Pensions (Extension of Automatic Enrolment) (No.2) Bill
Wednesday 15th March 2023
(1 year, 1 month ago)
Public Bill CommitteesRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
David Linden (Glasgow East) (SNP)
I beg to move amendment 1, in clause 1, page 1, line 3, leave out subsections (2) and (3) and insert—
“(2) In section 3(1)(a), for “22”, substitute “16”.
(3) In section 5(1A)(a), for “22”, substitute “16”.”
This amendment would reduce the age at which automatic enrolment begins to apply from 22 to 16.
The Chair
With this it will be convenient to discuss the following:
Amendment 2, in clause 1, page 2, line 8, leave out “3(1A), 5(1C),”
This amendment is consequential on Amendment 1.
Amendment 3, in clause 1, page 2, line 10, leave out “3(1A), 5(1C) or”
This amendment is consequential on Amendment 1.
Amendment 4, in clause 1, page 2, line 14, leave out “3(1A), 5(1C) or”
This amendment is consequential on Amendment 1.
David Linden
It is, as always, a great pleasure to serve under your chairmanship, Sir Christopher. I congratulate the hon. Member for Stoke-on-Trent North on getting his Bill through Second Reading, and I certainly commit my party to supporting the principles of what he is seeking to achieve.
Automatic enrolment of pensions is not an issue on which I disagree with the hon. Gentleman. It is probably the only issue on which he and I agree these days—that says more about our political differences than anything else. In a similar vein, it would be remiss of me not to pay tribute to the hon. Member for North West Durham (Mr Holden), who initially introduced the Bill before he moved on to the dizzy heights of ministerial office at the Department for Transport.
It would be fair to say that the finer details of pensions policy do not generally get people’s excitement levels rising, although Under-Secretary, the hon. Member for Sevenoaks, the hon. Member for Reading East and I find this stuff quite fascinating and exciting, so we rub along quite nicely. Although there is not excitement around pensions policy, there is scope for more political consensus. I believe that is true of automatic enrolment, which has generally been a success for our society. My only real criticism of AE is that there has not been a big enough attempt to include low earners and those of all ages. The Bill certainly makes great strides towards tackling that inequity, and it should help with some of the structural problems, such as the gender pensions gap, which does not get as much political attention as the gender pay gap.
I have no great desire to detain the Committee for any length of time today. I appreciate that the action is very much elsewhere—of course, I am referring to the local housing allowance debate in Westminster Hall this afternoon. The Minister knows and, I believe, understands my long-standing interest in extending automatic enrolment to everyone over the age of 16, not 22 or even 18, and for it to kick in from the first pound earned. The latter is particularly important for women, especially those who work part time and have not previously hit the threshold.
These are probing amendments. I am sure the Committee will be glad to know that I do not intend to press them to a vote. If Members want to be elsewhere, fear not; I will not press them to a Division. Amendments 1 to 4 seek to amend clause 1 to ensure automatic enrolment in a pension kicks in at the earliest stage—the age at which tax kicks in. They would put on the face of the Bill that automatic enrolment begins to apply from the age of 16, not 18, as the hon. Member for Stoke-on-Trent North proposes. Amendments 2, 3 and 4 are merely technical amendments and are consequential in nature, so I will focus on the thinking behind amendment 1.
We all recognise that there are changes to the labour market, and that people’s employment journeys are changing. Many of us left the Chamber during the Chancellor’s speech when he was just getting on to that section of the Budget. He recognises that there are changes to the labour market. Likewise, the Work and Pensions Committee, on which I sit, is currently undertaking an inquiry into the plan for jobs and is trying to better understand some of the changes behind working practices and economic inactivity.
None of us—not even the Chancellor—has a silver bullet suggestion for how we fix the issues relating to under-25s and over-55s not participating in the labour market at the level they were before the pandemic. Following our recent cross-party trip to the USA, I know that I and others on that Committee certainly see apprenticeships as just one example of how we can offer a different path into the labour market.
That brings me very much to my own experience. When exam results are sent out, we politicians rightly talk about there being no wrong path for people’s employment journeys. Some, after school, move straight into further and higher education. Increasingly—this is my personal belief—they do so sometimes disproportionately for our economy. I use this analogy to explain it to folk: if I have a leaking roof or a leaking pipe, I do not want a doctor or a lawyer—I want a plumber. Perhaps, as an economy, we need to pivot a bit more towards some of the trades.
For others, and I am an example, the path on leaving school is a vocational qualification at first, such as an apprenticeship. It is with that in mind that I have tabled the amendments. We know from House of Commons Library research that, at any one time in the UK, approximately 572,000 people are undertaking an apprenticeship, sometimes for up to four years with the same employer, and from age 16. The Bill before us would exclude those apprentices from inclusion in automatic enrolment. I do not know why that is, especially when they are likely to have four years of contributions.
In responding to these probing amendments, will the Minister outline why the Government’s preference is for age 18 and not 16? Have they undertaken a specific impact assessment to age 16? If so, will they publish it? I know that the Government have published an impact assessment for age 18. It came through within the last hour, and I have looked at it, but it seems to extend only to age 18, not 16.
We all agree that automatic enrolment has been a success and extending it further to younger cohorts is clearly a good thing. On that, we will not disagree, but I do not understand why the proposal is to stop at age 18, not extending it all the way to 16, bringing it in line with the point when income tax kicks in, and including all workers. I very much look forward to the Minister outlining the Government’s rationale, and explaining why they would have any difficulty accepting amendment 1 to what is an otherwise excellent Bill.
Jonathan Gullis (Stoke-on-Trent North) (Con)
It is a pleasure to serve under your chairmanship, Sir Christopher. I am grateful to you and to fellow Committee members for joining me today to scrutinise this important legislation, especially on Budget day.
The Bill before us contains two clauses. I am grateful to hon. Members for their support for the expansion of automatic enrolment into workplace pensions, a long-standing public policy objective that enjoys widespread support in this House and the other place, and therefore allowing this Bill to proceed to Committee, despite the lack of opportunity for a debate on Second Reading.
The Bill has a clear and straightforward purpose: to allow the Government to lower the age at which qualifying workers are automatically enrolled into a workplace pension scheme from 22 to 18, and to allow the Government to increase the overall amounts being saved by abolishing the lower earnings limit of the qualifying earnings band for workplace pension contributions.
I acknowledge the work of the Under-Secretary of State for Transport, my hon. Friend the Member for North West Durham (Mr Holden)—my office buddy in this place—who championed a previous Bill in this Session with the same objectives and has handed the baton on to me, to carry forward improvements to retirement provisions for millions of our fellow citizens. He is a doughty champion for people up and down our country, as well as those of North West Durham. We are very lucky to have such a Member in the House.
The Chair
Order. The hon. Gentleman may be anticipating that we will get past this group of amendments, and we will then have a debate on clauses 1 and 2. I hope he will address his remarks to the specific amendments that we are debating at the moment.
Jonathan Gullis
I am more than happy to do that, and to return later on to the clauses, Sir Christopher.
I thank the hon. Member for Glasgow East for his amendments, which I understand aim to remove the regulation-making power to reduce the age of automatic enrolment, and replace it with a new minimum age of 16 for automatic enrolment and re-enrolment, and make consequential amendments. I am grateful for his explanation as to why he believes a lower minimum age would be beneficial. I would certainly support sitting down and discussing it with him at a later date, but this Bill seeks to amend the legislative framework for automatic enrolment to deliver the measures set out in the 2017 AE review, which considered the matter of a lower minimum age, weighed the evidence and concluded that starting from age 18 was the right approach. I am not convinced by the hon. Member’s arguments to depart from that finding today. As he knows, the Bill gives regulation-making powers to the Secretary of State to lower the age, subject to a statutory review and the use of the affirmative procedure. He will therefore have a further opportunity to make his case to colleagues in this House and other stakeholders when that consultation takes place. I look forward to working with him on that. If I may, I will return to some wider comments—
The Chair
Order. We are discussing the amendments only. We will have the opportunity to discuss things more generally when we get to clause stand part.
Jonathan Gullis
Thank you, Sir Christopher. I can give way to the hon. Lady—
The Chair
Does the hon. Member for Rutherglen and Hamilton West wish to participate in this debate or in the more general debate?
Matt Rodda (Reading East) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I will address my remarks purely to the amendments.
I thank the hon. Member for Glasgow East for his work on the subject. He made a deeply personal and heartfelt point about his own experience. However, there has been a wide range of discussion and debate on the matter, and I believe that this afternoon we ought to focus on the Bill itself. I am aware that time is pressing, and given the matters being discussed in the main Chamber, I will leave my remarks at that for now.
The Parliamentary Under-Secretary of State for Work and Pensions (Laura Trott)
It is a pleasure to serve under your chairmanship, Sir Christopher.
I have respect for the hon. Member for Glasgow East, as he knows. I listened carefully to what he said. He set out his personal story beforehand, and it is very powerful. I reiterate the points made by my hon. Friend the Member for Stoke-on-Trent North and by the hon. Member for Reading East. This was looked at as part of the 2017 review, and there will be a statutory consultation to follow it up.
