Commons debate on Social Security regulations - Feb 4

I beg to move,

 

That the draft Guaranteed Minimum Pensions Increase Order 2019, which was laid before this House on 16 January, be approved.

With this, it will be convenient to discuss the following motion:

 

That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2019, which was laid before this House on 16 January, be approved.

Thank you, Mr Speaker—what an introduction. I will not take the departure personally. With your permission, I will address both the orders at the same time.

 

The reality is that automatic enrolment is one of this country’s biggest and quietest success stories. It is a cross-party success story that has reformed private pension saving, with nearly 10 million people now signed up to a private pension. Our thanks are due to the 1.4 million employers up and down the country that have supported automatic enrolment.

I am very pleased by the development of automatic enrolment in East Renfrewshire, but while the Minister is at the Dispatch Box, will he take the opportunity to update me on the progress in relation to collective defined-contribution schemes?

The good news is that approximately 5,000 jobholders in East Renfrewshire are now benefiting from a workplace private pension, and our thanks are due to the 1,270-plus employers in my hon. Friend’s constituency.

 

On collective defined-contribution schemes—I know the hon. Member for Birmingham, Erdington (Jack Dromey), who speaks for the Opposition, is very passionate about them as well—I can confirm that, following the closure of the Government consultation on CDCs last week, the Government intend to proceed with CDC legislation, subject of course to the formal response to that consultation. It is right that I recognise on the Floor of the House the fantastic work my hon. Friend has done in bringing forward a ten-minute rule motion and then a private Member’s Bill to prompt and trigger the consideration of CDCs. This will play a massive part for the Royal Mail postmen and women who work in all weathers—I know there is interesting weather in East Renfrewshire—to support local businesses and the local economy.

 

The guaranteed minimum pensions increase order is a technical matter that is debated by this House on an annual basis. It provides for defined-benefit occupational pension schemes that are contracted out to increase members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.4%, in line with the increase in the consumer prices index to the previous September.

 

The automatic enrolment order reflects the conclusions of this year’s annual review of the automatic enrolment earnings thresholds, as required by the Pensions Act 2008. In conducting the review, the Secretary of State has considered both the automatic enrolment earnings trigger, which determines the point when someone becomes eligible to be automatically enrolled into a qualifying workplace pension, and the qualifying earnings band, which determines those earnings on which the enrolled employee and their employer have to pay a proportion into a workplace pension.

The Minister will know that the upper threshold is linked to the higher rate threshold for income tax. Will he explain to the House why the Government are prioritising this £1.3 billion tax cut for higher earners over reversing cuts to universal credit or ending the benefits freeze a year early?

The hon. Lady will understand that the trigger and the earnings limit are in line with national insurance figures. The level was £6,032 in 2018-19, which has gone up to £6,136. The upper limit was £46,350, which has gone up to £50,000. There will be more people saving by way of automatic enrolment by reason of these changes, and those enhanced by this will be numbered in the tens of thousands.

 

With respect, automatic enrolment is supported on a cross-party basis. It is a successful policy, with 10 million people in various constituencies up and down the country now benefiting from it. In February last year, the last group of smallest employers took on their duty to enrol all staff, and we now have 1.4 million employers. In April this year, we go to 8%, and individuals and employers will therefore be saving a substantial amount. The crucial statistic is that only 9% of individuals have opted out of, or ceased to have, an automatically enrolled pension on an ongoing basis.

I welcome the order. In considering the earnings trigger staying at £10,000—I note that that brings about another 40,000 people in, with an inflationary reduction—did the Minister think about the auto-enrolment review and the various recommendations that the trigger should be reduced to the lower earnings threshold, or should at least be extended so that someone could add up all their jobs to determine whether they qualified over that trigger? Is he tempted to make a change down to £6,000 or to a cumulative total, or is he thinking that next year, when we do not have to do the escalation, would perhaps be a better time to do that?

