Pensions (Extension of Automatic Enrolment) (No. 2) Bill Moved by
Baroness Altmann That the Bill be now read a second time. Baroness
Altmann (Con) My Lords, I am delighted to sponsor the Bill before
the House today. It brings to fruition the hard work of dedicated
colleagues across the Chamber, who have advocated tirelessly for
the improvement of workplace pension coverage and adequacy,
especially for younger workers and low earners. I thank and
pay...Request free trial
Pensions (Extension of
Automatic Enrolment) (No. 2) Bill
Moved by
That the Bill be now read a second time.
(Con)
My Lords, I am delighted to sponsor the Bill before the House
today. It brings to fruition the hard work of dedicated
colleagues across the Chamber, who have advocated tirelessly for
the improvement of workplace pension coverage and adequacy,
especially for younger workers and low earners.
I thank and pay tribute to my honourable friend , who championed the
Bill in the other place and saw it through its stages there
earlier this year. His hard work paved the way for the Bill to
come to us today and has been praised fulsomely, with cross-party
support welcoming these improvements to retirement provision for
millions of our fellow citizens. I also pay tribute to my noble
friend the Minister, who I am very pleased to see today, and to
my honourable friend the Pensions Minister in the other place,
, and the department
officials who have done so much work and are supporting the
Bill.
The Bill has two main objectives: first, to pave the way for
extending auto-enrolment to workers under the age of 22, the
current minimum age for automatic enrolment to a workplace
pension; and, secondly, to allow the Government to abolish the
lower earnings limit of the qualifying earnings band, which will
increase the overall amounts being saved, as pension
contributions under auto-enrolment will be calculated from the
very first pound of earnings rather than from £6,240, which is
the case now.
Auto-enrolment into workplace pensions has been a celebrated
success, bringing 10.9 million more people into pensions since
the programme started in 2012, with 2.2 million employers
complying with their duties and an extra £33 billion being
invested in pensions in 2021, relative to 2012. I pay tribute to
the noble Baroness, Lady Drake, for the seminal work she
contributed in the Pensions Commission in 2008, which led to
auto-enrolment in the first place.
It is now time to move on to the next stage of this successful
programme. In 2017 there was a year-long major review of the
policy, which recommended, among other things, the two measures
put forward in the Bill today. The aim is to allow the Government
to help improve people’s private pensions. There are several
benefits of extending auto-enrolment to workers under the age of
22: it will improve inclusivity and will give younger generations
longer to benefit from the power of compounding long-term
investment returns, giving them a chance to build bigger pension
funds. It can also simplify the administration of workplace
pension schemes, which will save money and reduce the risk of
errors if a minimum age is no longer in place—although that will
be determined in due course by regulations.
The Bill should also help lower the likelihood of 22 year-olds
opting out of an employer pension scheme, which is the risk at
the moment, as their take-home pay suddenly falls due to pension
contributions starting to be deducted as they pass their 22nd
birthday. It is expected that 600,000 private sector workers aged
18 to 21—and, as I said, there could be more if the age is
somewhat lower—could benefit from these measures. I hope that the
consultation for regulations will include not a minimum age of 18
but a removal of the limit altogether, so that every worker, even
those who leave school at 16 and start work at that age, can
start a pension.
There are also significant benefits from removing the lower
earnings limit, the other important strand of the Bill. Employer
contributions for lower earners who want pensions will be
significantly higher as a result. Currently, those who are under
22 also have to request to join their employer pension and do not
benefit from the powerful behavioural nudge that sees those over
22 automatically enrolled into the pension scheme. While younger
workers can ask their employer to join, the estimates suggest
that only 32% of those eligible workers are actually paying into
a pension at work—far less than the nearly 90% of eligible
workers over 22, who are building a pension at work after being
auto-enrolled.
There will also be the opportunity to help people to start the
pension habit earlier, establishing even more clearly the
principle that workers in this country can expect their employer
to cover tax, national insurance and pension for them. This Bill
will therefore particularly pave the way to help underpensioned
groups, including lower earners, women, people from ethnic
minorities, the disabled, multiple job holders, young workers and
those in the gig economy.
