Automatic Enrolment: Lower Earnings Limit

Guy Opperman Excerpts

Tuesday 12th March 2019 Westminster Hall

[Angela Crawley]

I wholeheartedly agree. The Government have been remiss in their responsibilities to address those epidemic concerns that have increased during their stewardship in government.

I will turn to the concerns that I have outlined, including those of women, low-paid workers and the WASPI women, on whom the Government have a shambolic record. Low-paid workers, including those who have multiple jobs that do not meet that threshold, are more often than not below the earnings threshold and do not therefore meet the criteria for auto-enrolment. There is no mechanism for auto-enrolment for the self-employed.

Another group of individuals has also been completely forgotten in this programme. There is a duty to enrol for those aged between 22 and the state pension age. Those in the six-year gap between the ages of 16 and 22 will therefore be adversely impacted by that decision. The Government acknowledged that problem, but addressed it by saying that many people in that age group tend to move jobs a lot, so it is not administratively worthwhile to account for them in the programme.

What do the Government say, however, to a young person who goes into a full-time permanent job at 16? Are they not entitled to pension contributions? The UK Government have said that they will lower the age to 18 by the mid-2020s. Can the Minister tell us exactly when that will happen?

The contribution is currently set at £6,032, going up to a threshold of £46,350. That has been on a phased increase since 2012. In reality, the minimum recommendation that is currently estimated for pension savings is 15% to 18%. If the Government were to remove the lower earnings limit, it would add £2.6 billion to the annual pensions pot. That would still account for only 8% of the estimated required pension savings. That means a shortfall of 12%, on average, for each individual of working age in the UK. The Government have to address that.

The Minister himself, however, has admitted that 8% is not a sufficient contribution for a long-term retirement, and the Government’s own figures suggest that approximately 12 million people are under-saving for retirement. I hate to take words out of the Minister’s mouth, but he will probably point to the pensions dashboard to support better planning for retirement. However, for women, low-paid workers, those in multiple low-paid jobs, those aged from 16 to 22 who are in full-time permanent employment, the self-employed, and those on zero-hours contracts who fall below that threshold, can the Government say that they are serving them? For society as a whole, does the existing lower earnings limit sufficiently

“support better planning for retirement”,

to use the Government’s own words? The Government record on WASPI women alone proves that, more often than not, the evidence is that in most instances the most vulnerable in society are an afterthought.

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I hesitate to interrupt the hon. Lady’s flow—but I am also allowing her to take a sip of water. Of course I will cite the pensions dashboard, which I am sure that the SNP very much support and in reality will make a significant difference, but there is also the Single Financial Guidance Body, which was set up under legislation passed last year. It is there specifically to cater for the vulnerable and to assist those who require greater ongoing access to pension advice. I hope that she will accept that such matters, passed on a cross-party basis, are evidence of ongoing assistance to people she and I genuinely care about.

[Angela Crawley]

I thank the Minister for that intervention. He might well remember that the SNP supported the concept of a pensions dashboard, but the Government rejected a number of key amendments in which we argued for the protection of vulnerable individuals. We are singing from the same hymn sheet about our ambitions and aims, but the fact of the matter is that the Government have the responsibility to introduce the scrapping of the lower earnings limit and the introduction of auto-enrolment pensions contributions, at the very least for those aged 18 and over, and at present they have not made a commitment to do so. He must act on his own words.

Women are often the primary parents or carers for loved ones. They are often the ones who take career breaks and part-time or flexible work to fit in with their responsibilities. They also live longer and work more hours to make ends meet. They are the most likely to be impacted by this Government’s decisions and will bear the long-term impact of the changes. Why is the Minister delaying, and to what end? Is he hoping to kick the issue further down the road so that this Government do not have to deal with it, and a future Government will, or will he give a cast-iron commitment today that he will do something to address the issue on lower earnings limits and for each of the vulnerable groups that I have mentioned?

Ultimately, ensuring that every pound earned by every worker counts towards their pension should be an ambition that we all strive for. If the estimated savings of a pension ought to be 15% to 18%, the Government’s ambition to reach 8% already falls short. The whole low-paid workforce should predominantly be recognised for their hard-earned contributions. I hope that the Government will answer the questions that my hon. Friend the Member for Paisley and Renfrewshire South and I have asked today, and that they will commit to deliver on this policy.