My hon. Friend asks his customary astute question, with his deep knowledge of this issue. The reality of the Government’s approach is that we wish to address the increase to 8%, get to April 2019, address the degree of opt-outs that follow from the increase to 8% and, at that stage, consider where we are. We have already had the 2017 automatic enrolment review, which agrees that the limit will go down to the first pound, and that we will go down from 22 to 18 in terms of the working population. The key point is that we should get to 8%; we should get this country up to a situation where we have ever larger numbers of people being not only part of automatic enrolment, but in a situation where they are up to 8%. That is possibly not the entirety of where we should be going, but, without a shadow of a doubt, it is a massive step forward.

If I may follow the hon. Member for Amber Valley (Nigel Mills), who is a member of the Work and Pensions Committee, the Government clearly should be worried about people opting out when there are big changes. However, would the Minister and his Department argue to his colleagues from the Treasury, who are sitting just by him, that we could more profitably use some of the huge subsidies that go to higher rate taxpayers for their pensions to pay the contributions of those who are low paid?

I am in absolutely no doubt that my esteemed colleagues from the Treasury will be taking due note of the right hon. Gentleman’s advice and recommendations on pension tax relief, as he is the Chair of the Work and Pensions Committee. [Interruption.] They have encyclopaedic memories; they do not necessarily need to write particular words down, and they also have the benefit of Hansard. However, I am sure that the Chair of the Select Committee would agree that the primary purpose of auto-enrolment is to get to 8% and then to gain a proper understanding of where we are at that stage. There is a perfectly legitimate debate to be had across the House, on what is a cross-party policy formulated over 10 years, about where we then go in terms of employer contribution, employee contributions, the rates that one must go to and the tax relief that applies. That, I would suggest, is for another day. In those circumstances, I commend the orders to the House.

First, in relation to the Guaranteed Minimum Pensions Increase Order 2019, we note it. Secondly, in relation to the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2019, I would like to speak to it briefly.

 

I am the first to accept that, as the Minister has said, there has been cross-party support over the past 10 years for auto-enrolment, but he will forgive me a commercial for the last Labour Government. It was the last Labour Government who commissioned the 2006 Adair Turner review—I actually chaired some of the policy discussions that led to that decision. The review produced an excellent report, and I was one of those who was pleased indeed that our Government acted on it. However, the success of auto-enrolment subsequently could not have been achieved had it not been for the cross-party approach to which the Minister referred.

 

There is no question but that auto-enrolment has led to a significantly better workplace pensions landscape, with an additional 10 million workers estimated to be newly saving or saving more as a result of auto-enrolment into master trusts. That has led now to almost £20 billion of pension saving, mostly by low-income workers. The Opposition also welcomed the moves by the Government to reduce the age of eligibility, which was an important step in the right direction.

 

However, for all the immense benefits attached to auto-enrolment, it is not a perfect system, and there are many issues that need to be acted on at the next stage if we are to make the pensions landscape better. First, the threshold at which workers are automatically enrolled is too high. According to the latest figures from the Department for Work and Pensions, 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment.

 

Secondly, auto-enrolment does not cover the self-employed or workers in the gig economy. It is welcome that the Government are now taking steps in relation to pilot projects to seek to identify the problems and overcome them. It is particularly welcome that, as part of that, they are including at least one or maybe two joint initiatives with trade unions representing workers in sectors where there are large numbers of self-employed.

 

Thirdly, 8% cannot be the summit of our ambitions—of that there is no doubt. Labour commenced down this path when in government, and this Government have done things subsequently, so of course we have moved step by step. The Minister was right to say that, as we reach 8%, we need to take stock of where we go from there. We will need to build on that at the next stages, and, commensurate with getting the balance right, we will need, dare I say it, more of an emphasis on employer contribution, although employee contributions will of course continue to be crucial as well.

 

I have just one final point. I was grateful that the hon. Member for East Renfrewshire (Paul Masterton) raised the matter of CDC. A wider point in relation to auto-enrolment is that it has been a positive move towards many more workers saving. We have always said that we do not want, in any way, to threaten good DB schemes, and we always defend good DB schemes first and foremost, but I am afraid that the direction of travel on that has been depressing in recent years. If one falls back on a defined contribution arrangement, however, the problem is, all too often, the inadequacy of such arrangements. The hon. Gentleman was therefore right that the agreement reached by Royal Mail and the Communication Workers Union was a significant breakthrough. I pay tribute to them, because it is a groundbreaking agreement, which covers in excess of 140,000 workers.

