Gareth Davies (Grantham and Stamford) (Con) I beg to move, That
this House has considered the matter of automatic pension
enrolment. It is a pleasure to serve under your chairmanship, Mr
Dowd. We are considering the matter of automatic pension enrolment,
but let us not speak too loudly about it. For the past decade, this
has been one of the most remarkable success stories, yet also
somehow one of our best-kept secrets. It all began in 2005 with the
pensions...Request free trial
(Grantham and Stamford)
(Con)
I beg to move,
That this House has considered the matter of automatic pension
enrolment.
It is a pleasure to serve under your chairmanship, Mr Dowd. We
are considering the matter of automatic pension enrolment, but
let us not speak too loudly about it. For the past decade, this
has been one of the most remarkable success stories, yet also
somehow one of our best-kept secrets. It all began in 2005 with
the pensions commission looking out on a bleak private pension
market. It knew that we had to act to boost the number of savers
and savings in the UK to give people greater security in their
retirement. The commission formally proposed, as part of its
work, that those over a certain age and income be automatically
enrolled in a pension. The Labour party, the Conservative party
and the Liberal Democrats all agreed, and after the Pensions Act
2008 was passed the coalition Government carried this
through.
The results have been remarkable, transforming the UK pension
landscape. For example, whereas the rate of workplace pension
participation fell to 55% between 2009 and 2012, that rate is now
a remarkable 88%. Today, more than 19 million eligible employees
participate in a workplace pension and, together, save more than
£100 billion in a single year. More than 10 million people are
now saving or saving more, increasing pension savings by an
incredible £17 billion. Two million fewer people are under-saving
for their retirement than would otherwise have been the case.
There has been a 50% increase in participation among the young,
between the ages of 20 and 29. The greatest increases in pension
participation by earnings have come from low to moderate earners.
Let me put it simply. Savers are up. Savings are up. Men and
women are participating equally. And the lowest earners have
benefited the most.
That is perhaps a sign of what we can do when we work together
but other, indirect benefits have been seen. For example, studies
have shown that auto-enrolment has eliminated the mental health
participation gap. Our fight against climate change has been
bolstered: with savings volumes increased, UK pension funds now
have more assets to invest in high-growth technology that is
green or in renewable energy.
(Sedgefield) (Con)
Does my hon. Friend agree that the opportunity to invest that
money exists and could be pushed further, into local
communities—particularly ones such as Sedgefield?
My hon. Friend is a great champion of Sedgefield. I am grateful
for that intervention, and he is absolutely right. I have spoken
before about the many ways in which we can use and mobilise
private capital to pay for green technology and renewable energy,
but decisions about where those infrastructure sites are have to
be taken by local authorities wherever possible.
Today, though, the top point that I want to make in terms of all
these benefits is that auto-enrolment has helped to bring about a
cultural change in our society. When our economy does well, our
savers do well. Automatic enrolment helps to democratise capital.
It creates millions of new investors, millions of new
capitalists. It is part of what, over many decades, people have
called the property-owning democracy, ensuring that most of those
who can vote have a stake in our economy. When they put an x in a
box on a ballot paper, they have that in mind—they have skin in
the game.
However, when a policy has such an impact and is so successful,
it is right that we debate and discuss how we can build on that
success. Many in this place have put forward suggestions—I pay
great tribute to my hon. Friend the Member for North West Durham
(Mr Holden) for his excellent private Member’s Bill—the Pensions
(Extension of Automatic Enrolment) Bill—and to the work that
Onward, in particular, has done—so let me add my name to those
calls. Of all the options the Minister has in front of him,
expanding automatic enrolment to those aged 18 to 21 will have
the most material impact for our country. Automatic enrolment
should be extended as a priority to young workers, because for
them the potential compound interest is greatest, the pressures
of demographic change are most acute, the challenges of mental
health and climate change are especially relevant and the need
for greater financial inclusion is most pressing.
The challenge for this age group is stark. Only 18% of eligible
18 to 21-year-olds are currently enrolled in a workplace
pension.
Does my hon. Friend agree that we need to ensure access to
pensions for not just young people but those in multiple jobs who
do not reach the £10,000 threshold in a particular occupation? In
Sedgefield and the surrounding villages, there are many people in
low-paid work who do multiple jobs to try to reach a certain
earnings level.
My hon. Friend makes an important point. For the purposes of my
remarks I want to focus on young people because, as I said, that
will have the most material impact, but I know that others will
speak about the points he raises.
Today, over four out of five 18 to 21-year-olds are missing out
on the benefit of compound interest, despite belonging to the
very group for whom the potential for exponentially increasing
savings is the greatest.
(Kilmarnock and Loudoun)
(SNP)
I agree with the principle of extending automatic enrolment to
young people, and I realise that the 2017 review of automatic
enrolment recommended extending it to 18-year-olds. What does the
hon. Gentleman think about the merits of extending it further, to
16-year-olds, who might well have left school and be in full-time
work? If we are talking about the benefits of compound interest,
an extra two years could make a huge difference.
The hon. Gentleman makes a good point: the earlier one starts
saving, the greater the impact of compound interest. However, for
me, balancing all the factors—particularly the impact on
businesses—I think we should start where we can, with 18 to
21-year-olds. But it is not the case that we should not discuss
his point at a later stage.
Is it any wonder that we find ourselves in this situation, given
the general lack of savings culture in this United Kingdom? We
have a culture, developed over decades, of relying on quick cash,
quick results and tangible output. Although many talk about the
aspiration to own a home, few talk about securing their
retirement through a pension. Auto-enrolment will help with this,
but we must also look at other ways to ensure that the option of
saving for the future is more apparent.
Preparing for today, I was shocked to find a study by the
National Association of Pension Funds that found that just 12% of
job adverts mention the employment pension scheme that is
offered. That compares to 71% of ads that mention the salary—even
though the pension contributions can amount to about a third of
total take-home pay. We need to look at this more broadly.
There is so much potential for our pension system to effect
change, whether addressing the need for long-term savings, as I
have discussed today, the need to tackle the fact that 10 million
people have less than £100 in short-term savings or the fact that
so many young people today never even get close to building a
deposit for their first home. I believe that our pension fund
market could provide the answers to those challenges. As such,
given that it is now nearly 17 years since the Turner commission,
I would like us all to agree cross-party that whoever is in
government in 2024, we will look to launch a new pension
commission, looking specifically at the long-term challenges I
have discussed and the opportunities the UK pension fund market
can provide to citizens across this country.
9.40am
(Strangford) (DUP)
It is always a pleasure to speak on these matters, and it was
especially a pleasure to hear the hon. Member for Grantham and
Stamford () set the scene so well. We
are here to endorse his words, and we look to the Minister for a
response on the issues that still concern us and on which we wish
to see action taken. It is also a special pleasure to say that I
am one of those who bought into a pension at an early age, and I
want to emphasise the importance of pensions to young people who
do not fully understand the necessity or the benefits of having
one.
I am pleased to see the Scottish National party shadow Minister,
the hon. Member for Kilmarnock and Loudoun (), and the Labour shadow
Minister, the hon. Member for Reading East (), but I am especially pleased to
see the Minister in his place. I had the opportunity to have him
visit my constituency some two and a half years ago, before
covid. That visit was to the local credit union. George Proctor
was the manager, and the staff were there. We are very pleased to
have them there. We were also very pleased to welcome the
Minister, and we invite him to come back and get an update, if at
all possible—if he has space in his diary.