Helping to narrow the gender pensions gap is an issue that many
of us across this House have been exercised with for some time
and is another reason to support these measures. Of course, this
alone will not close it entirely. The ABI estimates that, at the
moment, the average woman aged 65 has a pension pot worth just
one-fifth of the value of that of a man of the same age. Due to
lower-paid work, lower lifetime earnings, interrupted careers and
more part-time jobs, women have always lost out on this
earnings-related private pension system. By ensuring that all
their earnings are used to calculate contributions in future,
even lower-earning women will build much bigger pensions. Instead
of someone on, say, £10,000 receiving contributions on just
£3,760 of her earnings, she will—once this Bill and subsequent
affirmative resolutions are hopefully passed—be able to receive
nearly twice as much again, as the full £10,000 will be used to
calculate her and her employer’s contribution. This means that,
instead of receiving £300 a year into her pension, it will be
£800 a year.
The Bill provides regulation-making powers to amend the automatic
enrolment framework set out in the Pensions Act 2008. The
Secretary of State for Work and Pensions will be required to
carry out a public consultation on the proposed use of these
powers to lower the minimum age and abolish the lower earnings
limit, with the findings having to be reported to Parliament
before regulations are made. It is promised, I believe, that the
consultation will be later this year, so I do not think that we
will have to wait too long. All noble Lords will therefore be
able to consider and vote on the detail of the proposals for
secondary legislation before they become law. I hope that noble
Lords will therefore be able to support these enabling measures
in the Bill today.
Colleagues across the House may have concerns about bringing more
people into pensions and increasing contributions for lower
earners if they are going to be put into pension schemes that
administer tax relief by the net pay system. However, the
Treasury has announced a new system, which will make top-up
payments to low earners in met pay schemes—many of whom are
women, of course—to address the net pay and relief at source
anomaly. This is planned to be introduced for contributions from
the 2024-25 tax year onwards, so should time well with the start
of measures provided for in this Bill, following the laying of
regulations. I am therefore delighted that the Bill before us
today will set us on the path to the next successful chapter—I am
sure—in the story of automatic enrolment. It will bring undoubted
benefits of pensions savings to younger people and to those
hard-working, lower-paid workers, including women with caring
responsibilities, who deserve the opportunity to build a more
secure retirement for themselves and their families.
As the Government have promised, this measure will be in place—or
the intention is that it will be in place—by the mid-2020s. Of
course, there is more to do, including extending auto-enrolment
to workers with earnings in any one job below £10,000 as well,
but that can be covered elsewhere, and to the self-employed.
However, these measures are an important start. I welcome the
improvements, and I hope that noble Lords across the House will
do so. I commend the Bill to noble Lords.
12.34pm
(Lab)
My Lords, I congratulate the noble Baroness, Lady Altmann, on
sponsoring this Bill. It is in very capable hands. We have heard
from her a powerful assembly of the arguments in support of the
Bill, which I think people would struggle to second-guess in any
way, so I congratulate her.
I welcome the powers that the Bill gives to the Secretary of
State to extend the coverage of auto-enrolment to younger people
and to remove the lower-earnings limit from the qualifying
earnings band. The Secretary of State retains the discretion as
to when and to what extent to reduce the lower age limit and the
extent to which and over what time period it will reduce or
repeal the lower earnings level threshold.
The Government have indicated that they are supportive of this
Bill. Can I therefore push the Minister a little to give an
indication of when they will implement changes? Presumably it is
not intended that the powers given to the Secretary of State will
sit and gather dust. It is, after all, six years since the review
of automatic enrolment and we are only 18 months away from the
mid-2020s—the date by which the Government committed to
introducing changes, including the changes provided for in this
Bill.
The Bill provides for the Secretary of State to carry out a
consultation. I therefore take the opportunity to highlight a few
issues relating to younger people and extending auto-enrolment to
people below the age of 22. The regulator has been very active
and effective in identifying and addressing negligent employers
who seek to avoid their employer duties. However, in lowering the
age for auto-enrolment, the regulator will have to monitor that
the change is working to the benefit of most young people. Many
young workers aged 18 to 21 may, because of training, higher or
further education commitments, or the types of work available to
them, be working irregular hours, part-time or earning more
flexible incomes. There is a significant rise in students working
out of economic necessity, and younger people from lower
socioeconomic groups may be in less secure employment; we saw
their vulnerability in this regard during the pandemic
Employers have up to three months from commencement of employment
to enrol a qualifying worker. Even then, for those who work
irregular hours or earn flexible incomes they need not be
auto-enrolled until the first time that they earn over the
earnings trigger, which is currently £192 a week or £833 per
month. It will be important to monitor for any emerging labour
market behaviours that could undermine the intent of this Bill to
benefit young people, such as restricting the earnings or hours
of younger workers so they do not qualify for auto-enrolment; not
paying younger workers through payroll; or pressuring them to opt
out.