David Linden
I must say that in moving the amendment, I had rather hoped that more consideration and debate would be given to it. With the greatest respect to the hon. Member for Reading East, I am baffled that the Labour party has nothing to say. Perhaps that is consistent with its policy positions these days. It was not that long ago that hordes of young people at Glastonbury were chanting the name of the former Leader of the Opposition, the right hon. Member for Islington North (Jeremy Corbyn). This rather strikes me as a bit odd. I understand that the Government have not always been the kind of folk who tend to have lots of lovely things to say about the labour movement or young people, but I am particularly baffled that this Labour party has nothing to say, nor any explanation as to why it has arrived at this policy position, other than to say, “We agree with that lot.”
With that in mind, I have sought to stimulate debate—rather unsuccessfully—but I look forward to the Bill making progress, I hope. I do not disagree with the Bill itself, as I said, but when we come to later stages I hope that we can agree to improve automatic enrolment further and to give this a little more consideration than it has been given today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Jonathan Gullis
Thank you for educating me on Committee procedure, Sir Christopher. I clearly need to read up a lot more in “Erskine May”. I look forward to learning it at a later date.
I put clearly on the record my thanks to the Pensions Minister, my hon. Friend the Member for Sevenoaks. This gives me the opportunity to thank her for securing Government support for the Bill, which she has worked tirelessly behind the scenes to do since entering her office. She has been working to get it into Parliament and, I hope, implemented as quickly as possible to ensure this for young people, apprentices, in particular, two of whom I have in my constituency office. Jessica and Mya are 18, paid well and will now be able to start building up their pension, which is totally brilliant for them. I look forward to having ensured that they provide for themselves in future.
The automatic enrolment framework was introduced by the Pensions Act 2008 and was gradually brought in for all employers across the UK, starting in 2012. By January 2023, 10.8 million people had been automatically enrolled into a workplace pension and 2.2 million employers were complying with their duties, with about an additional £33 billion in real terms saved in 2021, compared with 2012.
In 2017, the Government carried out a year-long review of automatic enrolment, with a panel of independent, expert advisers, resulting in a report, “Maintaining the momentum”, which set out recommendations to expand the workplace pensions framework. The proposed measures were widely supported by parliamentarians, stakeholders—including those representing employers and workers—and of course the pensions industry. The Bill is the first crucial step in implementing those recommendations, in that it will provide the necessary legislative powers. Helping people to save for later life should be one of the Government’s key priorities, particularly as the Bill will have a significant impact on the delivery of long-term investment to areas outside metropolitan London where there are fewer young people in part-time jobs.
Margaret Ferrier
It is a pleasure to see you in the Chair and to serve under your chairmanship, Sir Christopher. I would like to make some brief comments of support, as this Bill sits in the reserved space and naturally will apply in Scotland on Royal Assent.
We have already seen how automatic enrolment has successfully brought many more members of the public into a pension scheme, which will only serve to benefit them in later life and in retirement. Particularly as we are facing a cost of living crisis and many people are finding it much harder to put away spare cash for a rainy day, it is important and right that contributing to a pension from a younger age is made easier. For the younger generation just starting out in the workplace, retirement looks like a speck on the horizon—too far off to think about for some time yet. I am sure we all remember feeling the same; pensions were the last thing on our mind at that age. It is crucial, however, to start making those savings earlier in life, so that there is less pressure later, as retirement approaches and people have the realisation that they have not saved as much as they need.
A general lack of understanding about pensions is a real problem when it comes to future planning. Research by the Social Market Foundation has shown that most of the population nearing retirement age do not actually know how much money they will need to see them through retirement. The typical person aged 50 to 64 has pension savings that are 58% short of what they require. That adds up to a total annual savings gap of £132 billion across the country for those reaching retirement age.
I hope that this legislation, if passed, will have some positive impacts for the harder-to-reach groups in society: women, people with disabilities, and ethnic minorities. They already have substantially lower-value pension pots on average. However, I wonder whether, when eliminating the lower earnings limit for contributions and laying regulations, the Secretary of State might consider this being for employers only, and having a higher threshold for employee contributions in the light of the current economic difficulties.
I warmly congratulate the hon. Member for Stoke-on-Trent North on successfully steering his Bill through its legislative stages so far. Last year, I was lucky enough to see my own private Member’s Bill through to Royal Assent—incidentally, it was also on pensions policy—and I know how much hard work that is for the Member and for those supporting him, so well done.
Matt Rodda
Once again, it is a pleasure to serve under your chairmanship, Sir Christopher. I commend the hon. Member for Stoke-on-Trent North for his work on this Bill, and, indeed, other Members from across the House and the wider policy discussion about the importance of auto-enrolment. As the hon. Member for Rutherglen and Hamilton West rightly said, pensions adequacy is a very important issue facing the whole of our society; it is a matter of great importance. We should, across the House, be encouraging people to save for their future, so it is important to debate this issue today.
I particularly want to say, in the time that I have, that auto-enrolment in itself is a great public policy success of the last few years. It dates back to the work of the Pensions Commission for the last Labour Government. The coalition Government implemented this change in 2012, and there has been growth in the number of people saving for a pension as a result. That is a commendable step forward.
However, pensions adequacy remains an issue and it is important for us to continue to go forward. In doing so, we need to work in a gradual, sensible and practical way to try to encourage auto-enrolment, and to work with stakeholders such as businesses, savers themselves and, indeed, society as a whole to try to take this work forward. In that spirit, I have some questions for the Minister.
This Bill will clearly offer real advantages to many younger people, who will be saving not only a greater sum, but from an earlier point in their life. That will help to build a much better pension pot for those pension savers. My questions for the Minister are primarily about the nature of the consultation, because as we have heard, it is hugely important that we work with pension savers themselves, with employers and with other stakeholder organisations to ensure that there is consensus on this issue and that policy is developed in a sensible way. Therefore I would like the Minister to explain to the Committee a little more about the nature of the consultation: in particular, what work the Department has done to encourage pension savers, especially young people, to be aware of the potential to save more for a pension in the future; the discussion that she has had with employers, both individual employers and employer organisations; and what she will do to continue to work with them, because when this legislation is implemented, it is a step forward for them—it is a greater contribution. We need to work with them.
I would like to know what work the Minister is doing with trade unions. They have a very important part to play in the roll-out of auto-enrolment. I was glad that the hon. Member for Stoke-on-Trent North mentioned that and acknowledged the significant work that they do. I am also interested in the consultation, in so far as it has reached out to advice organisations such as Which? and many others that have an important role in the wider money and savings debate. I hope that she is discussing with them the importance of this.
My second question is about when the Department hopes to use these powers. As has been said, the Bill allows the Government the power to do this and explains how it would happen through a statutory instrument. However, the Bill does not specify when this might happen. The Minister has talked in the past about the mid-2020s. I would be grateful if she clarified how she defines mid-2020s, and whether she will take into account any other factors such as the overall performance of the economy and the nature of any continuing cost of living crisis as we approach that time.
Once again, I thank the hon. Member for Stoke-on-Trent North for his work on this matter, and I thank colleagues from across the House. I look forward to further answers from the Minister about the importance of consultation and bringing stakeholder groups with us on this important journey.
Laura Trott
I congratulate my hon. Friend the Member for Stoke-on-Trent North and, in absentia, the Under-Secretary of State for Transport, my hon. Friend the Member for North West Durham, on this excellent Bill, which will expand the benefits of automatic enrolment into workplace pensions to younger people and lower-paid workers.
I think we all agree that automatic enrolment has been a huge game changer in the workplace pension savings market over the past decade. Private sector workplace pension participation among eligible employees has increased by 44 percentage points since 2012, to 86% in 2021. As has been mentioned a couple of times, it has been especially transformative for women, low earners and young people, who historically have been poorly served by or excluded from workplace pensions. The proportion of women in the private sector participating in a workplace pension reached 87% in 2021, above that of men and more than double what it was in 2012.
Thanks to automatic enrolment, the overwhelming majority of eligible workers are now enrolled in a workplace pension, saving an asset for the future. Automatic enrolment is re-establishing a culture of retirement saving for a new generation. However, we know that there is more to do. The Government have made it clear that their ambition has always been to deliver on the 2017 automatic enrolment review measures. The review proposed two key measures: extending AE to young adults aged 18 to 21 by lowering the age criteria for enrolment; and removing the lower earnings limit, which would improve saving levels among low and moderate earners.
Since I took up my role as Minister for Pensions, I have been determined to make progress on AE expansion, and I am therefore delighted to confirm that the Government are supporting my hon. Friend’s Bill to do exactly that. The legislation will mean that younger workers and those who are in lower-paid employment—often because they work part time owing to personal circumstances, such as caring responsibilities—will be able to participate fully in automatic enrolment. For the first time, every worker will benefit from an employment contribution if they are enrolled or opt in; that is key to boosting the overall amounts being saved into a workplace pension. The powers in this Bill allow a Government-defined authority to deliver the changes set out in the 2017 review reforms, which Parliament has debated on numerous occasions, and I think there is broad agreement that it should become law.