The Parliamentary Under-Secretary of State for Work and Pensions
()
It is an honour and a privilege to be able to intervene on the
hon. Gentleman, who is a legend in this House for the fact that
he intervenes every single night in the Adjournment debate. I
well remember the trip in July 2018, I think it was, to
Newtownards Credit Union. It is particularly memorable—colleagues
will understand about ministerial visits—because when I arrived I
was presented with a ginormous slice of home-made lemon drizzle
cake, made by one of the team there. In my view, that is how all
Ministers should be greeted.
I think I can say on behalf of Newtownards Credit Union that when
the Minister does return, the slice of lemon drizzle cake will be
even bigger than the last one he had. I will send today’s copy of
Hansard to the staff and let them know what his expectations are.
Joking aside, the Minister understands these issues and is always
keen to address the concerns we have. Before we have any debates,
he will always come and say to me personally, “Is there anything
at all you want to bring forward today?” and then he tries to
address those issues, which is something I especially appreciate.
I wish all Ministers were the same, but I congratulate this
Minister on doing that.
Provisions in the Pensions Act 2008 placed a responsibility on
employers to automatically enrol job holders into, and contribute
to, either a qualifying pension scheme or a new personal account
scheme. Those duties apply to all businesses, regardless of size,
which I for one welcome because it is the right thing to do. In
his introduction, the hon. Member for Grantham and Stamford
encapsulated the thoughts of us all about the growth of pension
enrolment and how it benefits people. It is crucial that those
eligible to put small amounts of money aside into a pension pot,
whether they work in a small local café or in a large mechanical
chain company, do their bit.
That legislation has reversed the decline in workplace saving.
There has been a drastic increase in the total membership of
defined contribution occupational schemes, from 2.1 million in
2011 to an outstanding 21 million in 2019—if that does not take
Members’ breath away, I do not know what else would. I am of
pension age, but at approximately the age of 20, I remember my
mother saying to me, “Jim”— or James, as I am on my birth
certificate—“we need to go and start a wee pension for you.” I
said, “Oh, Mum, I’m too young to deal with that. I am not going
to bother.” Mum insisted, and whenever your mother insists, you
do not have any choice. We trotted down to the local place and I
enrolled in a pension, some 45 years ago. At the time, I may not
have understood that pension, but I understand the benefits of it
today as it comes to its culmination.
So often, people find that they have been paying into a couple of
pensions. Only a couple of years ago, I found out that I had
being paying into four different pensions along the way. It is
great way of saving. I may not have seen that at the time, but I
see it now.
I am an accountant by trade. I contributed to a pension for a
long time. My wife also contributed to a pension for a short
number of years before we had our daughter. When I came to retire
aged 56, just before I came to this place, we looked at the
balance of the pensions and found she had made a disproportionate
contribution in relation to the time that she had spent working,
because it was right at the start. Does the hon. Gentleman agree
that communicating with people about the importance of early and
continuous contributions is vital? It is not just a triviality,
as it is so important to the outcome at the end. Personally, I am
benefiting massively from what happened at that early stage. I do
not think we get the message out about how important this is for
people. Does the hon. Gentleman agree that communications are
important?
I thank the hon. Gentleman for his comments. He is right that it
is best to make contributions from an early age. I can speak to
that and the benefits of it. Even though I may not have
understood that at that time, my mother was insistent, so I
enrolled. Today, we see the benefits of all the things we did in
the past.
To be eligible for a compulsory pension scheme in Northern
Ireland, a worker must be at least 22, under state pension age
and earning more than the minimum earnings threshold. I know some
young people who have been paying into pension pots from as young
as 18, but that is down the employer and employee discretion. I
do not see a reason why young people who are in consistent work
should not be contributing to their future, as referred to by the
hon. Member for Sedgefield ().
As this subject is not taught in schools, young people feel
unaware of the importance of taxes and pensions. I urge the
respective Ministers to think about that in relation to schools.
There may be a way of suggesting to young people at an earlier
stage that they need to be making contributions, perhaps through
an introduction provided while they are at school.
(Delyn) (Ind)
I find it difficult to believe that the hon. Gentleman started
his pension contributions 45 years ago, as he cannot possibly be
of that advanced age. He reminisced about how his parents drilled
into him the importance of starting early. In his opinion, what
has happened since those years? How did we go from the point of
saying that it was a personal responsibility? How did we go from
the point of our parents drilling into us the importance of
saving for deposits for a house, as we heard earlier, and for
retirement? Is the situation we have now on automatic enrolment
satisfactory in terms of getting us back to where we were
before?
I think the figure gain tells it as it is. We went from 2.1
million people to 21 million people; the increase was massive.
People from my generation were very responsive to what our
parents told us and we did what they suggested because they knew
best. Today the companies are trying hard and encouraging people
but, as the hon. Member for Grantham and Stamford said in his
introduction, education might be another way of helping us get
even beyond where we need to be.
In February 2021, a report from the National Employment Savings
Trust looked at the impact of the covid-19 outbreak on its 9.5
million members. It found no significant changes in average
contribution levels; the majority had continued to save, with
around one fifth contributing more than the minimum contribution
rate. That tells us that the scheme is successful for
some—potentially, everyone—and helps people to save. I find those
figures reassuring and proof that this legislation is beneficial,
which may answer the question raised by the hon. Member for Delyn
().
There is absolutely no doubt that this legislation has brought
many benefits. Pensions help people maintain their standard of
living in retirement, and savings provide important supplemental
income for unforeseen expenses. Pensions are an economically
efficient way to fund retirement, which means they are a prudent
use of taxpayer money.
Others have expressed a few concerns about the lack of pension
provision for the self-employed, and I have a question for the
Minister. How and when should pension contribution rates increase
above the 8% minimum? It is important that there is provision for
the self-employed. There are 134,000 self-employed people in
Northern Ireland. In Strangford, and perhaps in other
constituencies as well, we have a tradition of many people being
self-employed. I had a period of self-employment but continued to
pay the pension contributions. That was probably when I increased
the number of pension schemes I was in. Perhaps the Minister
could indicate how we might encourage the self-employed to be
involved. That is my question for the Minister, and I know I will
get the response I wish for.
I want to conclude because I am conscious that others wish to
speak. Automatic pension enrolment for workers makes sense and is
a good deal. Pensions not only help the local economy but are a
win-win situation for employers, employees and local business
owners. The figures are astonishing: since 2012, more than 10.2
million workers have been automatically enrolled in pension
schemes and that is on the increase.
The scheme is a success, and we thank the Government for their
encouragement and promotion of it. I only suggest that it could
be approached educationally at an earlier stage. I urge the
Department for Work and Pensions to look at the issues others
will raise on pension enrolment and to step in to solve them.
None the less, I thank the Minister and Government for all they
have done.
9.51am
(Darlington) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd, and
to be called to speak in today’s debate, which has been so ably
led by my hon. Friend the Member for Grantham and Stamford
(). The debate raises an
important issue and I congratulate my hon. Friend on securing it.
It follows on from the excellent ten-minute rule Bill recently
introduced by my hon. Friend the Member for North West Durham (Mr
Holden).
When auto-enrolment was introduced, I recall being fearful of the
impact it might have on my business at the time, and of the costs
that it would pass on to me as an employer, but auto-enrolment
has proved to be a huge success, 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
that 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, encouraging
self-reliance and responsibility.
There are still huge numbers of hard-working people who are not
auto-enrolled in pension schemes, with many excluded on the basis
of youth or purely because they are not working enough hours or
earning enough. For those under the age of 22, the numbers are
woefully low. Among those in part-time employment, although some
will earn more than the £10,000 threshold, the numbers
auto-enrolled are still significantly lower than among those who
are in full-time employment.