There is also a need to be sensitive to how the national minimum
wage aligns with the £10,000 earnings trigger. Currently, an 18
to 20 year-old on the national minimum wage of £10.18 an hour and
working 18 hours net would not qualify for auto-enrolment. That
may therefore exclude a very significant number of young workers
being targeted by this Bill. A 20 year-old young mum on the
national minimum wage and working 18 hours a week would not
qualify for auto-enrolment if it were operating today. With the
removal of the lower earnings limit from the band of earnings and
access to tax relief, it means that she would lose £900 going
into her pension scheme in that year. So there is therefore a
sensitivity around that link between hours on national minimum
wage and the auto-enrolment of younger people.
The Chancellor’s estimates for improved returns over the working
life of pension savers, from greater investment in illiquids and
private equity, were predicated on the assumption of saving from
18. That is four years more of saving than is currently provided
for under auto-enrolment. There need to be reforms made by this
Government before the Chancellor can rely on estimates based on
such an early age as 18.
Eligible workers, contrary to everybody’s expectations, have a
lower opt-out rate than older workers, so it will be important to
monitor the opt-out rates for 18 to 21 year-olds to ensure that
that positive trend we are currently seeing is not
undermined—that trend being the high number of 22 year-olds
remaining in when they are auto-enrolled.
Finally, ONS recent figures reveal that just over 15% of young
workers change jobs, compared with 5.1% of employees aged between
35 and 49, so the Government need to push ahead with their small
pots solution, because for young people that solution will be
very important to the efficiency of managing their savings and
for it to benefit them over their working lifetime. I hope the
Government will push ahead with the better deal for young people
that the Bill—again, I congratulate the noble Baroness, Lady
Altmann—will provide.
12.40pm
(Lab)
My Lords, I join my noble friend Lady Drake in congratulating the
noble Baroness, Lady Altmann, on bringing this important Bill
before us today. I still struggle to get my head around the idea
that a government policy requires a Private Member’s Bill to
bring it in: it seems a bit odd to me, but then most of the Bills
this morning seem to have been in line with government policy. I
suppose that is because you have a chance of getting legislation
through only if it has government backing. But this is government
policy and the Government have promised to introduce it. They did
not say when, so their tardiness is being pre-empted by the
Bill.
I am going to say some things which may seem a bit grouchy, but I
do support the Bill and I am not suggesting any amendments: I
think it should be put on the statute book as quickly as
possible. It is, of course, an enabling piece of legislation; it
is just the first step. We are going to have the regulations and
there is some suggestion that we are going to have a consultation
later this year. We are a bit overburdened with consultations at
the moment—I think there were about five earlier this week—on
crucial issues in the pensions area, so I hope there will be some
understanding of the capacity issues in dealing with all these
areas of policy.
The Bill does two distinct things: it increases the contributions
that everyone who is automatically enrolled has to receive in
their pension: it affects everyone, right up to the ceiling. It
is not in any way targeted at the lower paid, but it has a much
bigger impact on the lower paid, of course, because including the
extra £6,000 for someone on £18,000 has a much bigger
proportionate effect than for someone on, say, £30,000 or
£35,000. So, proportionately, it is aiming at those on lower
levels of pay. It also brings in those who are between the ages
of 18 and 22—my noble friend Lady Drake dealt with this in
detail.
Nevertheless, while both those things seem like good things, I do
have concerns. There is a general concern that this might be seen
as solely what we need to do in order to address what I think is
currently the biggest problem in pensions policy, which is the
gender-based pension gap that the noble Baroness referred to in
her introduction. It is because of inadequate pension provision
and of course it affects primarily women, hence the gender gap.
We could spend a bit of time discussing the DWP errors and the
differential impact that they are having on women, but we will
leave that to one side today. However, the two key issues there
are low pay for women and continued gender discrimination in
employment.
The second concern is that caring tends to be the responsibility
of women. There is, perhaps, greater sharing now than there was
in the past, but it is still overwhelmingly women who have caring
responsibilities, and this has an impact on the pensions that
they accrue.
What solutions do we have to those issues? I am afraid that I
must disagree with the noble Baroness, Lady Altmann, about the
impact this will have on the pensions gap. I think it is
irrelevant to the pensions gap and hence is a diversion from what
we should be doing. My crucial point on the pensions gap, and
where the Bill misses the point, is that we cannot solve the
problem of the inadequate pensions received by women, people on
low incomes and people with caring responsibilities by making
them save more money. It is not the answer to the pensions gap to
rely on people having greater savings, because their resources
are just not there. We have to look at other ways of providing
support to eliminate the pensions gap, and I really do not think
that market-based funded pensions are that solution. We have to
look at the solution through improvements to the state scheme.