 

I also welcome the Government’s preparedness, having consulted, to legislate. The Opposition will certainly work with the Government—on other issues, we may have differences, but on this we will work with them—to give effect to this groundbreaking agreement as soon as possible. That is not least because it will offer significantly better savings and a significantly better standard of living in retirement than would be the case if the workers concerned fell back on simple DC schemes. That, for us, is a particular landmark. I confirm that the Opposition stand ready, whenever the Government are ready, to bring forward the necessary legislation in this House. Some 143,000 workers will benefit, so the sooner we can introduce the legislation, the better.

I am grateful for the opportunity to speak briefly in this debate. I concur with the hon. Members for Birmingham, Erdington (Jack Dromey) and for East Renfrewshire (Paul Masterton), as well as the Minister, in what I am sure will be a largely consensual debate. The SNP will not oppose these statutory instruments this evening, but it is right that I outline some areas where we still have concerns.

 

First, with regard to the guaranteed minimum pensions increase order, we should acknowledge the context. The UK state pension is one of the most miserly in Europe. We lag far behind other European countries in the cash amount paid and the pension to earnings ratio. When we consider that alongside the proposed cuts to pension credit, the scandal of the state pension age increase for 1950s women, and the public sector workers who have been ripped off to the tune of £4 billion, we can see that the UK Government have been letting our pensioners down.

 

The GMP was supposed to provide a minimum weekly pension roughly equivalent to the amount of additional state pension that would have accrued if they had not been contracted out. The scheme operated until 1997, and although rights do not continue to accrue, they continue to be protected either by the general level of prices or 3%, whichever is less. However, the changes to the state pension mean that the rights accrued between 1978 and 1988 are not protected or subject to this statutory instrument. That is worth bearing in mind. Many pensioners will be getting much less than was anticipated when the scheme was operational. People who were contracted out were not made aware or did not understand what the implications could be long term, and were given the impression that their retirement income was protected at comparable levels. I would be interested to hear what the Minister is doing to ensure that people are properly advised of potential pension changes and that the pension entitlements accrued by workers are better protected in future, with particular regard to the Women Against State Pension Inequality Campaign—the WASPI women—I am sure.

 

The SI also highlights why it is so important that the UK Government speed up the pension dashboard process. Having one simple dashboard would make it much easier for people to know exactly what their anticipated retirement income should be. Right now, about 47% of UK adults do not know what is in their pension pot. A dashboard would provide that knowledge. One person in five has said they would be more likely to save if they had more information about their pension savings. When people are better able to plan for retirement, that saves the Exchequer. Once again, I suggest that an independent pensions commission would help to ensure that the complexity and vastness of pensions policy could be effectively studied and improved. I hope the Government will finally consider such a commission.

 

I turn briefly to auto-enrolment. We welcomed auto-enrolment and the Minister described it as a success story. I will explain briefly how he could make it even more so. What we are talking about this evening is the earnings trigger at which auto-enrolment comes into effect. This band sets a minimum contribution level for money purchasing pension schemes. The minimum of the band is also relevant for defining who can opt in if they earn under the earnings trigger. We had hoped the UK Government might have looked at expanding the workforce who would be eligible under auto-enrolment. Considering historical gender pay gaps in lower-paying industries and the fact that women are more likely to take career breaks to care for children, women have always had lower pension savings even though they need bigger pots due to longer life expectancy.

 

We also know that a large number of those falling below the income threshold will be women. It is therefore disappointing that the Government have not brought forward their welcome proposal to lower the threshold to £6,136, which under current plans will not come into force for some years. It is also disappointing that inclusion of 18-year-olds under auto-enrolment is also not expected for many years.

 

Finally, I would appreciate the Minister’s guidance on why these two SIs were not consulted on ahead of being presented this evening.

The pensions system is overly complex. People no longer work in one job for life; they have multiple jobs over a career. Keeping on top of lots of different pension schemes over a number of decades makes it incredibly difficult to plan for the future. Some people find it very difficult to make savings due to other financial pressures—indeed, before I came to this place my pension contribution was minimal as a huge chunk of my income went instead on paying nursery fees. I am sure that many younger women will have found the same. We are storing up problems for the future.