The minimum age of 22 simply does not work for those who choose
not to go to university. Why should someone who chooses to start
working at 18 not pay into a pension from that age, in the same
way as someone who is 22 does? They would have so much to gain
from auto-enrolment being extended to them; we have already heard
about the magic of compound interest.
The current system also disproportionately affects women and the
poorest in our society, who are more likely to be in part-time
work and have multiple part-time jobs, like many in my
constituency of Darlington. Although Darlington has 1,820
employers, with 26,000 employees auto-enrolled, I am encouraged
that the proposed extension advocated by my hon. Friend the
Member for Grantham and Stamford would add almost 900,000 extra
savers across the country. Those workers are often employed in
industries, such as hospitality or retail, that have faced huge
difficulties during the pandemic, but are in many cases the
backbone of our workforce. It is only right that we do all we can
to ensure that they do not miss out on future financial security;
that is levelling up.
Extending auto-enrolment could add trillions to the nation’s
pension pot. It is a chance to ensure that people start to save
for their future while they are young. It also allows us to
ensure that the poorest in society have a more secure future and
takes steps towards closing the gap between men’s and women’s
pension savings.
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 really positive impact on
people’s futures. It would be a commitment to level up for the
long term.
As we contemplate how auto-enrolment can help us deliver on our
levelling-up agenda, we must not forget the role of pension
companies and the positive impact that these changes could have
on their work. Auto-enrolment increases the resources available
to them and provides a steady, long-term stream of capital for
investment across the UK—investment that can be directed to the
communities that are home to those who currently miss out on
auto-enrolment, letting them see the benefits of their own
savings.
I know that the extension of auto-enrolment would have huge
benefits for many people in Darlington and across the country, so
I hope that the Government will give this policy real
consideration, as we continue to build back better from the
pandemic and level up our country.
(in the Chair)
For the benefit of Members, if you do wish to
speak—notwithstanding that you have asked to speak—would you
rise? Thank you.
9.55am
(North Norfolk) (Con)
I thank my hon. Friend the Member for Grantham and Stamford
() for getting us all up so
early—9.30 am on a Wednesday—to talk about our favourite subject,
which is clearly auto-enrolment.
I will start by being very rude and saying that we often see
private Members’ Bills introduced that are nothing more than
political graffiti. However, the one recently introduced by my
hon. Friend the Member for North West Durham (Mr Holden) on this
issue is far from that, and we should give a great deal of
consideration to how it fits with this debate. People might
expect me to say that, because I am an old bean-counter. Before I
came into this place I was a former finance director, and I
remember with utter dread the systems and processes that we had
to implement to deal with auto-enrolment.
Although most people tend to glaze over when we talk about
pensions—present company excepted, obviously—this idea is really
sound. That is because, let us face it, we are living in an
ageing population all of the time, and in any person’s view the
need to save for our retirement is extremely important; and the
crux of the matter is that the sooner someone does it and has the
opportunity to do it—two important parts of what we are
discussing today—the better for society. After all, many people
will have in their pension savings the highest asset that they
will ever hold.
The other reason that this debate is so important to me is
because I am going to do something that not many MPs do in this
place—admit how wrong I have been about things. Yes, I will now
say that I made a mistake. That is because I remember the days
when auto-enrolment first came in—my hon. Friend the Member for
Grantham and Stamford makes me feel very old, because 2005 feels
like a very long time ago—and I remember that at the time I
thought, “What a waste of time auto-enrolment is.” I bemoaned how
much it would cost us as a company, and the meaningful
contributions that people would make were so small when
auto-enrolment first started that it was a total nuisance to
administer and I wondered whether it would really make much of a
difference, precisely because people’s contributions were so low.
In addition, I expected that people would simply opt out—that
there would be a knock on the door three months later and someone
would ask, “Duncan, can you please take us out of this scheme?”
But people did not, and that is because the Government got it
right. They made those initial contributions so low that people
got used to it.
So, on those two counts, I got it completely wrong. That is why I
back what my hon. Friends the Members for Grantham and Stamford
and for North West Durham are proposing, because with nearly 90%
of people now participating in a workplace pension, old cynics
like me have been proved totally wrong. The fact that we now have
10 million workers in an auto-enrolment scheme in this country is
a testament to how extremely good auto-enrolment has been. It has
created momentum—momentum for people to take responsibility and
save for their retirement.
My constituency of North Norfolk is very beautiful, but we have a
disproportionate number of lower earners. It is a coastal
community; hospitality and retail are very important, and
therefore form a chunk of lower earners. Why are we not making it
easier for everybody to contribute, to allow younger people—that
rump of my workforce—to have that chance earlier? All the
statistics show that they will reap the benefits of getting
started on that ladder earlier. It is a very simple proposal, but
it has far-reaching consequences. If it opens up more people to
take that responsibility, to be able to earn for their
retirement, I think it is extremely worth considering and I am
very happy to back it.
10.01am
(Clwyd South) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd. I
thank my hon. Friend the Member for Grantham and Stamford () for bringing this very
important debate to Westminster Hall this morning. I am not
declaring an interest but, like other hon. Members present, I was
involved in the financial world in a previous life, having worked
for 25 years in the financial services industry. I have also been
a trustee of several charitable investment portfolios, and served
as a member of the pensions and investment committee on Powys
County Council during my time in local government.
I fully support the point made by my hon. Friends the Members for
Grantham and Stamford and for Sedgefield () that the issue of
auto-enrolment is not only about benefiting employers and
employees, but about the huge amount of capital that builds up in
those funds and the constructive way that it can be invested for
social and environmental good, and for the general improvement of
the economy.
Much mention has been made of the statistics showing the
remarkable transformation of the pensions industry since the
introduction of auto-enrolment, so I will not go on at length
about them. However, I would like to pull out one or two
contrasting statistics. We have heard that nearly 90% of
employees are now workplace pension members, compared with only
50% in 2012 before auto-enrolment was introduced. Auto-enrolment
has resulted in a significant increase in pension membership,
particularly of defined contribution schemes—another very
important aspect. The statistics carry on; they are extremely
impressive. The hon. Member for Strangford () has alluded to that, so I will leave it there.
The introduction of auto-enrolment has been what I would consider
to be a quiet revolution. It has helped to normalise pension
saving in my constituency of Clwyd South and elsewhere in the UK,
increasing the proportion of people who see pension saving as a
good thing and who say they know where to go if they want more
information.
That is another vital aspect of auto-enrolment: it is about not
only the amount of money and the level of take-up, but a cultural
change that has huge benefits for the country in the long term. A
recent British social attitudes survey found that 79%—a
majority—of individuals interviewed viewed automatic enrolment as
a good thing for them, 77% agreed that saving into a workplace
pension was normal for them, and 75% knew where to go to find out
more about workplace pensions. That reinforces my point about the
cultural change that is so vital in this process.
Another point that is vital to draw out in this debate is that
the latest data suggests that auto-enrolment has reduced some of
the regional disparities in workplace pension participation.
Figures from 2020 show that rates of employee workplace pension
participation are fairly consistent across the UK, with little
geographic variation. Regional data prior to auto-enrolment is
not available, but the continued roll-out of auto-enrolment over
the last five years has been accompanied by increased rates of
participation by private sector employees in regions other than
London and the south-east, which is hugely important to many hon.
Members who represent seats far away from the south-east of
England.
Another important point emerged from the 2020 study by Karen
Arulsamy and Liam Delaney, “The Impact of Automatic Enrolment on
the Mental Health Gap in Pension Participation: Evidence from the
UK”. It showed that, particularly for people who are not
particularly experienced in financial matters, auto-enrolment has
completely removed the mental health gap in pension
participation.