Clearly, the state has a bigger role here. In that sense, this
Bill is a diversion and raises concerns in my mind, even though
the measures in themselves are worth supporting.
There are also practical issues that need to be addressed if we
are to extend auto-enrolment. First, we have to resolve the
problem of small pots. The Government have issued a further
consultation. I thought that we had consulted almost to death on
this issue, but we got another consultation paper on small pots
earlier today. The new and dynamic Pensions Minister says:
“I am setting out a decisive way forward built around the
multiple default consolidator model”.
That is perhaps the correct approach—it moves away from the
pot-follows-member model that previously had support—but this
debate has been going on for 10 years or more, ever since the
birth of auto-enrolment. We have to address the problem of small
pots and we need to do it soon, so increasing auto-enrolment must
go along with sorting out the problem of small pots.
The other issue that needs to be resolved, particularly for
younger people, whose earnings will tend to be low and may be
outside the tax regime, is that of net pay. I was going to say
something about that at Second Reading of the Finance (No. 2)
Bill, but unfortunately I could not make it. However, they are
important issues and, in this context, I stress that the small
pots issue needs to be taken more seriously by the Government. It
was discussed in Committee in the House of Commons and various
points were raised. I do not believe that the Government have yet
totally resolved these issues—the need to make sure that people
know that net pay tax relief will be there.
The Government’s proposal is to start, in effect, two years in
the future, but I cannot see any sound reason why we should not
go back to 2023. There is the whole process of individuals being
able to object to whatever assessment is made and additional
technical issues which I will not detain the House with today.
There are a number of issues with net pay that need to be
addressed. So, okay, let us go ahead, let us expand
auto-enrolment, but unless at the same time we resolve the other
issues of net pay and small pots, it will not have the impact
that it should have. To come back to my prime point, let us not
believe that this is going to resolve to a significant extent the
biggest issue, which I believe is the gender pensions gap.
12.50pm
of Childs Hill (LD)
My Lords, I thank the knowledgeable noble Baroness, Lady Altmann,
for bringing this Private Member’s Bill to the House and the
usual cast of knowledgeable speakers we have in every pensions
debate—the noble Baroness, Lady Drake, the noble Lord, Lord
Davies, and, in due course, the noble Baroness, Lady Sherlock. It
is very much déjà vu; we come back to this again and again. I
also thank the Minister for mentioning this morning my mild
contribution to the Child Support (Enforcement) Bill. We are
always grateful for acknowledgement of our modest support and
information, and the Minister was particularly helpful on that
issue. I was not in my place because I did not know that we were
going to make speeches.
I support this Private Member’s Bill to amend the Pensions Act
2008 to give the Secretary of State powers, as has been said, to
extend pensions automatic enrolment to workers from age 18 rather
than, as now, only 22 and to increase contributions so that
pensions savings are based on all earnings up to just over
£50,000 per annum rather than only over the lower earnings limit,
referred to by the noble Baroness, Lady Altmann, of £6,240 per
year. It is great that this Bill is being progressed. I would
like to pin down the Minister on a timetable—when will the
changes take place? Even if they cannot be made immediately, we
need a firm timetable so that people can plan. The whole idea of
pensions is to plan for the future, and having no fixed timetable
is not useful to those looking to do so.
When I was a local councillor, I had advice cases galore. One of
the nicest things about coming to this House is that those advice
cases almost dry up. However, earlier this year by accident I got
an advice case, relevant to this debate, from a woman who was a
nurse for many years. She retired, took a pension and then came
back to work. On her payslip every month, there was a pension
deduction; so, when she retired a second time, she looked for the
secondary pension that she had contributed to and found, to her
amazement and mine—I checked this with our Minister at the
time—that the money had been deducted but had not gone to a
pension at all. She should have been aware of it, but she was
not, as on the payslip there was a deduction for a pension. After
my and others’ intervention, the end product was a return of
contributions rather than a pension. The relevance of this very
rare advice case is that, when contributions are deducted,
everyone will be auto-enrolled and therefore that deducted money
would be a pension scheme.