On the questions from the hon. Member for Reading East, the Government are clear that implementing the expansion of automatic enrolment can only take place following consultation. That will be a consultation on the implementation approach and the timetable. He mentioned employer and employee engagement in particular. We absolutely need a full comms campaign, and—to the points raised by the hon. Member for Glasgow East—we could also look at what we can do for 16-year-olds. Even if we do not get quite where the hon. Member for Glasgow East wants us to with the age, I think there is more we can do to encourage them to opt in. We can discuss that as part of the consultation.
Trade unions were part of the original 2017 work, and I am very grateful to them for that. We have spoken to them frequently since, as we have to employer organisations. We will hold a series of roundtables now as we move towards the consultation, and we will involve them in the consultation. On timing, I would like to launch the consultation in the autumn, with this Bill going through, I hope, in the near future. I cannot say anything further than “mid-2020s”, I am afraid, but as soon as I am in a position to update the hon. Member for Reading East, I will of course do so.
Our objective is to maintain the broad political consensus for workplace pensions, which has been an important part of the success of the reforms since the beginning. The approach taken in the Bill to guarantee meaningful and detailed consultation to help implement the changes will help to build enduring support for this important work to boost the retirement aspirations of millions of our fellow citizens. Once again, I congratulate my hon. Friend the Member for Stoke-on-Trent North and I commend the Bill to the Committee.
Jonathan Gullis
May I put on record my thanks to you, Sir Christopher, and to everyone who has contributed to this short, constructive debate? I thank all Members who agreed to serve on the Committee, in particular the hon. Member for Rutherglen and Hamilton West, who has become a good friend in the House and a done a lot on pensions. Also, he may not want to admit it, but the hon. Member for Glasgow East and I are good friends, but I am sure that he will not put that on any endorsement leaflets any time soon.
David Linden
On a point of order, I am sure that the hon. Gentleman does not wish to mislead the Committee inadvertently. We cannot have that on the record; my constituents will deselect me.
Jonathan Gullis
I look forward to doing a podcast with the hon. Gentleman very soon to discuss all the great work that he does in the House as a SNP Member.
The Bill makes certain that people in areas such as Stoke-on-Trent North, Kidsgrove and Talke, where nearly one in four people are not auto-enrolled in a pension, will have more financial security in the long term. It will simplify the process to mean that for just a few pounds a week, and through the power of compound interest, people could be £30,000 better off in retirement. That is absolutely transformative, which is why the Bill is critical.
I also thank the hon. Member for Reading East, whom I hugely admire in the House. I assure him that I too will keep the Government’s feet to the fire from the Government Benches so that we get an actual implementation date, because I do not like references to wishy-washy mid-2020s. I want to see a date firmly in writing. I am delighted that the consultation will take place in the autumn and I look forward then to hearing about a firm date.
I want to finish by again thanking my hon. Friend the Member for North West Durham—he deserves another shout-out—for his support throughout the passage of the Bill and for putting the case forward with Onward, a fantastic think-tank, which has done a lot of work with him to put the argument. I am delighted and proud that he was very kind in asking me to carry on his great work as he ascended to higher office and as I descended at the same time. I thank the Minister for getting the Bill supported by the Government, and for how she has worked with me, officials and obviously the Treasury, twisting arms wherever necessary to get the Bill over the line and, I hope, on the statute book.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Question proposed, That the Chair do report the Bill to the House.
David Linden
On a point of order, Sir Christopher. I thank you for chairing the proceedings in Committee and pay tribute to the Clerk, Chris Wilson, for his help in drafting amendments. I look forward to the Bill proceeding to the other House.
The Chair
I am most grateful to the hon. Gentleman for that point of order, and I am sure that he speaks for everyone in expressing thanks to everybody. I add to that thanks to our hon. Friend the Member for Castle Point (Rebecca Harris), who has facilitated more progress on Private Members’ Bills during this Session than I think we have ever seen in the past.
Today is a very poignant day to be debating this particular Bill because the Chancellor has made quite an important announcement on the issue of pensions. As I was leaving the Chamber in order to be on time in this Committee a number of people said, “Now you are going off to top up your pension immediately following the announcement.” That is by the bye. I thank everyone for attending the Committee sitting, and congratulate the hon. Member for Stoke-on-Trent North on introducing the Bill.
Question put and agreed to.
Bill accordingly to be reported, without amendment.
Pensions (Extension of Automatic Enrolment) (No. 2) Bill
Friday 24th March 2023
(1 year, 1 month ago)
Commons ChamberRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
Jonathan Gullis (Stoke-on-Trent North) (Con)
The Bill before us today provides the legislative powers to implement the 2017 automatic enrolment review recommendations to extend automatic enrolment to young adults aged 18 to 21, by introducing powers to lower the age criteria for enrolment and remove the lower earnings limit, which would improve saving levels among low and moderate earners. Taken together, these changes would help improve financial resilience for retirement among young people, women and lower earners. Extending the eligibility age to 18 will support younger workers and provide them with the opportunity to begin saving from the start of their working lives for a more secure retirement.
Removing the lower earnings limit will proportionately benefit the lowest earners the most. Research from Onward shows that roughly 25% of people from Stoke-on-Trent North, Kidsgrove and Talke are not yet auto-enrolled into pension schemes. The Bill tackles that, creating more stability in the long term. For the first time, everyone will get an employer contribution from the very first pound of their earnings if they are enrolled or opt in. That will help to improve the incentive to save, especially for women and those individuals working part time or in multiple jobs.
Automatic enrolment has been and remains a long-term project. It has been successful through the adoption of a carefully staged, systematic and evidence-based approach, which has been supported by the consensus, including cross-party support, in this place. That is the approach on which successful expansion must be based and why the Bill works in the way that it does—to require Ministers to consult before implementing these changes, for example, on the best way and the optimum timetable for doing so. That gives Parliament, employers, workers and other stakeholders a key role in determining how best to implement the expansion of workplace pensions.
People who earn £9,000 from two separate jobs, and who may be working 12 to 18 hours a week, juggling their jobs around childcare or caring responsibilities, do not currently get the benefits of auto-enrolment at all. For part-time workers, auto-enrolment stands at around 60%, compared with almost 90% of workers in full-time jobs. The Bill will see roughly an extra third of the part-time workforce auto-enrolled, which is an increase on the percentage based in Onward’s research.
Further research from Onward suggests that, when this change comes through, it will bring almost £3.5 billion to people in our area for their total life savings. This will be transformative for the lives of everyone not just across our great country but, most importantly, across Stoke-on-Trent North, Kidsgrove and Talke.
The Bill will help to put cash into communities, help people to help themselves, and provide the extra private sector money to deliver the levelling up that we so desperately need. Automatic enrolment is widely and rightly recognised as a success. It has transformed workplace pension saving for millions of workers and is enabling them to save towards greater security in retirement.
What this Bill makes certain is that, in areas such as Stoke-on-Trent North, Kidsgrove and Talke, North West Durham and Consett, where nearly one in four people are not yet auto-enrolled onto a pension scheme, people will have more financial security in the long term. It simplifies the process, and for just a few pounds a week, through the power of compound interest, people could be £30,000 better off in retirement. That is absolutely transformative, which is why the Bill is so critical.
I know that the whole House is proud to support the Bill at this current stage and is committed to this expansion of auto-enrolment to build a more inclusive and stronger savings culture for future generations.
Dr Kieran Mullan (Crewe and Nantwich) (Con)
I congratulate my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis) on securing this Bill’s passage through the House.
I wish to highlight the importance of this issue to the whole country in the long term. The UK, like most of the rest of the world, has an ageing population. In the next 25 years, the number of people older than 85 will double to 2.6 million—it is often described as the demographic time bomb. Pension saving is one way to tackle the strain that that will place on the public finances. As we know already, when people’s pensions savings are not sufficient, the Government have to step in and provide that minimum floor and safety net.
Therefore, the more that we can encourage individuals privately to save to support themselves in retirement the less the state will have to do through taxation. That is why businesses can and have embraced these changes. Although they are making a contribution in the short term to pension savings, they will see a lower tax burden placed on them as employers in the long term as we seek to meet any gap that might exist later on in people’s lives when they retire. The policy has already been a fantastic success, as my hon. Friend outlined. This change is an important step forward, which I support.
Peter Gibson (Darlington) (Con)
It is a real pleasure to see the Bill reach Third Reading. I am very grateful to you, Mr Deputy Speaker, and to Madam Deputy Speaker, for allowing me to speak for the fourth time today.
I pay tribute to my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis) for guiding the Bill through its legislative journey, my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for raising this issue in Westminster Hall last year, and my very good and hon. Friend the Member for North West Durham (Mr Holden) for laying the groundwork for the Bill before he was elevated to high office. It is great to see him in his place today.
When auto-enrolment was introduced, as an employer I was fearful of the impact it might have on my business and fearful of the costs it would burden me with, but auto-enrolment has proved to be hugely successful, reversing the decline in workplace pension saving and ensuring that millions more people are now saving for their future. I saw at first hand the benefits the scheme has had on the lives and futures of my employees. Employees who would never have considered being part of a pension scheme were put in a position where it became a simple and easy process. For the first time, they were ensuring that they did not fall into the trap of under-saving for retirement.