Finally, the private Member’s Bill introduced my hon. Friend the
Member for North West Durham (Mr Holden) is absolutely vital,
particularly for my constituency of Clwyd South, where
auto-enrolment figures are good but could be higher. There are
1,040 employers involved in auto-enrolment and 3,000 job holders.
That is, in a sense, connected to the points raised by my hon.
Friend the Member for North Norfolk (), because my constituency has
a real mix of different employment patterns. Like his
constituency, tourism and hospitality are important parts of the
employment make-up of Clwyd South. There are many young workers
and people working part time who fit their jobs around their
families and other considerations.
I am sure my hon. Friend the Member for North West Durham will be
speaking later, but I want to quote one thing that he said:
“three quarters of those aged 22-plus are auto-enrolled into
pension schemes, but under the age of 22 it is only 20%...of
people in work, not students. That is a big difference, and the
difference that auto-enrolment has made since 2012. For part-time
workers, while some will earn more than the £10,000 threshold,
auto-enrolment is 57.8% compared with almost 90%”
—as has been established earlier—
“of workers in full-time jobs. If we assume a similar take-up,
the Bill could see an extra 30% of the part-time workforce
auto-enrolled”.
The other point he makes, which again goes back to a point I made
earlier, is that an
“extra £2.77 trillion…would be invested in our pensions for the
lower-paid and younger workers”.—[Official Report, 5 January
2022; Vol. 706, c. 81.]
It benefits not only them and their families, but the general
economy.
In conclusion, I am delighted that we are discussing this
important issue. As I said, it is a quiet revolution that brings
hope and comfort to many families, particularly among those who
are not particularly experienced in financial matters, and adds
greatly to the prosperity and health of the economy of the United
Kingdom.
10.08am
(Delyn) (Ind)
It is a pleasure to serve under your chairmanship, Mr Dowd. I
give credit to my hon. Friend the Member for Grantham and
Stamford () for securing the debate
and, indeed, to the Minister; it is always a pleasure to see him
responding to a debate. He must get tired of hearing from
everyone, every time we have a pensions debate, “Auto-enrolment
has been wonderful and the things the Government are doing are
outstanding, but we could always do more.” We are always asking
for more. That is the way of things, and I think he has come to
appreciate that over time.
As everybody else has done, I pay tribute to my hon. Friend the
Member for North West Durham (Mr Holden) and his private Member’s
Bill. When I read back through the Bill last night, I saw that it
contained many of the things I wanted to cover, so I shall be
very brief, which will please everybody no end. I will just
mention three points that I hope the Minister can cover
later.
My hon. Friend the Member for Sedgefield () mentioned excluded people.
Someone earning £9,000 in each of two different jobs would not be
enrolled despite having £18,000-worth of income, which would
otherwise clearly qualify. Like those of my hon. Friends the
Members for North Norfolk () and for Clwyd South (), my constituency is very
rural, and we have lots of people in those circumstances.
Something as simple as taking away the £10,000 qualifying point
would be a real benefit to those people.
On the under-22s, I was a financial and pensions adviser for a
decade and a half, and one of the key things that we always
said—the hon. Member for Strangford () mentioned it earlier—was, “Start as early as you
can.” An extra five years will add in the region of 26% to 30% to
the end value of a pension pot. The hon. Member for Kilmarnock
and Loudoun () used the golden words
“compound interest”. Those extra years at the start make such a
huge difference at the end.
That is particularly relevant in my own situation. My daughter is
17 years old. She has decided that university is not for her and
has gone into full-time work, but she is not being auto-enrolled.
Of course, she can opt to be enrolled when she gets to 18, but,
as my hon. Friend the Member for North Norfolk mentioned, it is
easier when it is done for us; it is harder to opt out than to
opt in to something. I completely appreciate that.
My second point is on qualifying earnings. People may well be
under the illusion that if they are earning £30,000 a year, they
are contributing 8% of £30,000. Sadly, that is not the case. The
lower earnings limit, which is £6,240, is taken off before that
8% is calculated, so someone earning £30,000 grand is only paying
8% of £23,760. Getting rid of the lower earnings limit and making
pension contributions start from zero would add another 26% to
the final value of someone’s pension pot by the time they come to
retirement. Just those two changes—making auto-enrolment
available to under-22s and making it count for all earnings—would
add 29% and 26% to the final value of a pot. That is a huge
amount and would make a huge difference.
My final point, which is very simple, is about complacency risk.
We hear that auto-enrolment has been transformative—my hon.
Friend the Member for Grantham and Stamford used that word, and
we have all heard the statistics—but has it? Eight per cent. is
not enough. Even if it was 8% of all earnings, it would not be
enough. My cousin is a financial adviser over in America. I
talked to him over many years about how I did my processes and
worked out how much people should save, with the calculations and
the risk levels and all the interesting bits that go into forming
a conclusion. He said, “I don’t do any of that. I just tell
people, ‘Just do 20% and you’ll be fine.’” He advises people of
relatively high net worth, and 20% is a relative amount to
different people, but 8% just will not do it.
We have this complacency: because the Government have mandated
8%, people think, “Well, that must be okay, then; that must be
what I need to do to get a good standard of living in
retirement.” Somebody earning £30,000 per year, leaving out the
earnings that do not qualify, will be contributing £1,900 per
year over 35 years. Assuming 4% growth, they will have amassed a
pot of about £140,000 after 35 years. That does not sound a
terrible amount, but when we adjust it for inflation, in today’s
prices, that is a pot of about £86,000. That will not buy a lot
in retirement.
This is where the two things that I mentioned earlier will come
in. If we added 29% and 26% to that pot, while it would still not
be a massive amount, or enough to get people to where they need
to be, it would certainly be something. As was mentioned
earlier—I spoke about personal responsibility—people need to go
and see a financial adviser and take the guidance that is
available from the Money and Pensions Service.
What we are doing is not enough. People must wake up and open
their eyes; what we are doing is great, but we could absolutely
be doing more. There are a couple of ways we could do more. Back
when we had defined-benefit pensions, the employer would pay
about £3 for every £1 that the employee paid. That was
unaffordable, and it was the main reason that most
defined-benefit pensions were closed down. Under the
defined-contribution schemes that existed before auto-enrolment,
employers paid about £2 for every £1 that employees paid. Now,
that figure is 60p or 70p. Although I talk about personal
responsibility, there is a lot more scope for employers to do
more, as they used to.
Another potential option would be to roll the principle of
auto-enrolment forward into other savings options. Why can we not
have an auto-enrolment individual savings account? Why can we not
do what my hon. Friend the Member for Grantham and Stamford said
about saving for a house deposit? Why can we not use the same
principle in other arenas? Why can we not make pensions a bit
more flexible, as they are in the United States, where the 401(k)
product can be utilised in a lot more ways a lot sooner? That
could provide the deposit for a house or be used at other crucial
times in life. There are lots of things we could do.
I have offered a bit of a sandwich, with a nice opening and a
nice ending, and bit of a demand in the middle. We are doing
wonderful things and they have been successful—everybody says so.
We can do more and we probably should, and I think the Minister
knows that.
10.16am
(North West Durham)
(Con)
It is a pleasure to serve under your chairmanship, Mr Dowd. I pay
tribute to my hon. Friend the Member for Grantham and Stamford
() for securing this debate. I
have been trying to secure one for a couple of months, but he
seems to have managed to pip me to the post.