Automatic enrolment is a genuine success story. It has not got to
the end yet, as pointed out by noble Lords, but making these
changes to auto-enrolment, which were recommended in the 2017
independent AE review, and extending its scope will mean that
more people have an adequate income in retirement. As has been
mentioned, broadening auto-enrolment will be of particular
benefit to under-pensioned groups: women, ethnic minorities,
younger people, multiple job holders and gig economy workers. The
Government committed to bring forward these changes in the
mid-2020s, so it is welcome to see that they are serious about
hitting this target by backing this Bill and finding
parliamentary time to allow these reforms to take place.
However, I echo the comments of the noble Lord, Lord Davies. I
still cannot get my mind around why we have a succession of
Private Members’ Bills—this is not the only one—to bring forward
legislation, rather than the Government bringing forward a more
comprehensive Bill on pensions. But this is the way it is being
done and I heartily support it.
12.55pm
(Lab)
My Lords, I thank the noble Baroness, Lady Altmann, for
introducing this Bill and all noble Lords who have spoken. The
noble Lord, , is right: we are a select
band. However, we are none the worse for it. It is always
interesting, and I learn something every time this particular
band gets together, so it is a joy to be back here today.
I am grateful for the briefing we had on this matter and for some
excellent paperwork supporting the Bill. As noble Lords have
observed, it is a little strange: Private Members’ Bills must
come from private Members. On some, however, the Government smile
more readily than they do on others, and if they smile readily,
the passage can be eased through both Houses. That is what we
have today, so I am grateful that the Government have smiled on
this one and I look forward to hearing the Minister talk about it
at more length shortly.
I start by celebrating auto-enrolment itself as one of the great
public policy successes of recent years. As the noble Baroness,
Lady Altmann, said, its origins lie in the work of the Pensions
Commission set up by the last Labour Government, chaired by the
noble Lord, Lord Turner, and on which my noble friend Lady Drake
and the late and greatly lamented Sir John Hills served with such
distinction. The coalition Government implemented it in 2012, and
there has been growth in the number of people saving for a
pension as a result. We can all celebrate that. However, it is
clear that pensions adequacy remains an issue; noble Lords have
raised a variety of questions, from the gender pensions gap to
people in multiple jobs to the gig economy—all of which need
addressing. While this tiny Bill cannot do that, hopefully the
Minister can give us a nod to show us which way the Government
are thinking when it comes to addressing these problems.
This Bill would enable the extension of auto-enrolment in two
directions. It would amend the Pensions Act 2008 to give powers
to the Secretary of State to make regulations to do three simple
things: to reduce the lower age limit at which eligible workers
must be automatically enrolled or re-enrolled into a pension
scheme by their employers; to remove the lower earnings limit—the
LEL—from the qualifying earnings band so that contributions are
calculated from the first pound earned; and to change the
requirements of the annual review of the qualifying earnings
band. As we have heard, the Government will have to bring forward
a consultation, which I hope they will do soon. I look forward to
hearing some tips on when that might happen. They would then have
to bring forward regulations. This is only a permissive Bill, but
it would enable the Government to fulfil some of the commitments
they made in the 2017 review of auto-enrolment to introduce
changes in the mid-2020s.
As we have heard, the Bill does not specify a new lower age
limit, but the Government have previously committed to reducing
the limit from 22 to 18 and the Explanatory Memorandum says that
this is the policy intent. Although this is a Private Members’
Bill, the EM was produced by DWP, so presumably that makes it a
government policy intent. Just for clarity, though, can the
Minister confirm that it is the Government’s intention to reduce
the lower age limit to 18? Is it also the Government’s intention
to use these powers to remove the LEL from the qualifying
earnings band? Maybe that is obvious, but it is always good to
have these things on the record. Any indication on timing that
the Minister could give us would also be helpful.
If these measures were introduced, while they would not solve all
our problems, they would bring significant numbers of people
either into the orbit of auto-enrolment or the possibility of
employer contributions, including: those who are below the
current qualifying age limit of 22; those who earn above the
trigger point of £10,000 but are getting employers’ contributions
only on earnings above the lower earnings limit who could then
get them from the first pound; and those earning below the
trigger point but above the LEL who are able to opt in but who,
in future, could then get employers’ contributions from the first
pound.
The impact assessment did a fine job of using the available data
to model what could reasonably be modelled. It played around with
likely participation and savings rates in various directions and
concluded at para 5.18 that if in force in 2022-23, the combined
proposals would increase total pension saving by £2 billion. Of
this, £0.9 billion would be paid in employee contributions, £0.8
billion would be paid in employer contributions and £0.2 billion
would be paid in income tax relief on employee contributions.