[Neil Gray (Airdrie and Shotts) (SNP)]

It is a pleasure to take part in this debate with you in the Chair, Sir Gary.

I congratulate my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) on securing this debate and once again leading the agenda in this place on pensions matters. Frankly, as the youngest Member of the Commons, she is an example and a role model to speak so well with authority and eruditeness on an issue that more young people should embrace and engage with. As I approach my 33rd birthday, I include myself and my peers in that youthful bracket—

[Guy Opperman]

indicated dissent.

[Neil Gray]

We are going for consensus in this debate, Minister, so we should continue on that ground.

The SNP supports and has always supported auto-enrolment but, as my hon. Friend the Member for Paisley and Renfrewshire South highlighted, we remain critical friends. Only last month, I raised the delay in scrapping the lower earnings limit threshold when the Minister brought the relevant statutory instrument to the Floor of the House. My hon. Friend mentioned a number of benefits if only the Government would scrap the threshold, and during the SI debate the Minister said that auto-enrolment was a success story. I agree, but we could make it so much more successful if we only got on with it.

I hope that we can build on what my hon. Friend rightly said in arguing for the lower earnings limit to be scrapped and that, in summing up, the Minister will provide us with a clear and concrete timetable for the UK Government to meet and achieve their policy promise. I would also appreciate him clarifying whether implementation of the commitment to scrap the lower earnings limit will require a submission to the comprehensive spending review and, if so, is that being prepared by his Department?

I am sorry that I do not have more contributions to the debate to sum up. It is obviously an important debate and I am sorry that no one other than the Minister—I look forward to hearing from him—and his Parliamentary Private Secretary, the hon. Member for Gordon (Colin Clark), managed to drag themselves away from the unfolding Brexit mess going on in the main Chamber.

I am grateful to those who have contributed to the debate, including my constituency neighbour, the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), for being present and for his speech. He also spoke in favour of the Government’s policy being implemented, and he rightly reiterated much of the information and statistics that my hon. Friend the Member for Paisley and Renfrewshire South provided to the House in her speech. He was also right to refer to the age restrictions; he mentioned the WASPI women, and I am sure he would agree that no one outside the WASPI campaign has done more to raise the profile of those women, argue their case, or represent them in this place than my hon. Friend.

My hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) made a powerful, fact-based speech. She was right to say that the delay in implementing the policy in full is preventing people from being able to plan adequately for their future. I know that is not the Minister’s intention, but he must acknowledge that the longer that the delay is allowed to continue, the more that will be the case. She was also right to ask whether a 16-year-old working the same full-time job as a 26-year-old colleague should continue to be discriminated against by not receiving pension contributions when their colleagues do.

In conclusion, I once again congratulate my hon. Friend the Member for Paisley and Renfrewshire South. She was right to say that things are moving in the right direction and that that is what we want to see, but we want greater and swifter action. The delay, the problems with making progress on realising the pensions dashboard, the WASPI women issues, and the lack of a concrete pensions policy all highlight, in our view, the need for an independent pensions commission. In summing up, on an otherwise troubling day for the Minister and his colleagues in Government, I hope that he will bring some joy and set out a clear, concrete timetable for scrapping the lower earnings limit. I look forward to hearing from him in that regard.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I congratulate the hon. Member for Paisley and Renfrewshire South (Mhairi Black) on securing the debate. It is a fair and legitimate comment that some hon. Members are a little distracted by other matters taking place in the House of Commons, but I make the point that although we may have our differences on Brexit and all the difficult issues that are being debated in the main Chamber, the House is still debating and considering other matters, such as legislation on female genital mutilation, which was passed on a cross-party basis last night, and auto-enrolment, which is crucial to the long-term retirement future of all our constituents from all different backgrounds.

I genuinely welcome the debate. When I saw it on the Order Paper, I felt pleased to have the opportunity to debate auto-enrolment and to address this particular issue. The hon. Members for Paisley and Renfrewshire South and for Lanark and Hamilton East (Angela Crawley) have raised the issue in a series of parliamentary questions. I answered those questions at reasonable, but clearly not sufficient, length on 20 and 21 February, and I will attempt to address them in more detail today.