I thank so many hon. Members for mentioning my ten-minute rule
Bill to look at extending auto-enrolment. Everyone who has spoken
has pointed to the success of auto-enrolment. It has been a
cross-party success, as my hon. Friend the Member for Darlington
() said. It is slightly sad
that there are not more Scottish National party or Labour Back
Benchers here to welcome that success and talk about the future,
but this is something we can proceed with on the basis of those
on all sides of the House coming to an agreement.
The main point, which has been made by many Members, is that an
extra 10 million people are now looking to save. The reason they
are saving is that for every 50p they put in, they get £1 in
their pension pot, because they get the tax relief plus the
employer’s contribution. That is seen as a simple and
straightforward thing. For every £4 an employee puts in, their
employer puts in £3 and they get £1 in tax relief. That is a
simple, straightforward way of explaining it to people. It is
important for us to have this debate and to look at the success
and the future of auto-enrolment.
Many hon. Members made the broader point that we want people
saving for themselves, their families and their futures. This is
a small “c” conservative principle that cuts across working class
communities across the country, including mine in North West
Durham. It provides a really important stake in society when
people save into a pension over time and see that money invested
in UK companies, as well as in companies across the
world—although my hon. Friend the Member for Darlington made the
important point that if we are looking to expand auto-enrolment,
we need to enable people to see the benefits of those savings in
their communities.
I therefore hope that the Government will look at ways to ensure
that that patient capital can be invested more in things such as
social housing projects and transport infrastructure schemes. I
do think it is time to expand. I could understand why, in the
past, employers were concerned about auto-enrolment, but it is
great to hear from my hon. Friend the Member for Darlington, who
ran his own business, that he has seen those concerns alleviated
by the impact that it has had on his employees.
Let me say to my hon. Friend the Member for North Norfolk () that, as the hon. Member for
Strangford () may know, Luke 15:7 states that
“there will be more joy in heaven over one sinner who repents
than over ninety-nine…persons who need no repentance.”
I am glad to see my hon. Friend on board and helping to drive the
agenda; as he mentioned, it is so important for those lower-paid
part-time workers in his constituency and mine. I will come to
that in a moment.
There are two groups that future changes could really affect.
One, as my hon. Friend the Member for Grantham and Stamford said,
is that younger age group. It is unbelievable to me that someone
of my age—any person in this room, in fact—will benefit from the
employer contribution and tax relief, but someone aged 18, 19 or
20 will not. That seems demonstrably unfair, and it is something
that we really need to get a grip on. As the hon. Member for
Strangford said, compound interest created by saving early makes
a real difference in retirement.
Reflecting on what my hon. Friend the Member for Clwyd South
() said, the statistics from
before and after auto-enrolment kicks in are stark. Before it
kicks in, a fifth of people are enrolled; after it kicks in, 17
out of 20 are enrolled. That is a massive change. We need to
bring those figures into line, particularly for people who do not
go on to university but choose a different path. As my hon.
Friend also mentioned, that is a very important factor in the
regional disparity of where people pursue their careers. My hon.
Friend the Member for Sedgefield () also made a very good point:
how can it be right that those earning £50,000 or £80,000 per
year get the tax relief and employer contribution, but
others—particularly part-time workers—do not?
I mentioned some examples when I introduced my private Member’s
Bill in the House. Women are particularly disadvantaged.
Part-time workers often juggle multiple jobs around childcare or
other caring responsibilities; it seems to me totally unfair that
someone doing two part-time jobs that are above the threshold
just does not get the tax relief and employer contribution. If we
could reduce the age of auto-enrolment to 18, we would be looking
£25,000 in younger workers’ pension pots. That is not going to be
transformative in and of itself, but taken together, the changes
will be transformative. Getting young people auto-enrolled early
is crucial to allowing them to see their savings start to build
early, and that is what we need to see.
In addition to what hon. Members have already said, I say to the
Minister that we need to see an age reduction, we need the
qualifying earnings amount to be reduced, and we need the
threshold for earnings to be lowered too.
I thank my hon. Friend for his speech. I was ill when he
introduced his ten-minute rule Bill, but I read his speech in
Hansard. He will understand that Ministers are not able to
respond to a ten-minute rule Bill in the normal course of events.
Cleary, he is in the process of drafting his grave and weighty
Bill, but am I led to believe that the intention is not to
introduce the extension until the mid-2020s, which was the
original intention of the December 2017 automatic enrolment
review?
Mr Holden
Yes, it is. I think that it needs to be introduced in a phased
way, exactly for the reasons that my hon. Friend the Member for
North Norfolk and others have mentioned. We need to phase it in
over time so that employers can be ready for the increased cost,
but also so that we do not burden young employees very quickly
with an enormous extra cost.
Phasing in the extension is exactly the right thing to do; that
is how auto-enrolment has been such a success so far. If we had
hit people by taking a large chunk of their income at one point,
people would have withdrawn and auto-enrolment would not have
been the success that it is. Instead, we are seeing take-up rates
for full-time workers of nearly 90% now. The phased approach is
so crucial. I would like to see it on that sort of
timetable—phased in throughout the mid-2020s. That is where we
need to be to ensure that as many people as possible take it up
and can save for the long term.
We have come such a long way over the last few years. We saw the
proportion of people saving for their pensions drop to around 45%
before auto-enrolment was introduced. It had been between 55% and
45% for the previous 20 years or so. We have seen the proportion
rise rapidly due to auto-enrolment; it is now well above 70%. If
we can include part-time workers as well, as my hon. Friend the
Member for North Norfolk alluded to, we could see the proportion
reach 80% or 90%, which is exactly what we want. Some 6,000
employees in North West Durham are already auto-enrolled, with
1,500 employers. We need to see more people auto-enrolled to save
for their retirement.
Overall, extending auto-enrolment is probably the strongest
levelling-up measure that we could deliver. I want people across
the country who work and play their part in our society to see
the same response from the Government, with support to pay into
their pensions, and support in their old age and retirement.
10.25am
(Kilmarnock and Loudoun)
(SNP)
It is a pleasure to serve under your chairmanship, Mr Dowd. Like
everybody else, I congratulate the hon. Member for Grantham and
Stamford () on securing the debate.
There have been a number of Tory Back-Bench contributions; I was
worried that I would end up agreeing with all of them, but I have
managed to find a couple of aspects to disagree with—I am pleased
about that.
I agree completely that auto-enrolment has been a success. The
hon. Member for Grantham and Stamford set out well its history
and success. I agree, too, with the principle of creating larger
pots for investment in infrastructure. That is an age-old
argument, but we never seem to get there; I agree that that needs
to change. I am slightly concerned about the talk about pension
savings funding housing deposits. I know that people want access
to the housing market. However, I worry that, depending on how
deposits are funded, that will not take the heat out of the
housing market, but will actually increase it, because more
people will be chasing a smaller pot of houses. We need more
affordable houses as much as new ways to get people deposits.
The hon. Member for Grantham and Stamford made the interesting
point that only 12% of job adverts advertise pension
contributions. If we are talking about advice and people
understanding the benefits of pension contributions, we need to
look at that. The hon. Member for Strangford (), who would have been surprised to have been called
so early, further set out the success of the scheme, and talked
about his personal experience and, importantly, education—that is
clearly important for everybody. It was brave of the Minister, in
the current climate, to intervene on the hon. Member for
Strangford to talk about cake—fair play.
We heard from the hon. Members for Darlington (), and for North Norfolk
(). It was very good to hear
the employer’s and the director’s points of view. Both Members
admitted that they had concerns, but they were pleased to see how
successful automatic enrolment is. It is good to have that
buy-in.