We have to recognise that for those under the age of 22 the number of people enrolled in a pension is woefully low. Among those in part-time employment, although some will earn more than the current £10,000 threshold, the number of those auto-enrolled is still significantly lower than among those who are in full-time employment. The 22-year-old minimum age simply does not work. Why should someone who chooses to start working before they are 22 not be paying into a pension from that age, the same way as someone who is 22? They would have much to gain from auto-enrolment being extended to them. Moreover, we must recognise that the current system also disproportionately impacts women and those on the lowest earnings in our society, who are more likely to be in part-time work and have multiple part-time jobs, like many of my constituents in Darlington.
In 2019, I stood on a manifesto to level up communities across the United Kingdom, and the extension of auto-enrolment is a policy that has the potential to have a real positive impact on people’s futures. It would be a commitment to level up for the long-term. The Bill is levelling up in action.
Extending auto-enrolment could potentially add trillions of pounds to the nation’s pension pot. It is a chance to ensure that people are saving for their future from a young age. It allows us to ensure that the poorest in society have a more secure future and takes steps towards closing the gap between men and women’s pension savings.
Mr Louie French (Old Bexley and Sidcup) (Con)
Alongside this positive Bill, which builds on the success of auto-enrolment, which the Conservative Government adopted, does my hon. Friend agree that it is important we also support the Government’s initiatives to roll out pensions advice more widely, so that people have a better understanding of their own financial situation and pensions saving, particularly for men, women and younger people?
Peter Gibson
My hon. Friend makes a really important point. I know only too well, from conversations I had with family members encouraging me to take up a pension when I was in my early 20s, it seemed an awfully long way off. I can tell the House, some 30 years later, that it comes around very, very quickly. The earlier we all start saving, the better.
In conclusion, the extension of auto-enrolment would have huge benefits for many people in Darlington and right across the country. I am delighted to support the Bill and look forward to it completing its legislative journey.
Alison McGovern (Wirral South) (Lab)
It is a pleasure to speak on the Bill. I am sure the House will be relieved to know that I do not intend to speak for long, because the Bill has cross-party support. Improving pensions legislation has a long history of cross-party support, beginning with the legacy of the pensions commission, which reported 21 years ago. The Bill is a part of that ongoing legacy. Saving for our future is very important for us all. The thing that this House can do to help people save for their future is offer a consistent policy approach, and that is what the Bill does. We have made progress on auto-enrolment, but we can go further. It is a pleasure to support the Bill.
I will ask a small number of questions, which I will be grateful if the Minister could answer. The Opposition wholly supports this Bill. It would be helpful to know when in the autumn the consultation will take place. What will the Government strategy be for communicating with young people in particular? I note comments from Members about the power of good that it can do for young people. There have been few positive policy areas for young people over the past years. I would be grateful if the Minister could talk about what the Department for Work and Pensions will do in the area. Could she say what feedback it has had from employers so far, and from trade unions? What is the Department’s plan for working with both those groups and with wider civil society and business communities, to make sure that this is a success? What is the timetable for bringing this legislation into force? What can we expect from this point? If the Minister could talk us through the timetable, I would be most grateful. I wish the Department the very best in making this legislation a reality.
The Parliamentary Under-Secretary of State for Work and Pensions (Laura Trott)
I begin by congratulating my hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis), and my hon. Friend the Member for North West Durham (Mr Holden) before him, on successfully piloting this Bill through all its stages in this House. Their efforts will improve the retirement aspirations for millions in the UK, from young people starting work at 18 with a pension for the first time, to those already in a workplace pension who will now build pension savings from the first pound of their earnings.
I acknowledge the support of Members across the House in progressing this legislation. The shadow Minister, the hon. Member for Wirral South (Alison McGovern), is right that there has been broad consensus on workplace pensions since the pensions commission. It is a testament to the importance that we all place on delivering improved retirement outcomes for our fellow citizens.
A lot has been achieved in the last decade of the reforms, as has been mentioned numerous times. More than 10 million people have been automatically enrolled into a workplace pension. More than 2 million employers are paying into employees’ pensions for the first time. My hon. Friends the Members for Crewe and Nantwich (Dr Mullan) and for Darlington (Peter Gibson) are right that it has been embraced by employers, and we should celebrate that. An additional £33 billion in real terms was saved into workplace pensions in 2021 compared with 2012. As has been mentioned, it has been especially transformative for women, low earners and young people, who historically have been poorly served by, or excluded from, workplace pensions. The Bill sets us on a path to do more for all those groups, who will benefit from increased saving in retirement, with many gaining access for the first time to employer contributions.
In Committee I spoke about the legislative powers in the Bill, and the duty placed on Government to consult on how we make the changes through regulations—both the approach to implementation and the timetable for doing so. We will report to Parliament on the outcome of that consultation before bringing forward the necessary secondary legislation, which will also be debated in this House. I look forward to engaging with hon. Members on those details, to ensure that the expansion of automatic enrolment is done in the right way for employers, workers and taxpayers.
To answer some of the shadow Minister’s questions directly, we will work closely with employers and trade unions throughout the consultation process. I have committed previously to launching the consultation in the autumn. I am not in a position to give an exact date, but I assure the hon. Member that I will push as hard as I can to get that as early as possible. Communicating to young people is incredibly important. Once we are through the consultation stage and we have a timeline for when we can make progress, we will work up a plan, and I will return to the House on that. On a timetable for the legislation to come into force, the commitment has previously been the mid-2020s, and that is what we will continue to say. We will have more of an idea once we have done the consultation process. I hope that answers all her questions.
In conclusion, it is to the huge credit of my hon. Friend the Member for Stoke-on-Trent North that he successfully introduced the Bill on a cross-party basis and navigated its passage—[Interruption.] There is a first time for everything. I am delighted to say that the Government support the Bill and will continue to support it as it moves through Parliament. I wish it every success.
Jonathan Gullis
With the leave of the House, I wish quickly to place a few thank-yous on the record. First, let me thank the fantastic civil servants in the Department for Work and Pensions, many of whom are sitting in the Box today. They have been tremendously helpful to both me and my team in getting the Bill to where we are today. I thank the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Sevenoaks (Laura Trott), for her fantastic work in unblocking the blockages that had previously existed to bringing this legislation forward.
I thank the Opposition Front Benchers, including the hon. Members for Reading East (Matt Rodda) and for Wirral South (Alison McGovern), for all their support, kind words and guidance. I thank the Scottish national party spokesman, the hon. Member for Glasgow East (David Linden), who has championed this measure and is very excited by it. I also wish to thank the Association of British Insurers, the Pensions and Lifetime Savings Association and the TUC for all their fine work, as well as Onward, that fantastic think tank, for the incredible work it is doing, now led by Sebastian Payne.
I also thank my hon. Friend the Member for Castle Point (Rebecca Harris), who does not get enough praise in this House. Without her guidance and stern tongue, I might not sometimes be able to be kept in line enough to make sure that we move things smoothly along. So I am grateful to her for the advice she has provided to get us to this place. I also place on record my thanks to Baroness Altmann, who is going to be taking this Bill on in the other place and guiding it safely through to Royal Assent.
The final big shout-out needs to go to my office buddy, my hon. Friend the Member for North West Durham (Mr Holden), who did all the donkey work, the leg work, for this Bill. I have shamelessly come in and picked it up after he was sent to such high office that I see him only once a week, rather than three or four times a week. I also thank his incredible staff members, Gabriel Millard-Clothier and Robbie Lammas, as well as my own parliamentary researcher, Harry Mahoney-Roberts, and Nathan Purchase in my constituency office, who have suffered with me to get to where we are today. This is a fantastic piece of legislation and it will make a change to many lives in the future.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Pensions (Extension of Automatic Enrolment) (No. 2) Bill
Monday 27th March 2023
(1 year, 1 month ago)
Lords ChamberRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
Pensions (Extension of Automatic Enrolment) (No. 2) Bill
Friday 14th July 2023
(9 months, 2 weeks ago)
Lords ChamberRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
Baroness Altmann (Con)
My Lords, I am delighted to sponsor the Bill before the House today. It brings to fruition the hard work of dedicated colleagues across the Chamber, who have advocated tirelessly for the improvement of workplace pension coverage and adequacy, especially for younger workers and low earners.
I thank and pay tribute to my honourable friend Jonathan Gullis MP, who championed the Bill in the other place and saw it through its stages there earlier this year. His hard work paved the way for the Bill to come to us today and has been praised fulsomely, with cross-party support welcoming these improvements to retirement provision for millions of our fellow citizens. I also pay tribute to my noble friend the Minister, who I am very pleased to see today, and to my honourable friend the Pensions Minister in the other place, Laura Trott MP, and the department officials who have done so much work and are supporting the Bill.