It is right to celebrate, as other hon. Members have done, the fact that in the constituency of the hon. Member for Paisley and Renfrewshire South, 6,000 men and women are benefiting from auto-enrolment. Thanks are due to the 1,130 employers that have genuinely stepped up to the plate and are in the position to make that contribution through their payroll deduction to employees up and down her constituency.

I should also say that it is a pleasure to serve under your chairmanship, Sir Gary. Given that I have a little time, I make the point that in your Devon constituency, you have 6,000 employees who are benefiting on an ongoing basis, and 1,350 very good employers that should be thanked.

It is embarrassing how often I agree with the hon. Member for Birmingham, Erdington (Jack Dromey), but he is right that this is a cross-party success story that, in my view, all political parties have got behind. I will turn to the points of the hon. Member for Paisley and Renfrewshire South in a second, but the hon. Member for Birmingham, Erdington is right to say that the process was started under a Labour Government with the Turner commission. It was then brought forward under the coalition, when my position was held by a Liberal Democrat, Steve Webb, late lamented of this House—although I think we took his seat, so he is not that lamented.

More particularly, I am the latest in a long line of pensions Ministers and Secretaries of State for Work and Pensions—including the right hon. and learned Member for Camberwell and Peckham (Ms Harman), who is married to the hon. Member for Birmingham, Erdington—who have brought forward these very positive changes. They were developed by the coalition Government, and we have expanded on them.

The key issue in relation to this is the automatic enrolment review of 2017, which, as Members can see, is not a small document. It addresses the issues and was independently commissioned by the Government. A number of experts took a great deal of evidence and addressed what should be done in considerable detail.

In answer to the questions asked by the hon. Member for Paisley and Renfrewshire South, the issue is not whether we will lower the earnings limit; we will do that. Nor is it whether we will lower the age limit from 22 to 18; we will do that. The question is when. I accept that there is a legitimate and real debate to be had in this House when legislation is brought forward as to when those changes should take place. I do not want anyone to be in any doubt: there is no question but that our policy, as set out in the 2017 review, made clear in the House previously and confirmed today, is to bring the age limit down from 22 to 18, and to bring the threshold down to the first pound earned.

I accept that there will be pressure today, as Members have made clear, to do this much sooner. I take the point that the SNP, individually as Members of Parliament and collectively through their shadow Minister, is urging the Government to act sooner. There is a serious point that the House needs to consider; we all celebrate the successes of auto-enrolment but it would be naive and wrong to say that it is an utterly done deal yet.

[Neil Gray]

We accept and are grateful for the Government’s continued commitment to scrapping the lower earnings limit and reducing the age limit. We welcome that commitment today. It is not just the SNP and the official Opposition who have been putting pressure on the Minister. The Minister has put pressure on himself, because he committed that this would be done by the mid-2020s. Is that still likely? If so, my previous question stands: where is the timetable for that to be achieved?

[Guy Opperman]

I will give a long answer to the hon. Gentleman’s question, but I promise that I will answer it. Some 1.4 million employers have met their duties and are now offering members of staff a pension as a right. That is a significant change for those employers, and a significant burden for them. Raising the threshold, from 2% to start with, up to 5% last year and going up to 8% in April, is a significant burden. We are not talking about just the bigger employers, who can cope with it much better and have advanced payroll systems. Some of them have been paying over the odds from the word go and, to their great credit, some companies up and down the country immediately went to 5% or above. There are two key impacts that need to be assessed. We have only just got the information about the April 2018 increase and the opt-outs that took place then. The hon. Gentleman will be aware that there was just under 1% opt-out out because of the increase to 5%.

One of my main jobs in this position, which, contrary to popular belief, I actually asked to do and enjoy doing, is to take the 1.4 million employers and the 10 million employees in this country up to 8% with the minimum number of opt-outs, and the minimum impact on the economic outlook of the country. The harsh reality is that there will be a significant change to the deductions made from individuals’ pay packets, but also to the burden on businesses, whether they are large FTSE 100 businesses or coffee shops or corner shops in our local communities. Dealing with how things go this April is one of the most important, if not the most important, job I have, given the massive impact of this on all our communities. We have only just raised the threshold to 5%. We have the most important rise—a double jump—this April. It would be wrong if the Secretary the State and I, and the wider Government, talked about changing the basis for auto-enrolment before assessing how the 8% rise had gone.