Of course, this is all dependent on assumptions about opt-out
rates. Paragraph 8.10 of the impact assessment tells us:
“Between 4 and 5 per cent of employees who are automatically
enrolled opt-out”.
It goes on to say that another 5% of employees who are
auto-enrolled and start saving
“then make an active decision to stop saving whilst continuing to
work”.
Paragraph 8.11 says that
“around 10 per cent of employees who are automatically enrolled
either opt-out or actively cease saving in the first year”.
However, much of the participation data behind this was from the
ONS’s annual survey of hours and earnings in 2020, which was of
course before the cost of living crisis hit. Does either the
noble Baroness, Lady Altmann, or the Minister know what work has
been done to assess whether this opt-out rate has changed or is
likely to change in the current economic climate?
A number of other important questions have been asked by Members
from across the House. As my noble friend Lady Drake said, it
will be important for the Government to confirm in some detail
when and how they will address the net pay issue. I hope that the
Minister will be able to give both my noble friend and the House
an assurance that the Government have plans to monitor and
address any poor practices that might emerge among employers
trying to stop young workers benefiting from auto-enrolment in
the way this Bill and the Government envisage. I would also be
grateful if the Minister could give the House any more
information about the way in which the Government are engaging
with key stakeholders, in particular employers, trade unions,
consumer bodies and especially young people themselves.
Having raised these issues, I want to make it clear that the
Opposition fully support this Bill, despite its limitations. My
thanks go to all involved, including the noble Baroness, Lady
Altmann. I also thank Joshua Osborne, a University of Sheffield
student who was on a placement with me last week, for his work in
preparing important information on this Bill. I thank all those
who have spoken today and carry on supporting the important issue
of pensions in our society. I wish the Bill well.
1.01pm
The Parliamentary Under-Secretary of State, Department for Work
and Pensions () (Con)
My Lords, I am pleased to add my support to my noble friend Lady
Altmann’s Bill. This legislation would bring into workplace
pensions more younger people, women and those in part-time work,
including workers not already benefiting from an employer pension
contribution. My noble friend eloquently set out further detail
of the Bill, its benefits and its beneficiaries.
The Government are committed to building on the success of
automatic enrolment to date with a stronger, more inclusive
savings culture for younger people. The noble Baroness, Lady
Sherlock, was right to remind us of some of the historical
context. My noble friend’s Bill would expand the automatic
enrolment framework, which was one of the most radical reforms to
the pensions landscape since Lloyd George enacted the first state
pension nearly 120 years ago. This Bill builds on the undoubted
success of workplace pensions and sits firmly within the
political consensus established by the independent Turner
commission, on which the noble Baroness, Lady Drake, served, as
has been mentioned, and which set out the road map for these
reforms in 2005. I add my name to those who have paid tribute to
the noble Baroness in this respect.
I want to move straight on to the subject of small pots, which
was raised by the noble Lord, Lord Davies. I hope that I can help
in providing some answers because I agree—he is right to raise
this issue—that the growth of deferred small pots is a huge
challenge for the workplace pension market. We know that it acts
as a burden on providers, reducing the value for money that
pension schemes can provide and negatively impacting retirement
outcomes for their members.
I assure the noble Lord and the House that the Government are
taking decisive action to address this issue. We are consulting
now on our ambition to deliver a framework for a default
consolidator approach, which will enable a small number of
authorised schemes to act as consolidators for deferred small
pots in order to provide greater value for money for their
members. In this way, we are working to address the current and
future stock of deferred small pots. I note the comments made by
the noble Lord today in this respect; we would very much welcome
his contribution to the consultation if he has not already given
his views, as I suspect he may well have done.
I turn to some of the points made by my noble friend Lady Altmann
and the noble Baroness, Lady Sherlock. We had an interesting,
brief debate on the lowering of the age limit, which we reckon is
about right at 18. The Bill provides for regulation-making powers
to reduce the age for AE, rather than setting a specific number.
This has been done to avoid pre-empting the statutory
consultation. We do not wish to close off our ability to respond
openly and thoughtfully to stakeholder proposals.
The 2017 review found 18 to be the appropriate minimum age for
automatic enrolment. The current minimum of 22 has failed to keep
pace with changes elsewhere, such as to the national minimum
wage. The lower age also aligns with the entitlement to social
security benefits, such as universal credit. Moving to 18 is seen
as an effective way to embed the habit of workplace pension
saving for young people as they start work for the first time.