The hon. Member for Clwyd South () spoke about access to advice;
I will come back to that, because I agree with him on that point.
The hon. Member for Delyn () made a good point about
complacency. We need to make sure that people understand that
they might need to increase their contributions and pay more.
That is very important, and it links to the point about getting
proper advice.
Finally, we heard from the hon. Member for North West Durham (Mr
Holden). I, too, congratulate him on his efforts in bringing
forward his private Member’s Bill. He set out his stall really
well on that day, as he did, briefly, today. His key point—that
for every 50p somebody contributes, they get £1 in their pension
pot—sums it up perfectly; it is a great illustration.
As we have heard, auto-enrolment has clearly been a good thing,
and a success in getting way more people to save for their
retirement. In fact, it has been so successful that we have to
ask why it took so long to bring in such a scheme. The
Association of British Insurers states that automatic enrolment
has brought a further 10 million people into pension saving. As
we have heard, 88% of eligible employees participated in their
workplace pension in 2020, which is up from 55% in 2012. That is
a fantastic step forward.
However, there are concerns that an estimated 12 million people
are still under-saving for retirement, and that needs to be
addressed. Given what we have heard today about the success of
auto-enrolment, and given that the Government think it is
important that people save for retirement and believe that
auto-enrolment is a success, the Government should logically
ensure that as many people as possible are eligible. That means
implementing the recommendations of the 2017 review as soon as
possible. During the passage of the Pension Schemes Bill, Labour
and the SNP worked together to introduce amendments that would do
that, so it was disappointing that the Government voted those
down. The Minister did commit to implementing the recommendations
of the 2017 review by the mid-2020s, but rejecting the amendments
does not give confidence.
We know how unstable UK Governments have been in recent years,
and now the Leader of the House is threatening us with another
general election, so it seems to me—without being too
flippant—that there is a risk, if action is not taken sooner
rather than later to get legislation through the House, that
matters could slip further. As I said, the hon. Member for North
West Durham has his private Member’s Bill, which we would
support. I am still concerned, though, that we are looking at the
mid-2020s. If we agree that this change is so good, we need to
look at bringing it forward and getting things moving much
quicker.
The hon. Gentleman makes an excellent point about bringing
forward measures, but if we make these changes, is it not really
important to give businesses enough lead-in time to plan properly
and budget for them, rather than springing a significant change
on businesses?
There is a point there, but we have heard from an employer and a
finance director that their concerns were allayed once the scheme
came in, so I think that there will be fewer concerns as we go
forward. Speaking of giving employers notice, we need only think
about national insurance contributions. That rise was introduced
in a short space of time, so we should not be too concerned about
how we phase this in. If we do not do it, more people will lose
out, which defeats the purpose.
Everybody here agrees that we should lower the age threshold for
auto-enrolment to below the age of 22. I have said that I would
rather have 16 than 18 as the threshold. I would be content with
a two-stage process on that; we could review the situation with
regard to 18 to 21-year-olds, just to see how successful it was,
and to check that they were not opting out, but in the long term
we definitely need to move to 16-year-olds, who could be in
full-time employment. We also need to look at removing the lower
limit of the qualifying earnings band, so that contributions are
payable from the first pound earned. As we have heard, its
removal would benefit the low-income workers who otherwise would
have little prospect of a decent private pension.
To repeat what other hon. Members have said, the issue is
particularly acute for women, who are more likely to be lower
paid, in part-time work and doing multiple jobs. We have a
massive gender pensions gap. In a recent report, the Pensions
Policy Institute found the following:
“Men have substantially more private pension wealth than women,
with disparities increasing across age groups. For those aged
65-69, median pension wealth for men is just over £212,000
compared to just £35,000 for women…Divorced women’s pensions are
much lower than divorced men’s.”
The Association of British Insurers states that the average
pension pot for a woman aged 65 is one fifth of that of a
65-year-old man. Women receive £29,000 less in state pension than
men over 20 years. The deficit is set to continue unless further
action is taken. We also need to look at expanding the
contribution rates beyond the 8% statutory minimum, to allow
people to maximise their pot. That builds on what the hon. Member
for Delyn was saying.
As I have said, further delays are unacceptable. I hope that the
Minister will say that the UK Government will set a clear
timetable for their plans for expanding automatic enrolment.
Morally, they should do that, given that they have made other
decisions that are affecting pensioners both in the here and now
and in the long term. We have a cost-of-living crisis, and I note
that Tory Back Benchers are now using it as a defence for keeping
the Prime Minister in his place, even though the cost-of-living
crisis happened on his watch. They are arguing that there is a
cost-of-living crisis that warrants our attention, but they still
voted through the removal of the triple lock in the November
Budget, costing pensioners more than £500 this year alone and a
cumulative £2,600 over the next five years. That cut comes
despite the fact that UK pensions are already the least generous
in north-west Europe in comparison with the average wage.
We have just had the report on the shocking state pension
underpayments, and there are comments that the system for state
pensions is not fit for purpose. We have seen 118,000 people
underpaid as regards benefits. We still have the injustice faced
by the WASPI women—Women Against State Pension Inequality—and
there are very low take-up rates for pension credit, which the UK
Government acknowledge is an issue, but have not remedied.
The SNP continues to demand that the UK Government introduce a
proper take-up strategy for pension credit, as the Scottish
Government have done for devolved benefits. We continue to call
on the UK Government to establish an independent savings and
pension commission to ensure that pension policies are fit for
purpose and reflect the demographic needs of different parts of
the UK.
Another aspect of auto-enrolment that needs to be addressed
relates to the self-employed. We have heard about the massive
increase in employees in defined contribution schemes, but the
trajectory for the self-employed has been the polar opposite—for
them, the numbers have gone down: 48% of the self-employed
contributed to a private pension in 1998, but the figure went
down to only 16% in 2018.
Another key point is about professional advice. It makes no sense
for people to save for retirement, or for support for when they
are older, but to remain at risk when accessing their pension
pots. That important matter was covered by the Work and Pensions
Committee in its report “Protecting pension savers”, published
last week. I support the calls for the Government to set a goal
of ensuring that at least 60% of people use the Government’s
Pension Wise guidance service or receive paid-for advice. That is
a key consideration.
Pension Wise has proven to be a success. We need to make sure
that more people access it. There should be a trial of automatic
Pension Wise appointments, in order to encourage more people to
access advice that will benefit them. The UK Government should
initiate two trials: one in which people automatically get an
appointment when they access their pension for the first time,
and another in which they get an appointment at age 50, before
they access their pensions—a mid-life MOT, as it has been
called.
Auto-enrolment has been a good measure, but it needs further
action to make it even better, so that it can benefit millions
more people. Action to implement the 2017 recommendations should
be a priority. I hope the Minister will agree, and will say that
they will bring legislation forward at the soonest
opportunity.
10.36am
(Reading East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Dowd. I
thank all colleagues for taking part in today’s debate. We have
had a rounded discussion of this important issue, and it has been
heartening to see so much engagement from Members across the
House.
As I know colleagues appreciate, pensions are a very long-term
policy area. The decisions we make today have profound effects
over many years. Encouraging sustainable and sensible saving now
makes for much better retirement in the future. It is therefore
right that we actively explore ways to help those who could
benefit from further opportunities to auto-enrol in pensions. We
must work with businesses to understand their needs, and to build
a system that is fair and sustainable for all. We should be
ambitious and responsible at the same time, particularly in the
years following the covid crisis.
Auto-enrolment has proven to be one of the most positive
developments in recent memory for savers, and for securing
people’s long-term prosperity. It has been transformative in
encouraging millions of people to save earlier in their careers.