 

As my hon. Friend the Member for Airdrie and Shotts (Neil Gray) said, the Scottish National party has long argued for an independent pension commission, because this issue is too important to be kicked around by Governments of different political persuasions. People need to be able to make plans and future Governments need to be ready for the challenges that an ageing population will bring.

 

This Government have acknowledged the complexity of the pensions system, but they have not really done enough about it so far. Many of my constituents have contacted me as part of the campaign to show their support for a Government-funded pension dashboard, but the Government are still dragging their heels. The Department for Work and Pensions has indicated that it would prefer for the project to be led by industry, but there are many reasons why that is problematic. It would lead to a patchy system that would not encompass everything. If the Government do not step up and supply data from the Treasury on state pensions and non-contributory public sector pensions, that effectively renders the project useless.

 

The public’s relationship with the Government relies on a series of contracts. When people trust Government bodies such as Her Majesty’s Revenue and Customs to give them accurate information about the tax that they owe and then in good faith pay that amount, they do not then expect there to be all kinds of hoops to jump through to access their state pension. Stay-at-home mums, for example, need to be aware that they have to be registered for child benefit to clock up credits towards their state pension record. That is not well enough understood. The Government need to take extra steps to ensure people understand what their entitlement rests on.

 

People expect—this is not unreasonable—that a competent Government will inform them of their obligations and allow them to effectively plan for the future. You only have to ask one of the 3,400 WASPI women in my constituency how devastating it is to find out, and not because the Government have made any special effort to tell them, that retirement will come much later than planned. Rosemary Dickson, a leading light in the WASPI campaign in the west of Scotland, has been out on the streets. That will continue with a demo on 23 February to let people know, because too many women still do not know about it. There have not been 3,400 women at my constituency surgery to complain about it. The UK Government at the time waited 14 years before beginning to tell women that their retirement would be postponed. Women have been let down across the board by successive Governments in this place and that needs to stop now.

 

The WASPI women cannot retire when planned and they cannot spend time with their grandchildren as they planned. Many now struggle to make ends meet. The impact of this policy is already bearing out in labour market figures. According to the annual survey of hours and earnings, the gender pay gap for over-60s has increased by nearly 3% in just one year. The gender pension gap is nearly 40% in Scotland. The system is clearly failing women. If the Government are not willing to act to close the gap, they should devolve the powers and let the Scottish Government do it for them.

 

I am sure there will be those on the Government Benches who would say that the gender pension gap does not really matter, because it is the overall household income that counts. However, there are many reasons that a woman may not want to rely wholly on her partner for financial support. Relationships can and do break down, and it is most often women who are left worse off when they do. There is also a failure to recognise that many more women will be in same-sex relationships and may be doubly losing out as a result. They are reliant not on a man’s income, but on two female incomes in the household. That needs to be recognised, too.

 

Auto-enrolment has increased the number of people saving for retirement, but the policy needs some work to be more inclusive of those who need it most. With the trigger frozen at £10,000, those earning below that threshold—again, mainly women working part time—are missing out on auto-enrolment. The scheme is of even less use to those women working in insecure employment, such as zero-hours contracts, who do not have consistent earnings and perhaps have additional pressures relating to childcare.

 

Worse still, there is an incentive for employers to suppress wages to avoid contributing to these schemes. The figures show that 43% of self-employed people do not have a pension and that there are 4.8 million self-employed people in the UK. More work needs to be done to reach out to those self-employed people and to make sure that they do not store up problems for the future, too.

 

According to the UK Women’s Budget Group, auto-enrolment perpetuates the gender gap in pensions. As with all private pensions, it makes no allowances for the disproportionate caring responsibilities that many women still have. Pension inequality is not a new problem, nor is it going away any time soon. I would like to hear more from the Government about how they are going to have a serious, targeted strategy to address that, particularly for women.

 

Question put and agreed to.

 

Resolved,

 

That the draft Guaranteed Minimum Pensions Increase Order 2019, which was laid before this House on 16 January, be approved.

 

Social Security

 

Resolved,

 

That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2019, which was laid before this House on 16 January, be approved.—(Guy Opperman.)