Indeed, the Government’s commitment for young people below the
age of 18 in England and Wales to remain in education or receive
training and employment through apprenticeships has resulted in a
decrease in 16 and 17 year-olds in the labour market. Workers
aged 16 and over will still be entitled to opt in to AE and
receive an employer contribution if they choose to save into a
workplace pension.
I also want to touch on pension tax relief. The Government
recognise the different impacts of the two systems of paying
pension tax relief on pension contributions for workers earning
below the income tax personal allowance. This picks up on some
points raised by my noble friend Lady Altmann. We have announced
a new system that will make top-up payments to low earners in net
pay schemes, many of whom are women—I think that she made this
point—to address the net pay relief at source anomaly. The
Treasury has confirmed that this will be introduced for
contributions from 2024-25 onwards. In 2025-26, we estimate that
up to 1.2 million individuals, 75% of whom are women, could
benefit from top-ups worth on average around £50 each year. The
Office for Budget Responsibility assesses that the cost to the
Exchequer could be between £10 million and £15 million per
year.
My noble friend Lady Altmann also raised the issue of low
earners, as did one or two other Peers. The AE framework has an
earnings trigger that is set at a level that aims to bring those
individuals for whom it pays to save into pension saving
automatically. The Secretary of State must review this trigger
each year to help to make sure that it remains appropriate. As my
noble friend mentioned, currently the trigger is set at £10,000.
However, if an eligible worker earns below this amount, they can
still choose to opt in to a workplace pension if they want to
save, as mentioned earlier. The Bill is the essential first step
to allow the expansion of AE. The Government are clear that these
measures are the best route to enabling low and medium earners to
save more, with more workers benefiting from the employer
contribution to help them to build their retirement savings.
I will now move on to a few general comments about pensions and,
indeed, the state pension, which was alluded to by the noble
Lord, Lord Davies. I hope that I am not going too far in terms of
his remarks, but hopefully this will set the scene a bit. I
reassure the House that we believe that the state pension remains
the foundation of the UK pension system. In April 2023, the state
pension saw its biggest ever cash increase, rising by 10.1%, so
that the full yearly amount of the basic state pension will be
over £3,050 higher in cash terms than in 2010.
Workplace pensions sit on top of that foundation, helping to
maximise individual retirement saving. This is an approach guided
by the work of the independent Pensions Commission, which made
clear the importance of reinvigorated private saving to help
individuals to achieve their retirement aspirations. The
Government continue to support the success of automatic
enrolment, which has seen 10.9 million workers enrolled into a
workplace pension since 2012, with an additional £33 billion
saved in real terms in 2021 compared to 2012.
I move on to a more substantive point raised by the noble Lord,
Lord Davies—I think that he mentioned it twice—which is what we
are doing to reduce the gender pensions gap. As he will know, the
pensions gap is a complex issue tied to the labour market, the
pensions system and demographic differences, but one that the
Government take seriously. We remain committed to implementing
the 2017 review measures, which will disproportionately benefit
lower earners, including people working in multiple jobs, who are
predominantly women.
Going back to the basic concept of automatic enrolment, AE came
along at a time when the UK was towards the very bottom of the
OECD league tables on retirement saving. A radical reversal has
taken place in the past decade putting us close to the top, with
the UK now having the largest pension market in Europe. I pay
tribute to those, some of whom are in the House today, for their
efforts to make this happen.
In the private sector, workplace pension participation for
eligible employees has increased from 42% in 2012 to 86% in 2021,
representing a 44 percentage point increase. As my noble friend
Lady Altmann said, it has been especially transformative for
women, low-earners and young people. Her Bill would enable the
Government to build on that success and deliver the expansion of
AE.
There are a couple of other questions I want to answer—actually,
about three—particularly from the noble Baroness, Lady Drake,
from the noble Lord, Lord Davies, and from the noble Baroness,
Lady Sherlock, on timing, which is a very fair question. The
Government are committed to making progress in implementing the
2017 review measures, including lowering the age for being
automatically enrolled and reducing the lower earnings limit so
that pensions contributions are payable from the first pound of
earnings, in the mid-2020s. We have always been clear that
implementation of these measures and the timing must be done in a
way and at a time which is affordable, balancing the needs of
savers, employers and taxpayers, with a suitable lead-in time for
implementation. I am afraid that that is as far as I can go on
that, but as soon as I have any further detail I will certainly
let the House know.