The Bill has two main objectives: first, to pave the way for extending auto-enrolment to workers under the age of 22, the current minimum age for automatic enrolment to a workplace pension; and, secondly, to allow the Government to abolish the lower earnings limit of the qualifying earnings band, which will increase the overall amounts being saved, as pension contributions under auto-enrolment will be calculated from the very first pound of earnings rather than from £6,240, which is the case now.
Auto-enrolment into workplace pensions has been a celebrated success, bringing 10.9 million more people into pensions since the programme started in 2012, with 2.2 million employers complying with their duties and an extra £33 billion being invested in pensions in 2021, relative to 2012. I pay tribute to the noble Baroness, Lady Drake, for the seminal work she contributed in the Pensions Commission in 2008, which led to auto-enrolment in the first place.
It is now time to move on to the next stage of this successful programme. In 2017 there was a year-long major review of the policy, which recommended, among other things, the two measures put forward in the Bill today. The aim is to allow the Government to help improve people’s private pensions. There are several benefits of extending auto-enrolment to workers under the age of 22: it will improve inclusivity and will give younger generations longer to benefit from the power of compounding long-term investment returns, giving them a chance to build bigger pension funds. It can also simplify the administration of workplace pension schemes, which will save money and reduce the risk of errors if a minimum age is no longer in place—although that will be determined in due course by regulations.
The Bill should also help lower the likelihood of 22 year-olds opting out of an employer pension scheme, which is the risk at the moment, as their take-home pay suddenly falls due to pension contributions starting to be deducted as they pass their 22nd birthday. It is expected that 600,000 private sector workers aged 18 to 21—and, as I said, there could be more if the age is somewhat lower—could benefit from these measures. I hope that the consultation for regulations will include not a minimum age of 18 but a removal of the limit altogether, so that every worker, even those who leave school at 16 and start work at that age, can start a pension.
There are also significant benefits from removing the lower earnings limit, the other important strand of the Bill. Employer contributions for lower earners who want pensions will be significantly higher as a result. Currently, those who are under 22 also have to request to join their employer pension and do not benefit from the powerful behavioural nudge that sees those over 22 automatically enrolled into the pension scheme. While younger workers can ask their employer to join, the estimates suggest that only 32% of those eligible workers are actually paying into a pension at work—far less than the nearly 90% of eligible workers over 22, who are building a pension at work after being auto-enrolled.
There will also be the opportunity to help people to start the pension habit earlier, establishing even more clearly the principle that workers in this country can expect their employer to cover tax, national insurance and pension for them. This Bill will therefore particularly pave the way to help underpensioned groups, including lower earners, women, people from ethnic minorities, the disabled, multiple job holders, young workers and those in the gig economy.
Helping to narrow the gender pensions gap is an issue that many of us across this House have been exercised with for some time and is another reason to support these measures. Of course, this alone will not close it entirely. The ABI estimates that, at the moment, the average woman aged 65 has a pension pot worth just one-fifth of the value of that of a man of the same age. Due to lower-paid work, lower lifetime earnings, interrupted careers and more part-time jobs, women have always lost out on this earnings-related private pension system. By ensuring that all their earnings are used to calculate contributions in future, even lower-earning women will build much bigger pensions. Instead of someone on, say, £10,000 receiving contributions on just £3,760 of her earnings, she will—once this Bill and subsequent affirmative resolutions are hopefully passed—be able to receive nearly twice as much again, as the full £10,000 will be used to calculate her and her employer’s contribution. This means that, instead of receiving £300 a year into her pension, it will be £800 a year.
The Bill provides regulation-making powers to amend the automatic enrolment framework set out in the Pensions Act 2008. The Secretary of State for Work and Pensions will be required to carry out a public consultation on the proposed use of these powers to lower the minimum age and abolish the lower earnings limit, with the findings having to be reported to Parliament before regulations are made. It is promised, I believe, that the consultation will be later this year, so I do not think that we will have to wait too long. All noble Lords will therefore be able to consider and vote on the detail of the proposals for secondary legislation before they become law. I hope that noble Lords will therefore be able to support these enabling measures in the Bill today.
Colleagues across the House may have concerns about bringing more people into pensions and increasing contributions for lower earners if they are going to be put into pension schemes that administer tax relief by the net pay system. However, the Treasury has announced a new system, which will make top-up payments to low earners in met pay schemes—many of whom are women, of course—to address the net pay and relief at source anomaly. This is planned to be introduced for contributions from the 2024-25 tax year onwards, so should time well with the start of measures provided for in this Bill, following the laying of regulations. I am therefore delighted that the Bill before us today will set us on the path to the next successful chapter—I am sure—in the story of automatic enrolment. It will bring undoubted benefits of pensions savings to younger people and to those hard-working, lower-paid workers, including women with caring responsibilities, who deserve the opportunity to build a more secure retirement for themselves and their families.
As the Government have promised, this measure will be in place—or the intention is that it will be in place—by the mid-2020s. Of course, there is more to do, including extending auto-enrolment to workers with earnings in any one job below £10,000 as well, but that can be covered elsewhere, and to the self-employed. However, these measures are an important start. I welcome the improvements, and I hope that noble Lords across the House will do so. I commend the Bill to noble Lords.
Baroness Drake (Lab)
My Lords, I congratulate the noble Baroness, Lady Altmann, on sponsoring this Bill. It is in very capable hands. We have heard from her a powerful assembly of the arguments in support of the Bill, which I think people would struggle to second-guess in any way, so I congratulate her.
I welcome the powers that the Bill gives to the Secretary of State to extend the coverage of auto-enrolment to younger people and to remove the lower-earnings limit from the qualifying earnings band. The Secretary of State retains the discretion as to when and to what extent to reduce the lower age limit and the extent to which and over what time period it will reduce or repeal the lower earnings level threshold.
The Government have indicated that they are supportive of this Bill. Can I therefore push the Minister a little to give an indication of when they will implement changes? Presumably it is not intended that the powers given to the Secretary of State will sit and gather dust. It is, after all, six years since the review of automatic enrolment and we are only 18 months away from the mid-2020s—the date by which the Government committed to introducing changes, including the changes provided for in this Bill.
The Bill provides for the Secretary of State to carry out a consultation. I therefore take the opportunity to highlight a few issues relating to younger people and extending auto-enrolment to people below the age of 22. The regulator has been very active and effective in identifying and addressing negligent employers who seek to avoid their employer duties. However, in lowering the age for auto-enrolment, the regulator will have to monitor that the change is working to the benefit of most young people. Many young workers aged 18 to 21 may, because of training, higher or further education commitments, or the types of work available to them, be working irregular hours, part-time or earning more flexible incomes. There is a significant rise in students working out of economic necessity, and younger people from lower socioeconomic groups may be in less secure employment; we saw their vulnerability in this regard during the pandemic
Employers have up to three months from commencement of employment to enrol a qualifying worker. Even then, for those who work irregular hours or earn flexible incomes they need not be auto-enrolled until the first time that they earn over the earnings trigger, which is currently £192 a week or £833 per month. It will be important to monitor for any emerging labour market behaviours that could undermine the intent of this Bill to benefit young people, such as restricting the earnings or hours of younger workers so they do not qualify for auto-enrolment; not paying younger workers through payroll; or pressuring them to opt out.
There is also a need to be sensitive to how the national minimum wage aligns with the £10,000 earnings trigger. Currently, an 18 to 20 year-old on the national minimum wage of £10.18 an hour and working 18 hours net would not qualify for auto-enrolment. That may therefore exclude a very significant number of young workers being targeted by this Bill. A 20 year-old young mum on the national minimum wage and working 18 hours a week would not qualify for auto-enrolment if it were operating today. With the removal of the lower earnings limit from the band of earnings and access to tax relief, it means that she would lose £900 going into her pension scheme in that year. So there is therefore a sensitivity around that link between hours on national minimum wage and the auto-enrolment of younger people.
The Chancellor’s estimates for improved returns over the working life of pension savers, from greater investment in illiquids and private equity, were predicated on the assumption of saving from 18. That is four years more of saving than is currently provided for under auto-enrolment. There need to be reforms made by this Government before the Chancellor can rely on estimates based on such an early age as 18.
Eligible workers, contrary to everybody’s expectations, have a lower opt-out rate than older workers, so it will be important to monitor the opt-out rates for 18 to 21 year-olds to ensure that that positive trend we are currently seeing is not undermined—that trend being the high number of 22 year-olds remaining in when they are auto-enrolled.
Finally, ONS recent figures reveal that just over 15% of young workers change jobs, compared with 5.1% of employees aged between 35 and 49, so the Government need to push ahead with their small pots solution, because for young people that solution will be very important to the efficiency of managing their savings and for it to benefit them over their working lifetime. I hope the Government will push ahead with the better deal for young people that the Bill—again, I congratulate the noble Baroness, Lady Altmann—will provide.
Lord Davies of Brixton (Lab)
My Lords, I join my noble friend Lady Drake in congratulating the noble Baroness, Lady Altmann, on bringing this important Bill before us today. I still struggle to get my head around the idea that a government policy requires a Private Member’s Bill to bring it in: it seems a bit odd to me, but then most of the Bills this morning seem to have been in line with government policy. I suppose that is because you have a chance of getting legislation through only if it has government backing. But this is government policy and the Government have promised to introduce it. They did not say when, so their tardiness is being pre-empted by the Bill.
