Guaranteed Minimum Pensions Increase Order 2019

Debate between Baroness Drake and Baroness Janke

Thursday 14th February 2019 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I will take the opportunity of the GMP increase order to raise the recent High Court decision in the Lloyds Banking Group case, which now requires trustees to amend their pension schemes to equalise GMP benefits. The inequalities arose because between April 1978 and April 1997 an employer could contract its company scheme out of the second-tier state pension if it provided a guaranteed minimum pension—the GMP component of a member’s company pension. A calculation of the GMP accrual is set in legislation and results in inequalities because GMPs are payable from the age of 65 for men and 60 for women, so they accrue at different rates, with female benefits accruing more quickly.

That is further complicated by different schemes’ normal pension payment ages, which create a result that is sometimes more favourable to men and sometimes more favourable to women. Following the 1990 European court decision, occupational pension schemes “equalised” their retirement ages for men and women, often to 65, but the GMP component continued to apply at 60 for women and 65 for men. Following consultation in 2016, the DWP proposed a GMP equalisation method but did not commit to it being a safe harbour for achieving equalisation.

The High Court decision in the Lloyds Bank case required schemes to implement GMP equalisation from 1990, and identified approaches to achieving it. That decision still left uncertainties—for example, over how previous transfers out and buyouts should be addressed and the position of survivors’ benefits in payment. In March 2017, the DWP advised that it would consider its position in the light of any legal decisions resulting from the Lloyds Bank case. Will the Government press ahead with their planned changes to GMP conversion? Will they make variations to their proposed methods more generally? Are they considering any legislation on GMP equalisation?

The Explanatory Memorandum advises that the Secretary of State’s decision on the values of the qualifying earnings band and trigger for auto-enrolment for the tax year 2019-20 is based on established policy principles: namely, the right people being brought into pensions saving; the appropriate minimum level of saving for people automatically enrolled; and the costs and benefits to individuals and employers being appropriately balanced. I can understand why the Government would hold to the current interpretation of those principles for the 2019-20 tax year. A priority is the phasing to the 8% contribution rate from April 2019 with negligible impact on the opt-out rate. However, we know that the Government want to change the future interpretation of those principles as, following their auto-enrolment review, they announced reforms to lower the age limit for auto-enrolment from 22 to 18, and to remove the lower earnings limit of the qualifying earnings band and calculate the 8% contribution from the first pound earned.

There is no confirmed date for the implementation of these reforms, other than a loose reference to the mid-2020s. The Government could announce a forward date, which would allow time for consultation and legislative change, and give employers good notice. The reforms could bring an extra £3.8 billion into pension saving annually, increasing the pot of the lowest earners by about 80% and the median earner by 40%. When will the Government name the implementation date for these reforms and when do they anticipate bringing forward legislation to give the Secretary of State the necessary powers to implement them?

Finally, the earnings trigger—earning £10,000 or more in one job—is a factor in determining which workers get automatically enrolled into a workplace pension. Some 37% of the eligible population for auto-enrolment is female and 63% male—a glaring example of the lifetime caring penalty that women pay. Predominantly because of caring, millions of working women—some 45%—are in part-time jobs and earning less, which excludes many from auto-enrolment. Although the £10,000 earning trigger is frozen, decreasing in real terms against assumed wage growth, that 37% still rises only to 38%. Yes, once in the eligible population women are saving at the same rate as men—one would expect that; women are not stupid—and they still gain from having their inertia mobilised into savings. It is not getting into the eligible population that excludes many women from the benefits of saving.

The Government’s argument for not lowering that £10,000 is that,

“the predominant impact will be upon people for whom it could make little economic sense”,

to save. Such a sweeping assumption sustains a gender stereotype that is not fair on the women impacted, for several reasons. Many women will be in households with income that would support them as the right people to be brought into pension saving. Some women earn more than £10,000 but will not qualify because they do not earn £10,000 in any one job. Many women work part-time during periods of caring, outside of which they work full-time. For them, the assumption that it would not make economic sense to save is wrong and simply undermines their persistency of saving.

Fully 100% of pension contributions are deducted from employed earnings when calculating entitlement to universal credit and tax credits—an incentive to save for low-income earners. Excluding them from auto-enrolment undermines that incentive. Under pension freedoms people do not need to secure an income stream in retirement, so the concept of replacement rates is more tenuous. Older women on low incomes have lower financial resilience—lack of financial resilience has been reported on copiously in the last year or two—so supporting women during their working life to build up a pot of savings, accessible from age 55, will increase their resilience and mitigate their exposure to debt.

The Government consider that opting in to pensions is the most appropriate option for these people. Their published review of the earnings trigger refers to Institute for Fiscal Studies research showing that the impact of auto-enrolment has also increased pension membership among those earning below £10,000. However, I read that research, and the institute’s researchers observed that “it might be unlikely” that employees ineligible for auto-enrolment asking to opt in to workplace pension “is the major driver” of this increase. They referred to other influences more likely to account for the increase, such as some employers choosing to contractually enrol their workers who earn below £10,000—either from,

“a paternalistic desire to provide”,

low earners with some saving,

“or to reduce the … burden of monitoring whether staff”,

with variable earnings,

“do or do not earn over”,

the earnings trigger during a relevant pay period. So the research quoted does not support the assumption that low-paid women being able to opt in to pensions is translating into them saving more.

I ask the Minister what measures the Government intend to take to address the problem that, even with the changes in this order, still only 37% of the auto-enrolment population is female.

[Baroness Janke (LD)]

I thank the Minister for her introduction of the orders and I am privileged to follow the noble Baroness, Lady Drake, who is such an expert on this matter. I too will raise a few points about how inclusive the scheme is. It has been a success; we all recognise that. It has been a very good example of cross-party working on a crucial issue.

On inclusivity, the latest figures from the department show that 37% of women workers, 33% of workers with a disability and 28% of black and minority-ethnic workers are not eligible for master trust saving through auto-enrolment. Auto-enrolment does not cover the self-employed or workers in the gig economy. Both the noble Baronesses, Lady McIntosh and Lady Drake, mentioned the cumulative earnings of people who work part-time and in more than one job. What plans do the Government have to further extend the scheme to include those groups? How can it be made more accessible to enable those who need it most to benefit from it?