the qualifying earnings limit with the NIC upper earnings limit, which is due to fall by £1,025 to £41,450.
"Continuing alignment would reduce the qualifying earnings band and could have an impact on savings levels at the top end," the DWP said.
The DWP said it could freeze the top qualifying earnings band at this year's limit. However, it added that 60% of the people in this earnings band are already members of a workplace scheme and are likely to be contributing more than the minimum anyway.
It added: "The logical corollary of this alternative option is to freeze the lower limit as well to maintain the band of earnings, but this loses the link with state pension accrual. It would also mean that the qualifying earnings band is disconnected from any recognisable payroll thresholds."
In summary, the DWP proposed:
• £9,205 for the automatic enrolment earnings trigger to align with the PAYE threshold;
• Around £5,720 (projected value) for the lower limit of the qualifying earnings band to align with the NICs LEL;
• £41,450 for the upper limit of the qualifying earnings band to align with the NICs upper earnings limit - but the DWP said it is open to opinions on options such as freezing the limit at this year's level However, maintaining this year's value (£42,475) for next year, or uprating by earnings to £42,971.
Scottish Life business development manager Jamie Clark (pictured) said: "We welcome the proposal to align the AE trigger with the personal tax allowance as this provides consistency with the current threshold and helps payroll providers and employers as they already use this figure to calculate tax.
"We support the proposals to align the qualifying earnings band with NIC LEL and UEL.
"While the maximum earnings within the band that is used to calculate minimum contributions will narrow from £36,911 (2012/2013) to £35,730 (2013/2014) we accept the necessary trade off to ensure that these thresholds remain consistent and continue to be recognisable thresholds.
"Our only concern is that the DWP should make sure that the band does not narrow too much in the future."
Office of Tax Simplification review
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