I am going to say some things which may seem a bit grouchy, but I do support the Bill and I am not suggesting any amendments: I think it should be put on the statute book as quickly as possible. It is, of course, an enabling piece of legislation; it is just the first step. We are going to have the regulations and there is some suggestion that we are going to have a consultation later this year. We are a bit overburdened with consultations at the moment—I think there were about five earlier this week—on crucial issues in the pensions area, so I hope there will be some understanding of the capacity issues in dealing with all these areas of policy.
The Bill does two distinct things: it increases the contributions that everyone who is automatically enrolled has to receive in their pension: it affects everyone, right up to the ceiling. It is not in any way targeted at the lower paid, but it has a much bigger impact on the lower paid, of course, because including the extra £6,000 for someone on £18,000 has a much bigger proportionate effect than for someone on, say, £30,000 or £35,000. So, proportionately, it is aiming at those on lower levels of pay. It also brings in those who are between the ages of 18 and 22—my noble friend Lady Drake dealt with this in detail.
Nevertheless, while both those things seem like good things, I do have concerns. There is a general concern that this might be seen as solely what we need to do in order to address what I think is currently the biggest problem in pensions policy, which is the gender-based pension gap that the noble Baroness referred to in her introduction. It is because of inadequate pension provision and of course it affects primarily women, hence the gender gap. We could spend a bit of time discussing the DWP errors and the differential impact that they are having on women, but we will leave that to one side today. However, the two key issues there are low pay for women and continued gender discrimination in employment.
The second concern is that caring tends to be the responsibility of women. There is, perhaps, greater sharing now than there was in the past, but it is still overwhelmingly women who have caring responsibilities, and this has an impact on the pensions that they accrue.
What solutions do we have to those issues? I am afraid that I must disagree with the noble Baroness, Lady Altmann, about the impact this will have on the pensions gap. I think it is irrelevant to the pensions gap and hence is a diversion from what we should be doing. My crucial point on the pensions gap, and where the Bill misses the point, is that we cannot solve the problem of the inadequate pensions received by women, people on low incomes and people with caring responsibilities by making them save more money. It is not the answer to the pensions gap to rely on people having greater savings, because their resources are just not there. We have to look at other ways of providing support to eliminate the pensions gap, and I really do not think that market-based funded pensions are that solution. We have to look at the solution through improvements to the state scheme. Clearly, the state has a bigger role here. In that sense, this Bill is a diversion and raises concerns in my mind, even though the measures in themselves are worth supporting.
There are also practical issues that need to be addressed if we are to extend auto-enrolment. First, we have to resolve the problem of small pots. The Government have issued a further consultation. I thought that we had consulted almost to death on this issue, but we got another consultation paper on small pots earlier today. The new and dynamic Pensions Minister says:
“I am setting out a decisive way forward built around the multiple default consolidator model”.
That is perhaps the correct approach—it moves away from the pot-follows-member model that previously had support—but this debate has been going on for 10 years or more, ever since the birth of auto-enrolment. We have to address the problem of small pots and we need to do it soon, so increasing auto-enrolment must go along with sorting out the problem of small pots.
The other issue that needs to be resolved, particularly for younger people, whose earnings will tend to be low and may be outside the tax regime, is that of net pay. I was going to say something about that at Second Reading of the Finance (No. 2) Bill, but unfortunately I could not make it. However, they are important issues and, in this context, I stress that the small pots issue needs to be taken more seriously by the Government. It was discussed in Committee in the House of Commons and various points were raised. I do not believe that the Government have yet totally resolved these issues—the need to make sure that people know that net pay tax relief will be there.
The Government’s proposal is to start, in effect, two years in the future, but I cannot see any sound reason why we should not go back to 2023. There is the whole process of individuals being able to object to whatever assessment is made and additional technical issues which I will not detain the House with today. There are a number of issues with net pay that need to be addressed. So, okay, let us go ahead, let us expand auto-enrolment, but unless at the same time we resolve the other issues of net pay and small pots, it will not have the impact that it should have. To come back to my prime point, let us not believe that this is going to resolve to a significant extent the biggest issue, which I believe is the gender pensions gap.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the knowledgeable noble Baroness, Lady Altmann, for bringing this Private Member’s Bill to the House and the usual cast of knowledgeable speakers we have in every pensions debate—the noble Baroness, Lady Drake, the noble Lord, Lord Davies, and, in due course, the noble Baroness, Lady Sherlock. It is very much déjà vu; we come back to this again and again. I also thank the Minister for mentioning this morning my mild contribution to the Child Support (Enforcement) Bill. We are always grateful for acknowledgement of our modest support and information, and the Minister was particularly helpful on that issue. I was not in my place because I did not know that we were going to make speeches.
I support this Private Member’s Bill to amend the Pensions Act 2008 to give the Secretary of State powers, as has been said, to extend pensions automatic enrolment to workers from age 18 rather than, as now, only 22 and to increase contributions so that pensions savings are based on all earnings up to just over £50,000 per annum rather than only over the lower earnings limit, referred to by the noble Baroness, Lady Altmann, of £6,240 per year. It is great that this Bill is being progressed. I would like to pin down the Minister on a timetable—when will the changes take place? Even if they cannot be made immediately, we need a firm timetable so that people can plan. The whole idea of pensions is to plan for the future, and having no fixed timetable is not useful to those looking to do so.
When I was a local councillor, I had advice cases galore. One of the nicest things about coming to this House is that those advice cases almost dry up. However, earlier this year by accident I got an advice case, relevant to this debate, from a woman who was a nurse for many years. She retired, took a pension and then came back to work. On her payslip every month, there was a pension deduction; so, when she retired a second time, she looked for the secondary pension that she had contributed to and found, to her amazement and mine—I checked this with our Minister at the time—that the money had been deducted but had not gone to a pension at all. She should have been aware of it, but she was not, as on the payslip there was a deduction for a pension. After my and others’ intervention, the end product was a return of contributions rather than a pension. The relevance of this very rare advice case is that, when contributions are deducted, everyone will be auto-enrolled and therefore that deducted money would be a pension scheme.
Automatic enrolment is a genuine success story. It has not got to the end yet, as pointed out by noble Lords, but making these changes to auto-enrolment, which were recommended in the 2017 independent AE review, and extending its scope will mean that more people have an adequate income in retirement. As has been mentioned, broadening auto-enrolment will be of particular benefit to under-pensioned groups: women, ethnic minorities, younger people, multiple job holders and gig economy workers. The Government committed to bring forward these changes in the mid-2020s, so it is welcome to see that they are serious about hitting this target by backing this Bill and finding parliamentary time to allow these reforms to take place.
However, I echo the comments of the noble Lord, Lord Davies. I still cannot get my mind around why we have a succession of Private Members’ Bills—this is not the only one—to bring forward legislation, rather than the Government bringing forward a more comprehensive Bill on pensions. But this is the way it is being done and I heartily support it.
Baroness Sherlock (Lab)
My Lords, I thank the noble Baroness, Lady Altmann, for introducing this Bill and all noble Lords who have spoken. The noble Lord, Lord Palmer, is right: we are a select band. However, we are none the worse for it. It is always interesting, and I learn something every time this particular band gets together, so it is a joy to be back here today.
I am grateful for the briefing we had on this matter and for some excellent paperwork supporting the Bill. As noble Lords have observed, it is a little strange: Private Members’ Bills must come from private Members. On some, however, the Government smile more readily than they do on others, and if they smile readily, the passage can be eased through both Houses. That is what we have today, so I am grateful that the Government have smiled on this one and I look forward to hearing the Minister talk about it at more length shortly.
I start by celebrating auto-enrolment itself as one of the great public policy successes of recent years. As the noble Baroness, Lady Altmann, said, its origins lie in the work of the Pensions Commission set up by the last Labour Government, chaired by the noble Lord, Lord Turner, and on which my noble friend Lady Drake and the late and greatly lamented Sir John Hills served with such distinction. The coalition Government implemented it in 2012, and there has been growth in the number of people saving for a pension as a result. We can all celebrate that. However, it is clear that pensions adequacy remains an issue; noble Lords have raised a variety of questions, from the gender pensions gap to people in multiple jobs to the gig economy—all of which need addressing. While this tiny Bill cannot do that, hopefully the Minister can give us a nod to show us which way the Government are thinking when it comes to addressing these problems.
This Bill would enable the extension of auto-enrolment in two directions. It would amend the Pensions Act 2008 to give powers to the Secretary of State to make regulations to do three simple things: to reduce the lower age limit at which eligible workers must be automatically enrolled or re-enrolled into a pension scheme by their employers; to remove the lower earnings limit—the LEL—from the qualifying earnings band so that contributions are calculated from the first pound earned; and to change the requirements of the annual review of the qualifying earnings band. As we have heard, the Government will have to bring forward a consultation, which I hope they will do soon. I look forward to hearing some tips on when that might happen. They would then have to bring forward regulations. This is only a permissive Bill, but it would enable the Government to fulfil some of the commitments they made in the 2017 review of auto-enrolment to introduce changes in the mid-2020s.