That will dramatically improve outcomes later in life, as hon.
Members have mentioned.
I remind the House that it was the Labour Government in 2008 who
first introduced legislation on auto-enrolment—a contribution of
which my party should be very proud. However, the measures have
cross-party support, and I pay tribute to colleagues from across
the House who mentioned that. It is important that we work
together, and that we remember the contribution made by those in
the other place, who also recognised the policy’s potential and
helped develop it before it came into practice. More than a
decade since its inception, it is natural that we look again at
auto-enrolment.
In conversations with the pensions industry, I have heard experts
call for us to consider lowering the qualifying earnings
threshold and the minimum age requirement. The People’s Pension,
for example, endorsed those proposals. It argues that millions of
new savers would be created, many of whom would be women and
people from ethnic minority backgrounds. The Association of
British Insurers found that employees would be able to save an
additional £2.6 billion a year if the earnings trigger was
scrapped.
There is justification, as well as a desire in the sector, for
policy makers to look at all available options. That is
especially true in the light of the Government’s commitments in
2017 to reviewing the situation, and to getting workers to save
early by considering removing the lower earnings limit and
reducing the age threshold for automatic enrolment to 18 by the
mid-2020s, as we have heard reiterated today. The deadline is
approaching fast, so I ask the Minister to clarify what stage the
Government have reached in their consideration.
I also ask the Minister to set out the work his Department has
done to understand the wider implications of last year’s decision
to freeze the earnings trigger and only modestly increase the
upper limit of the qualifying earnings band. Understanding those
consequences is important for tackling inequality and helping
more workers to get into the habit of saving, as has been
mentioned. Studies have shown that only 37% of female workers and
28% of black and ethnic minority workers are eligible for the
scheme. Finally, I reiterate the importance of this debate, and
thank colleagues from across the House for taking part. I hope
the Minister will respond to the points made.
10.40am
The Parliamentary Under-Secretary of State for Work and Pensions
()
It is a pleasure to serve under your chairmanship, Mr Dowd. It is
genuinely hard for me to disagree with anything that my hon.
Friend the Member for Grantham and Stamford (), who is an esteemed member
of the Treasury Committee, put forward in his outstanding speech.
I thank him for bringing this matter forward for debate. Contrary
to popular opinion, I am always keen to debate all matters
pension. I have done this job for about 1,680 days and continue
to make the case for the change that we are driving forward.
I will address in more detail the speech of my hon. Friend the
Member for North West Durham (Mr Holden), my constituency
neighbour, who is a vast improvement on his predecessor. He
helpfully enlightened us with the fact that St Luke is the patron
saint of pensions, which I did not know. I will return to his
ten-minute rule Bill and private Member’s Bill in due course.
I listened carefully to the speech of the hon. Member for
Kilmarnock and Loudoun (). It is a bit like taking an
SNP horse to water and trying to make it drink; his speech
started so well, with the statement that, by and large, he could
not disagree with anything that had been said, but that sentiment
disappeared in general criticism of the Government. He will know
that the state pension is up by more than 5% in 2021-22. He will
know that pension credit take-up is increasing. He will know that
winter fuel payments and cold weather payments are well in excess
of £2 billion. He will know that there are free eye tests worth
£900 million and free bus passes of £1 billion. I could go on to
address various other points he raised, but I want to focus
primarily on the automatic enrolment issues raised by my hon.
Friend the Member for Grantham and Stamford.
I am slightly concerned that the story of today’s debate may be,
“Minister admits that in 2018 he, too, was ambushed by a cake—a
lemon drizzle cake—while on a ministerial trip to Newtownards,
Northern Ireland”. There are many points that the hon. Member for
Strangford () made that I want to address. It was an honour and
privilege to visit his local credit union. I would love to take
him up on his kind offer and return to Northern Ireland. Because
of covid, so much has happened as regards ministerial visits and
progress on so many things. Our country has acquired
approximately £400 billion on the nation’s credit card, and there
are difficult fiscal choices to make, which have clearly impacted
the roll-out of many economic and fiscal policies. Certainly, in
2022, provided I continue to hold this job that I enjoy, I hope
to make the case across Northern Ireland. I have not visited
Derry/Londonderry; the credit union there is one of the most
successful in the UK and it would be a great pleasure to visit
it.
The hon. Gentleman mentioned consolidation and said that he had
four pensions. It is right to celebrate and laud the fact that
probably the second biggest project that the Department for Work
and Pensions is rolling out is the pensions dashboard.
Auto-enrolment is the first, and I will come to that in more
detail. The pensions dashboard will be transformational: he will
be able to see his four pensions on his mobile phone, laptop or
iPad. Just as people have a savings app or banking app, we will
be able to take the tens of thousands of pensions out there,
access that information and understand what an individual has.
Crucially, so many colleagues raised the issue of awareness, and
the dashboard is the key to understanding that.
There are other things that we are doing, and I could talk in
detail about our plans—which will come forward this October—for
what are called simpler statements, which basically amend the
traditional, very complex pension statements that very few people
understand, save for independent financial advisers, which some
colleagues present have worked as in the past. The man or woman
in the street simply does not understand those statements in
sufficient detail, so we are putting them into a two-page form
that tells people what they have and gives them proper
information; it will do what it says on the tin. We in the DWP
and, to be fair, people across industry believe strongly that
that is the right way forward, in order to enlighten members, so
that they have a better understanding of what they have.
The dashboard will come forward in 2023 and simpler statements
will come forward in October 2022. There is much that we could
say on the issue of financial education. It is a credit to my
right hon. Friend the Secretary of State for Levelling Up,
Housing and Communities that he introduced financial education in
secondary schools, but we need to do more to enhance awareness
about all matters of finance—that does not need to be pensions:
it is about all matters relating to money and the usage of
money—in primary schools, and to encourage wider understanding of
that among our children through their education. I would
certainly support that.
The hon. Member for Strangford raised the issue of the
self-employed, as did other Members. I will make a couple of
points on that issue. The first is that there are already plenty
of self-employed people who can perfectly properly sign up to a
private pension. I am an example. I was a self-employed jockey—I
was not very good at all and did not make much money—and then I
was a self-employed barrister and helped to run a charity before
coming to this place. However, it is much more complicated for
those people, because they do not have any of the benefits of
automatic enrolment.
There is a way forward, and we are working on a trial with HMRC
to explore the opportunities presented through Making Tax
Digital. There is a clear solution for how to change the tax
system, on which we are working with HMRC and the Money and
Pensions Service. It will almost certainly be a drop-down box
with an automatic deduction, which will allow people to do what
they can presently do on their manual tax return, and it will
make self-employed automatic enrolment much easier. It is a work
in progress. Today is Australia Day; it is appropriate that we
laud the fact that Australia has showed us the way on so much of
automatic enrolment. Certainly, the Australians have addressed
the question of how to enhance self-employed take-up of automatic
enrolment in a variety of ways, and I am looking at that closely
through the HMRC trial. I hope to update the House and
parliamentary colleagues on that point in the very near
future.
Several colleagues raised the point about 8% plus, which I will
come to in a second. Let me first deal with the issue of the 2017
automatic enrolment review, which is also largely the subject
matter of the work in progress that is my hon. Friend the Member
for North West Durham’s ten-minute rule Bill. The simple truth is
that when I acquired this job, back in the dim mists of time in
June 2017, I was given two primary responsibilities by the late,
lamented , who was the Secretary of
State. The first was, “Get us to 8%”—bear in mind that automatic
enrolment was not even at 5% at that stage. It is a massive
triumph for this country, the employers, the employees—who quite
clearly have not opted out—and government on a cross-party basis
that we have got to 8%. The world has not come to an end and
drop-out rates are really low, so without a shadow of a doubt,
that is a massive success story. However, my hon. Friend the
Member for Delyn () is totally right that more
needs to be done, and I am going to address that point in a
second.