This is quite a complicated process; it will genuinely take the best part of 9 months to go through all the data and get a definitive understanding of where we are on the 8%. At best, I will not know the degree of opt-outs until Christmas. It seems utterly wrong for me to seek to change the nature of the legal basis until I have a real understanding of the impact of the 8% increase.

[Mhairi Black]

The Minister says that we have to wait for more evidence. As I said in my speech, the DWP assumed that roughly 25% of those eligible would opt out, and the 2017 average was 9%. The Minister has talked about getting updated figures, but the participation among 22 to 29-year-olds increased from 35% in 2012 to 79% in 2017. The evidence already suggests that we are heading in the right direction and that the changes are working. Further to that, the logic of the lower earnings limit being set was that some people will not earn enough to get value for money out of their pension towards the end. Would it not be an easier answer just to pay people more, and to introduce a real living wage?

[Guy Opperman]

We are getting slightly off topic, but I am very happy to make the point that in 2010, when the coalition came into government, the living wage—the minimum wage as it was then—was £5.80. It is now £8.21, going up to £9, as the hon. Lady will be aware. I am happy to have a discussion about the tax threshold, which means that individual members of our communities have a huge amount more in their pockets. The tax threshold was £6,500 in 2010. It is now going up to £12,500, which will make a massive difference to the individual take-home.

All those things are good things. There is also the benefit of free childcare. We have gone from having no free childcare available whatever, up to 15 and 30 hours. It depends on how one values childcare, but taking it even on a very low basis, individual low earners would have the benefit of 30 hours a week free childcare, in those circumstances where that applies. If they have 30 hours a week childcare, that is a benefit of £150 a week minimum. I have worked it out on a £5 basis, but other statistics could give the rate.

My point is that if one looks solely at individual earnings on a long-term basis, taken in isolation that is one thing, but we also have to look at the impact of the rise in wages. It may not be as high as the hon. Lady would like, but she is making my point, so I will stop being partisan and saying, “Aren’t we doing well on the living wage, the tax threshold and childcare?” Park that for a moment. Some of those matters are burdens on individual employers.

The harsh reality is that the corner shop in the hon. Lady’s Paisley constituency, or the coffee shop—forget about the big employer—is now paying a considerably larger wage bill, because the low earners who were previously on the minimum wage are now on the living wage. The larger employers are also potentially paying the apprenticeship levy, and in April will pay up to 3% on auto-enrolment. The engagement that took place in the 2017 review indicated that time should be allowed before we reassess the way ahead. I am absolutely sure that there should be consideration of that. I accept that there is pressure on that.

I will try to address the other couple of points that the hon. Lady made, before moving on to some of the other questions. She asked about the reduction of pensions tax relief and the difference between net pay and relief at source. It is entirely right to raise those matters; she will understand that they dealt with by the Chancellor and the Treasury.

The idea that I have full control over the spring statement or the Budget, as the hon. Member for Airdrie and Shotts (Neil Gray) suggested, is something that I think we all understand is not the case. I do not have advance sight of the spring statement, but if he wishes to push for my promotion, I would be very keen for that—not that I want to be promoted, because I actually enjoy this brief.

The reality of the situation is that there is clearly a difference between relief at source and the net pay arrangement. It is acknowledged; there is no question but that something must be done on an ongoing basis. HMRC and the Treasury are aware, and there is ongoing discussion with them on that particular point.

While I am dealing with the Treasury, the question was raised about where we are in relation to long-term tax relief on pensions. Again, that is a matter for the Chancellor, but although I accept that there was some discussion about it in some comments made before the last Budget, hon. Members will be aware that there was no fundamental change to the tax relief on pensions.

I have rather disregarded my speech, but I will go back to a couple of key points. First, hon. Members will be aware that we debated this matter briefly in January, and the House debated and then agreed that the lower and upper limits of the qualifying earnings should be aligned with the national insurance earning bands in 2019-20, at £6,136 and £50,000 respectively. Not only does that provide stability and harmonisation on an ongoing basis, but we maintained the earnings trigger at £10,000, meaning a real-terms decrease due to anticipated wage growth, which brought an additional 40,000 savers into automatic enrolment, three quarters of whom were women.