As we have heard, the Bill does not specify a new lower age limit, but the Government have previously committed to reducing the limit from 22 to 18 and the Explanatory Memorandum says that this is the policy intent. Although this is a Private Members’ Bill, the EM was produced by DWP, so presumably that makes it a government policy intent. Just for clarity, though, can the Minister confirm that it is the Government’s intention to reduce the lower age limit to 18? Is it also the Government’s intention to use these powers to remove the LEL from the qualifying earnings band? Maybe that is obvious, but it is always good to have these things on the record. Any indication on timing that the Minister could give us would also be helpful.
If these measures were introduced, while they would not solve all our problems, they would bring significant numbers of people either into the orbit of auto-enrolment or the possibility of employer contributions, including: those who are below the current qualifying age limit of 22; those who earn above the trigger point of £10,000 but are getting employers’ contributions only on earnings above the lower earnings limit who could then get them from the first pound; and those earning below the trigger point but above the LEL who are able to opt in but who, in future, could then get employers’ contributions from the first pound.
The impact assessment did a fine job of using the available data to model what could reasonably be modelled. It played around with likely participation and savings rates in various directions and concluded at para 5.18 that if in force in 2022-23, the combined proposals would increase total pension saving by £2 billion. Of this, £0.9 billion would be paid in employee contributions, £0.8 billion would be paid in employer contributions and £0.2 billion would be paid in income tax relief on employee contributions.
Of course, this is all dependent on assumptions about opt-out rates. Paragraph 8.10 of the impact assessment tells us:
“Between 4 and 5 per cent of employees who are automatically enrolled opt-out”.
It goes on to say that another 5% of employees who are auto-enrolled and start saving
“then make an active decision to stop saving whilst continuing to work”.
Paragraph 8.11 says that
“around 10 per cent of employees who are automatically enrolled either opt-out or actively cease saving in the first year”.
However, much of the participation data behind this was from the ONS’s annual survey of hours and earnings in 2020, which was of course before the cost of living crisis hit. Does either the noble Baroness, Lady Altmann, or the Minister know what work has been done to assess whether this opt-out rate has changed or is likely to change in the current economic climate?
A number of other important questions have been asked by Members from across the House. As my noble friend Lady Drake said, it will be important for the Government to confirm in some detail when and how they will address the net pay issue. I hope that the Minister will be able to give both my noble friend and the House an assurance that the Government have plans to monitor and address any poor practices that might emerge among employers trying to stop young workers benefiting from auto-enrolment in the way this Bill and the Government envisage. I would also be grateful if the Minister could give the House any more information about the way in which the Government are engaging with key stakeholders, in particular employers, trade unions, consumer bodies and especially young people themselves.
Having raised these issues, I want to make it clear that the Opposition fully support this Bill, despite its limitations. My thanks go to all involved, including the noble Baroness, Lady Altmann. I also thank Joshua Osborne, a University of Sheffield student who was on a placement with me last week, for his work in preparing important information on this Bill. I thank all those who have spoken today and carry on supporting the important issue of pensions in our society. I wish the Bill well.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, I am pleased to add my support to my noble friend Lady Altmann’s Bill. This legislation would bring into workplace pensions more younger people, women and those in part-time work, including workers not already benefiting from an employer pension contribution. My noble friend eloquently set out further detail of the Bill, its benefits and its beneficiaries.
The Government are committed to building on the success of automatic enrolment to date with a stronger, more inclusive savings culture for younger people. The noble Baroness, Lady Sherlock, was right to remind us of some of the historical context. My noble friend’s Bill would expand the automatic enrolment framework, which was one of the most radical reforms to the pensions landscape since Lloyd George enacted the first state pension nearly 120 years ago. This Bill builds on the undoubted success of workplace pensions and sits firmly within the political consensus established by the independent Turner commission, on which the noble Baroness, Lady Drake, served, as has been mentioned, and which set out the road map for these reforms in 2005. I add my name to those who have paid tribute to the noble Baroness in this respect.
I want to move straight on to the subject of small pots, which was raised by the noble Lord, Lord Davies. I hope that I can help in providing some answers because I agree—he is right to raise this issue—that the growth of deferred small pots is a huge challenge for the workplace pension market. We know that it acts as a burden on providers, reducing the value for money that pension schemes can provide and negatively impacting retirement outcomes for their members.
I assure the noble Lord and the House that the Government are taking decisive action to address this issue. We are consulting now on our ambition to deliver a framework for a default consolidator approach, which will enable a small number of authorised schemes to act as consolidators for deferred small pots in order to provide greater value for money for their members. In this way, we are working to address the current and future stock of deferred small pots. I note the comments made by the noble Lord today in this respect; we would very much welcome his contribution to the consultation if he has not already given his views, as I suspect he may well have done.
I turn to some of the points made by my noble friend Lady Altmann and the noble Baroness, Lady Sherlock. We had an interesting, brief debate on the lowering of the age limit, which we reckon is about right at 18. The Bill provides for regulation-making powers to reduce the age for AE, rather than setting a specific number. This has been done to avoid pre-empting the statutory consultation. We do not wish to close off our ability to respond openly and thoughtfully to stakeholder proposals.
The 2017 review found 18 to be the appropriate minimum age for automatic enrolment. The current minimum of 22 has failed to keep pace with changes elsewhere, such as to the national minimum wage. The lower age also aligns with the entitlement to social security benefits, such as universal credit. Moving to 18 is seen as an effective way to embed the habit of workplace pension saving for young people as they start work for the first time. Indeed, the Government’s commitment for young people below the age of 18 in England and Wales to remain in education or receive training and employment through apprenticeships has resulted in a decrease in 16 and 17 year-olds in the labour market. Workers aged 16 and over will still be entitled to opt in to AE and receive an employer contribution if they choose to save into a workplace pension.
I also want to touch on pension tax relief. The Government recognise the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the income tax personal allowance. This picks up on some points raised by my noble friend Lady Altmann. We have announced a new system that will make top-up payments to low earners in net pay schemes, many of whom are women—I think that she made this point—to address the net pay relief at source anomaly. The Treasury has confirmed that this will be introduced for contributions from 2024-25 onwards. In 2025-26, we estimate that up to 1.2 million individuals, 75% of whom are women, could benefit from top-ups worth on average around £50 each year. The Office for Budget Responsibility assesses that the cost to the Exchequer could be between £10 million and £15 million per year.
My noble friend Lady Altmann also raised the issue of low earners, as did one or two other Peers. The AE framework has an earnings trigger that is set at a level that aims to bring those individuals for whom it pays to save into pension saving automatically. The Secretary of State must review this trigger each year to help to make sure that it remains appropriate. As my noble friend mentioned, currently the trigger is set at £10,000. However, if an eligible worker earns below this amount, they can still choose to opt in to a workplace pension if they want to save, as mentioned earlier. The Bill is the essential first step to allow the expansion of AE. The Government are clear that these measures are the best route to enabling low and medium earners to save more, with more workers benefiting from the employer contribution to help them to build their retirement savings.
I will now move on to a few general comments about pensions and, indeed, the state pension, which was alluded to by the noble Lord, Lord Davies. I hope that I am not going too far in terms of his remarks, but hopefully this will set the scene a bit. I reassure the House that we believe that the state pension remains the foundation of the UK pension system. In April 2023, the state pension saw its biggest ever cash increase, rising by 10.1%, so that the full yearly amount of the basic state pension will be over £3,050 higher in cash terms than in 2010.
Workplace pensions sit on top of that foundation, helping to maximise individual retirement saving. This is an approach guided by the work of the independent Pensions Commission, which made clear the importance of reinvigorated private saving to help individuals to achieve their retirement aspirations. The Government continue to support the success of automatic enrolment, which has seen 10.9 million workers enrolled into a workplace pension since 2012, with an additional £33 billion saved in real terms in 2021 compared to 2012.
I move on to a more substantive point raised by the noble Lord, Lord Davies—I think that he mentioned it twice—which is what we are doing to reduce the gender pensions gap. As he will know, the pensions gap is a complex issue tied to the labour market, the pensions system and demographic differences, but one that the Government take seriously. We remain committed to implementing the 2017 review measures, which will disproportionately benefit lower earners, including people working in multiple jobs, who are predominantly women.
Going back to the basic concept of automatic enrolment, AE came along at a time when the UK was towards the very bottom of the OECD league tables on retirement saving. A radical reversal has taken place in the past decade putting us close to the top, with the UK now having the largest pension market in Europe. I pay tribute to those, some of whom are in the House today, for their efforts to make this happen.
In the private sector, workplace pension participation for eligible employees has increased from 42% in 2012 to 86% in 2021, representing a 44 percentage point increase. As my noble friend Lady Altmann said, it has been especially transformative for women, low-earners and young people. Her Bill would enable the Government to build on that success and deliver the expansion of AE.