The noble Baronesses, Lady Drake and Lady Sherlock, are right
that we need to look at any opt-out rate with great care in
monitoring, and I reassure the House in that respect. The noble
Baroness, Lady Drake, raised a very important point about AE
enforcement. The regulator has a statutory duty to enforce
compliance with employer AE duties. Employers must provide
information about AE to each eligible employee, including their
right to an employer contribution. If a worker has concerns about
whether their employer is complying with the law, they can report
their concerns to the regulator in confidence—as I suspect noble
Lords will be aware.
(Lab)
My point was that the regulator is doing a good job on
enforcement, but very young people are quite vulnerable, and I
was just saying that it needs a new lens brought to enforcement
activity.
(Con)
Absolutely. Again, I provide reassurance that we are very much
alert to the issue and we shall be sure that we monitor it and
keep the House updated.
The noble Lord, Lord Davies, raised the important subject of
carers, and I have a couple of brief answers for him. The
Government recognise the valuable role of carers and that they
are disproportionately women. Where carers are working, if
eligible, they will be automatically enrolled into a workplace
pension, or they can opt in. The expansion of AE will see all
those participating get an employer contribution from their first
pound of earnings, and that will help to improve the incentive to
save for those who are in lower-paid or part-time work, including
carers.
Finally, to touch on consultation, which was raised by the noble
Lord, Lord Davies, and others, the use of the Bill’s powers would
be subject to a statutory consultation requirement and the
affirmative procedure in both Houses to gain consensus on the
implementation approach and timetable, so that the measures can
be introduced in a way that is affordable for all parties, as
mentioned earlier. This is a crucial point. While we are all
rightly keen to build on the success of AE—and many Peers call
for more and faster change, hence the questions on timing—the
approach needs fully to take account of the impact of these
measures on employers, workers and the Exchequer in a way that
makes the changes both beneficial and affordable for all. To
clarify, we intend to consult in the autumn with employers,
payroll and delivery partners throughout the supply chain to get
the implementation approach and timetable right before changes
are introduced.
I again thank my noble friend Lady Altmann for taking the Bill
through and for helping more people gain the benefits of
retirement saving. I judge from the mood in the House that it
shares my view of the importance of the Bill and the positive and
sensible way in which it would allow for the future expansion of
automatic enrolment, which I believe is an ambition we all
share.
1.14pm
(Con)
My Lords, I am grateful to all noble Lords and to my noble friend
for their contributions to this excellent debate. I have just a
few brief words.
The noble Baroness, Lady Drake, expressed her concerns about
younger workers perhaps being off-payroll. She is right in the
warnings that she has put on record, and about the issue of the
national minimum wage for a part-time female worker, for example,
who might still be excluded because of the £10,000 trigger.
Indeed, the issue of small pots will grow as a result of these
measures. I know the Government will look at ways to solve that.
I urge my noble friend to proceed with the measures currently
under consideration and the consultation.
The noble Lord, Lord Davies, is absolutely right to raise the
issue of the gender pensions gap, which I think all noble Lords
who have spoken will have concerns about. He is right that more
women being on low pay means that fewer women will have as good
pensions as men, but I hope he might be persuaded that the fact
that we will be taking earnings contributions from pound zero
will make a difference. It might be a small one, but it will make
a difference in the right direction to the gender pensions gap.
As I said, someone on £10,000 per year, who is more likely to be
a woman than a man, will suddenly have £800 going into their
pension instead of £300. That will help to build a better amount
over the long term, but he is clearly right that more can and
should be done.
The noble Lord, , is right that there is more to
do on auto-enrolment, but I appreciate the welcome for these
measures. I also welcome him to our merry band of pension Peers.
As he pointed out, it is always the same individuals across the
House.
The noble Baroness, Lady Sherlock, is right to celebrate the
success of auto-enrolment. She asked about the opt-out rate. As
far as I am aware, the DWP published some research in August 2022
which suggested that there was a slight uptick in the
auto-enrolment opt-out rate for newly enrolled workers, rising to
10.4% from 7.6% in January 2020. In contrast, for the workers who
stopped contributing once they were in, there was actually a
reduction to 3.1% in August 2022, down from the figure of about
5% that she mentioned. As a previous Pensions Minister, , has written, the auto-enrolment
programme so far seems to be remarkably robust, but we clearly
had not had the worst of the cost of living crisis in 2022. This
needs to be monitored, but I am pleased that the DWP is doing
that.
My noble friend the Minister is right to say that the Secretary
of State can review the trigger each year. Therefore, there is a
potential for those earning below £10,000 a year to also be
included at some point.
I thank all noble Lords who have spoken today.
Bill read a second time and committed to a Committee of the Whole
House.
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