I will address a couple of the other points raised. The hon. Member for Lanark and Hamilton East, whose constituency I know very well, having ridden at the Overton point-to-point far too many times—not very well; I did not win there—will be pleased to know that there are 14,000 individual employees in her constituency who benefit from the automatic enrolment. She specifically raised the issue of somebody aged between 16 and 22 who was earning but not able to get access to a pension. It is not often known—I have the great delight of telling the House this and urge the hon. Lady to tell others—that that individual aged between 16 and 22 can opt into an automatic enrolment pension with their employer. They have the ability to do that. Similar comments apply to the self-employed; they can opt in and be addressed on an ongoing basis.

The hon. Member for Airdrie and Shotts called for a pensions commission. With respect, we had that: it was called the Cridland report, an independent pensions commission to which all political parties, including the SNP, along with trade unions and the Labour party, made submissions. Whether they agreed with it or not, it was definitely the case that they made submissions.

On the self-employed, the reality is that we are continuing to expand in a great deal of detail the trials that are going on. We are considering the Taylor review, and it is my strong view that we should expand that more. I am certainly pressing to ensure that the self-employed have greater access to a pension.

[Angela Crawley]

I thank the Minister for enlightening me on his experiences of his jockey career in my constituency; I am sure that will be a treat for my constituents to learn. Going back for a second to the point about 16 to 22-year-olds and the opt-in, ultimately there is an emphasis on young people opting into that process and no requirement for the employer to contribute to their contributions. Does he agree that even if the Government bring forward this change for 18-year-olds and make it mandatory for employers to contribute, “mid-2020s” is a vague definition? I would be keen to hear exactly how the Minister defines “mid-2020s”, and when 18-year-olds can be guaranteed to get the same matched back from their employers.

[Guy Opperman]

The hon. Lady will understand that there is a big lead-in time between the passing of a parliamentary Act—this applies particularly in pensions—and when that Act kicks in. The reality is that I cannot give a definitive date today, nor do I intend to do so. I do not believe it would be appropriate to do so. I am not just giving what some would describe as a politician’s answer; I am giving my strong belief, which is that, until we have got through the 8%, we should not make a decision, because the impact on employers and employees needs to be measured on an ongoing basis. There is no dispute between us in any part of the House, I believe, that this needs to be done; the only question is when that process should take place.

I am keen to try to address the points of the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), who has 10,000 employees in his constituency who have had the benefit of auto-enrolment. He raised individual points in relation to the state pension. I make the point that the state pension is up more than £1,000 in real terms since 2010. There is no evidence for his assertion that the state pension could not be afforded post 2020 as per the Chancellor. That is simply not the case. It is most definitely not the indication from the Chancellor, and it is definitely not Government policy whatsoever. We have committed to the triple lock.

I am conscious that I need to wrap up very shortly. The reality is that, for women, pensions enrolment has gone from 40% to 80% by reason of auto-enrolment; enrolment in the private sector has risen from just over 40% up towards 80%; 22 to 29-year-olds have dramatically improved enrolment to above 75% from a very low base; and low earners from the £10,000 to £20,000 bracket have gone from 20% enrolment up to nearly 70%.

At the same stage, we are doing things such as the pensions dashboard, on which I hope to report back to the House within a matter of weeks. We are doing the Single Financial Guidance Body, which is now up and running, with the former chair of StepChange, Sir Hector Sants, in charge. We are also pioneering things like the midlife MOT, which has a public sector angle, with what we are doing at the Department for Work and Pensions, but is also private sector-led as well, to get a greater engagement. We are also doing simpler statements for those with private sector pensions. It is my intention that all private sector businesses that provide pensions will be giving a simple two-page statement to all their customers. Whether that is done on a voluntary basis or by statute is a matter to be decided.

It is definitely the case that we are, I believe, in glorious agreement about what the position is going forward. It is not the case that there is much dispute between us. I accept that this is something that we will have to return to in the future. For the moment, I cannot give the definitive date that the hon. Member for Lanark and Hamilton East seeks, but I am very happy to continue the debate as we go forward.