There are a couple of other questions I want to answer—actually, about three—particularly from the noble Baroness, Lady Drake, from the noble Lord, Lord Davies, and from the noble Baroness, Lady Sherlock, on timing, which is a very fair question. The Government are committed to making progress in implementing the 2017 review measures, including lowering the age for being automatically enrolled and reducing the lower earnings limit so that pensions contributions are payable from the first pound of earnings, in the mid-2020s. We have always been clear that implementation of these measures and the timing must be done in a way and at a time which is affordable, balancing the needs of savers, employers and taxpayers, with a suitable lead-in time for implementation. I am afraid that that is as far as I can go on that, but as soon as I have any further detail I will certainly let the House know.
The noble Baronesses, Lady Drake and Lady Sherlock, are right that we need to look at any opt-out rate with great care in monitoring, and I reassure the House in that respect. The noble Baroness, Lady Drake, raised a very important point about AE enforcement. The regulator has a statutory duty to enforce compliance with employer AE duties. Employers must provide information about AE to each eligible employee, including their right to an employer contribution. If a worker has concerns about whether their employer is complying with the law, they can report their concerns to the regulator in confidence—as I suspect noble Lords will be aware.
Baroness Drake (Lab)
My point was that the regulator is doing a good job on enforcement, but very young people are quite vulnerable, and I was just saying that it needs a new lens brought to enforcement activity.
Viscount Younger of Leckie (Con)
Absolutely. Again, I provide reassurance that we are very much alert to the issue and we shall be sure that we monitor it and keep the House updated.
The noble Lord, Lord Davies, raised the important subject of carers, and I have a couple of brief answers for him. The Government recognise the valuable role of carers and that they are disproportionately women. Where carers are working, if eligible, they will be automatically enrolled into a workplace pension, or they can opt in. The expansion of AE will see all those participating get an employer contribution from their first pound of earnings, and that will help to improve the incentive to save for those who are in lower-paid or part-time work, including carers.
Finally, to touch on consultation, which was raised by the noble Lord, Lord Davies, and others, the use of the Bill’s powers would be subject to a statutory consultation requirement and the affirmative procedure in both Houses to gain consensus on the implementation approach and timetable, so that the measures can be introduced in a way that is affordable for all parties, as mentioned earlier. This is a crucial point. While we are all rightly keen to build on the success of AE—and many Peers call for more and faster change, hence the questions on timing—the approach needs fully to take account of the impact of these measures on employers, workers and the Exchequer in a way that makes the changes both beneficial and affordable for all. To clarify, we intend to consult in the autumn with employers, payroll and delivery partners throughout the supply chain to get the implementation approach and timetable right before changes are introduced.
I again thank my noble friend Lady Altmann for taking the Bill through and for helping more people gain the benefits of retirement saving. I judge from the mood in the House that it shares my view of the importance of the Bill and the positive and sensible way in which it would allow for the future expansion of automatic enrolment, which I believe is an ambition we all share.
Baroness Altmann (Con)
My Lords, I am grateful to all noble Lords and to my noble friend for their contributions to this excellent debate. I have just a few brief words.
The noble Baroness, Lady Drake, expressed her concerns about younger workers perhaps being off-payroll. She is right in the warnings that she has put on record, and about the issue of the national minimum wage for a part-time female worker, for example, who might still be excluded because of the £10,000 trigger. Indeed, the issue of small pots will grow as a result of these measures. I know the Government will look at ways to solve that. I urge my noble friend to proceed with the measures currently under consideration and the consultation.
The noble Lord, Lord Davies, is absolutely right to raise the issue of the gender pensions gap, which I think all noble Lords who have spoken will have concerns about. He is right that more women being on low pay means that fewer women will have as good pensions as men, but I hope he might be persuaded that the fact that we will be taking earnings contributions from pound zero will make a difference. It might be a small one, but it will make a difference in the right direction to the gender pensions gap. As I said, someone on £10,000 per year, who is more likely to be a woman than a man, will suddenly have £800 going into their pension instead of £300. That will help to build a better amount over the long term, but he is clearly right that more can and should be done.
The noble Lord, Lord Palmer, is right that there is more to do on auto-enrolment, but I appreciate the welcome for these measures. I also welcome him to our merry band of pension Peers. As he pointed out, it is always the same individuals across the House.
The noble Baroness, Lady Sherlock, is right to celebrate the success of auto-enrolment. She asked about the opt-out rate. As far as I am aware, the DWP published some research in August 2022 which suggested that there was a slight uptick in the auto-enrolment opt-out rate for newly enrolled workers, rising to 10.4% from 7.6% in January 2020. In contrast, for the workers who stopped contributing once they were in, there was actually a reduction to 3.1% in August 2022, down from the figure of about 5% that she mentioned. As a previous Pensions Minister, Steve Webb, has written, the auto-enrolment programme so far seems to be remarkably robust, but we clearly had not had the worst of the cost of living crisis in 2022. This needs to be monitored, but I am pleased that the DWP is doing that.
My noble friend the Minister is right to say that the Secretary of State can review the trigger each year. Therefore, there is a potential for those earning below £10,000 a year to also be included at some point.
I thank all noble Lords who have spoken today.
Pensions (Extension of Automatic Enrolment) (No. 2) Bill
Tuesday 12th September 2023
(7 months, 2 weeks ago)
Lords ChamberRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
Baroness Altmann (Con)
My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.
Pensions (Extension of Automatic Enrolment) (No. 2) Bill
Monday 18th September 2023
(7 months, 1 week ago)
Lords ChamberRead Full debate Pensions (Extension of Automatic Enrolment) Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2023 - (15 Mar 2023)
Baroness Altmann (Con)
My Lords, I congratulate and thank my honourable friend Jonathan Gullis on initiating this Private Member’s Bill in the other place. I also thank my honourable friend the Pensions Minister, Laura Trott, my noble friend Lord Younger, the Lords Minister, DWP officials and the Bill team, the Public Bill Office, the Lords Library and the Lords clerks.
This Bill reflects the strong cross-party support in both Houses and continued political consensus on auto-enrolment. In that regard, I thank the noble Baronesses, Lady Sherlock and Lady Drake, whose work on the Pensions Commission recommended automatic enrolment, and the noble Lords, Lord Davies and Lord Palmer, for their speeches supporting the Bill, which paves the way for half a million younger people and at least 2.5 million older workers to build bigger pensions, particularly for the low paid. I look forward to the promised early consultation to confirm the details and timing of the regulations, which will see the provisions of the Bill implemented by all employers. I beg to move.
Baroness Sherlock (Lab)
I thank the noble Baroness, Lady Altmann, for piloting the Bill through this House and I share her thanks to the Minister and his team, and all noble Lords who participated. Auto-enrolment is a much-loved child with more than one parent. As the noble Baroness said, the work came from the Pensions Commission, set up by the last Labour Government and on which my noble friend Lady Drake and the noble Lord, Lord Turner, served with such distinction. The coalition Government implemented it in 2012, and there has been a welcome growth as a result in the number of people saving for a pension. We can all celebrate that—but, as we noted at Second Reading, pensions adequacy is still an issue, so we need to look at continually improving auto-enrolment and addressing the question of the gender pensions gap, which remains a matter of serious concern.
This simple, permissive Bill would allow the Government to make progress in fulfilling their commitment by implementing some of the 2017 review measures, namely reducing the lower age limit for being auto-enrolled and removing the lower earnings limit. The Minister confirmed at Second Reading that the Government were still committed to doing that in the mid-2020s. Without wishing to be depressing, as 2023 begins its descent towards the sea, I wonder if the Minister can give us any hint as to whether 2024 might be the year, or is this gently rolling into the grass beyond the election?
The Opposition fully support this Bill. I thank again all those involved in proposing it and look forward to its passage.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, I, too, congratulate my noble friend Lady Altmann on piloting this excellent Bill to its final stages. As I said at Second Reading, it has the full backing of His Majesty’s Government, and I am pleased to reiterate that support today. As the noble Baroness, Lady Sherlock, has just said, the 2017 review measures will see hundreds of thousands more young workers brought into workplace pensions for the first time. Alongside this, 2.5 million existing savers will see their pension contributions grow. Removing the lower earnings limit will mean that every worker will be paying pension contributions from their first pound of earnings and benefit from an employer contribution. Overall, an extra £2 billion-worth would be saved a year.
I am grateful for the constructive scrutiny of the Bill from noble Lords on all sides of the House. I acknowledge the thoughtful interventions at Second Reading of the noble Baronesses, Lady Sherlock and Lady Drake, and the noble Lords, Lord Palmer of Childs Hill and Lord Davies of Brixton. If the House agrees to final passage today, the Government will look to play their part by consulting on how to implement the expansion of automatic enrolment at the earliest opportunity, which I hope gives some idea of the timescale to the noble Baroness, Lady Sherlock. We hope that it could be later this year. We will then report to Parliament about how we intend to proceed in accordance with the provisions in the Bill. I am very pleased that there is cross-party support for my noble friend’s Bill, and I hope that this House will agree to its final passage today.
Royal Assent
Monday 18th September 2023
(7 months, 1 week ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 136-R-I Marshalled list for Report - (1 Sep 2023)