The second thing that happened, pretty much as I arrived in the
DWP as Minister, was that I received a copy of the 2017 review in
the autumn of that year. We took the decision that we would
support it without a shadow of a doubt. It was an independent
review; we did not have to support it, and Governments often do
not support them. However, we then made the decision that the
measures should be introduced on a phased basis.
Clearly, events have got in the way—the past four or five years
have been somewhat complicated—but the practical truth is that
the Government have an unquestioned commitment to bring forward
the 2017 review measures: the lower earnings limit and the 22 to
18 threshold. The way in which we do that and the phasing of it
is still a matter of ongoing debate within Government.
People above my pay grade have to make decisions on that—it is
dependent on other pieces of legislation and other
considerations. Clearly, a consultation would have to take place,
but in broad terms the timetable would involve primary
legislation to introduce the primary measures and enabling
powers, secondary legislation and a consultation to follow, and
timings thereafter. Certainly, my hon. Friend the Member for
North West Durham was seeking confirmation that the measures
would be introduced in a phased approach after the next election,
in the mid-2020s, and I hope that is helpful for his
understanding.
It is not for me to decide what is in Her Majesty the Queen’s
speech, either this year or next, but clearly there are a variety
of ways in which we can progress such legislation. First, there
is a private Member’s Bill. That is not impossible, but it is be
complicated for Government business for primary legislation on a
large matter, particularly given the timings of this Session. I
welcome my hon. Friend’s ten-minute rule Bill, but it comes very
late in this Session. Obviously, there will be future private
Members’ Bills.
Secondly, we are clearly looking to bid for a third or fourth
Session pensions Bill that can take these matters forward as
normal Government business. My intention is to bring forward the
legislation, subject to all the usual provisos about being a
Minister with larger collective responsibility.
Mr Holden
In addition to this debate, which was secured by my hon. Friend
the Member for Grantham and Stamford (), and my ten-minute rule
Bill, what more could we do to support the Minister in his bids
to drive forward this very sensible agenda in Government?
The fact that there is cross-party support is relevant because,
quite rightly—but sometimes wrongly—Oppositions oppose many
pieces of legislation. Clearly, this legislation has the support
of all political parties. I cannot speak for the one Member of
the Green party, but I know that the Liberal Democrats and other
smaller parties support the legislation. That is very relevant
and needs to be shouted from the rooftops.
This matter has an impact, particularly on low earners, in every
single constituency in the country. As my hon. Friend the Member
for North West Durham said in his eloquent speech, such measures
would be a really good example of levelling up in low-earning
communities. Clearly, people above my pay grade—whether the
Chancellor, Prime Minister or others—will decide what goes into
the Queen’s Speech this coming May, and I wish them all good
fortune with that. Some of the clarifications that my hon. Friend
made will help, as will the way in which he is trying to bring
legislation forward. Airing the matter in the House helps,
confirming to all parties that such measures have cross-party
support. So much pension policy is so long-term that the impact
of pulling a lever is not felt until three to five years later,
so it makes a massive difference to have cross-party support.
I will touch briefly on a couple of other points. With regard to
longer-term plans to go higher than 8%, I totally agree with my
hon. Friend the Member for Delyn that 8% is not enough. Again,
subject to the ability to travel in future, I hope to engage with
American colleagues to look at their 401(k) and the way they deal
with it. Subject to the ability to take those things forward, the
next goal after the 2017 review is clearly a discussion and a
debate on how much above 8% is enough.
I am wearing my Australia Day tie, which was given to me when I
and my hon. Friend the Member for Daventry () triumphantly crushed
the Australians in the parliamentary cricket match a few years
back. The Australians have got to 12% and are doing so much,
particularly in utilising the defined contribution and automatic
enrolment to do the things that my hon. Friends the Members for
Darlington () and for Sedgefield () mentioned —namely, safely
investing those savings in local communities so that individual
savers can say, “That is what is happening in my area.”
I can give examples. I have set up two banks, as colleagues will
be aware: Atom bank, which I was a founder member of, and the
Northumberland Community Bank. Another good example is the
Cambridge and Counties Bank, which utilises the pension reserve
to loan on asset-backed lending to assist with investment in the
Cambridge local area. There are other examples—the Sparkassen in
Germany do this all the time—of only lending to local communities
in that way. Such examples will proliferate, which is a good
thing, because this comes to awareness. Members are then aware of
what their savings are invested in and are so much more engaged,
and that can apply across the country.
I accept that we need to do more on awareness. The Money and
Pensions Service is clearly doing great work, and I support
totally what Pension Geeks is doing with Pension Awareness Day,
and what Scottish Widows is doing with its pension awareness road
trip. The reason I am a supporter of the statements season is
that I do not think that pensions awareness or engagement is good
enough, quite frankly. We have to have a product or process
whereby people are engaged, much as we do in tax or educational
results, so that they understand better what they have got at a
time when they can really get engaged. Obviously there is a
working group on statements season, and it is a matter of
discussion with the industry, but we have to do more to create
greater engagement.
In my last minute or so I want to try to address some of the
final points. Clearly, consolidation is a matter that we are
working on, and I can happily give colleagues more on that. My
hon. Friend the Member for Grantham and Stamford raised two final
points about the nature of savings and what we are saving for.
The traditional product has clearly been a pension, but our
parents and grandparents would all have had much greater
awareness of rainy day savings. We should unquestionably laud and
support all the companies that are already running a 1% savings
club or working with credit unions and other organisations to
ensure that our employers and constituents have the capacity for
rainy day money. If that was a problem pre covid, it is a
particular problem post covid. There is also a wider policy issue
about how we enable products to be developed to ensure that
people are saving for deposits, although that is about the wider
culture of saving in the longer term.
To finish, I thank the 10 colleagues who came along this morning
to make the case for pensions savings and the many who support
this policy and are driving it forward. Certainly, we can find
very little in my hon. Friend’s speech to disagree with. I thank
all colleagues for coming along and making the case and for
supporting our reforms. I accept that there is more to be done,
but this Government are utterly committed to ensuring that that
happens.
10.58am
I pay tribute to the Minister, who is one of the longest-serving
Pensions Ministers we have had in this country. As somebody who
came from the fund management industry to this place, he is
respected not just in this House but in the industry, too. I also
thank all hon. Friends and hon. Members for their contributions.
We heard from the hon. Member for Strangford () about the importance of getting in early and
financial literacy. We heard informed speeches from my hon.
Friends the Members for Darlington () and for North Norfolk
(), giving the perspective from
business. We also heard from my hon. Friend the Member for Clwyd
South () about the benefits of
increasing the size of the pensions pot for social and
environmental investment.
Of course, let me congratulate once again my hon. Friend the
Member for North West Durham (Mr Holden) on his excellent private
Member’s Bill. He is enjoying a tremendous amount of support
today. I maintain that we should focus on 18 to 21-year-olds. If
nothing else, we should take away from today the fact that our
pensions system has a great deal of power in what it can bring to
our communities. Let it be said that this should not be a hidden
secret any more. The power of compounding and savings benefits
everybody, and people should start as early as possible.
Question put and agreed to.
Resolved,
That this House has considered the matter of automatic pension
enrolment.
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