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Pensions Auto-enrolment

Volume 636: debated on Wednesday 28 February 2018

I beg to move,

That this House has considered pensions auto-enrolment.

It is a great pleasure to have secured this debate under your chairmanship, Mr Davies. Introducing auto-enrolment in the UK was a huge landmark, as is this debate—it is the first since the measure was introduced in legislation and since the Government review. Auto-enrolment was introduced as part of a package of policies designed to foster a saving culture and a new generation of savers whose long-term financial needs are prioritised as much as their short-term ones. It is an example of fiscally responsible policy, and paves the way to a better tomorrow by giving people greater financial security and independence in their retirement.

It is apt that we are having this debate. Just over a week ago we hit the milestone figure of 1 million employers engaged with the policy. The effect can be seen across the country including in my constituency, where 1,030 employers have introduced auto-enrolment schemes, which means that 9,000 people in Chippenham are benefiting.

To appreciate that success, it is important to consider the context. Saving for retirement has traditionally been seen as something we put off, and it was put off. In addition, it has always had connotations of being difficult, complicated and expensive to organise, especially given that a large proportion of employers did not offer a scheme. Traditionally, there have been low levels of engagement with pensions. People have relied on the state pension and, if need be, pension benefits. Given our ageing and expanding population, that is no longer tenable. Auto-enrolment helps to make the system more sustainable by, in effect, supplementing welfare payments with private provision.

Many have traditionally seen the state pension as a universal scheme that will be enough but, as I have seen in my constituency, the introduction of auto-enrolment has started to shift that mindset dramatically. The Association of British Insurers summed it up well:

“Engaging people to save adequately for their retirement is one of the biggest public challenges we face.”

The ABI believes that auto-enrolment is the best means to ensure people save adequately for their retirement. It is estimated that, by 2019-20, an extra £20 billion a year will be saved into workplace pensions as a direct result of auto-enrolment.

There are many reasons why the roll-out is proving successful. Perhaps most importantly, it is simple and is basically done for the employee. In addition, the employer contributions are a strong incentive. The rate of employer and employee contributions is going up in increments, which helps businesses to prepare and ensures that employees get into the mindset of saving for pensions. It will go up to 8% in 2019, but it is crucial that we do not leave it there. We need to ensure that pensions provide enough money for retirement and that they are fit for purpose.

The Pensions Policy Institute conducted an international comparison of auto-enrolment schemes and found that our employment contributions lag far behind those of our European partners. As higher statutory minimum contributions are phased in over 2018-19, employees will find themselves bearing more of the burden than their employers, which could drive opt-outs. The art is getting the balance right between employee and employer contributions and getting the rates right to ensure that saving does not damage business.

Being an opt-out scheme has helped auto-enrolment to be successful, and the opt-out rates have been lower than expected. The Department for Work and Pensions modelling assumed a 25% opt-out rate, but in 2017 it was just 9%. Some 23% more of the working population now participate in a pension than in 2012.

Traditionally, it has been hard to engage young people with pensions, as they tend to prioritise their disposable income over a pension in 50-plus years’ time. That means that they either never opt in or opt in later, which does not give them the time to accrue a decent pension. I am pleased to say that, since the introduction of automatic enrolment, the group that has had the largest increase in participation is young people—44% of those aged 22 to 29 now participate. We have also traditionally struggled to engage women, but since the introduction of automatic enrolment, participation rates have been catching up. Only 40% of eligible women participated in 2012, but by 2016 the number was 73%.

One concern about automatic enrolment was how the small business community would respond. However, it has not only coped with the policy, but embraced it. It is important that we thank it for its contribution. The Confederation of British Industry stated:

“Automatic enrolment is a successful policy built on sound principles—employer support is key to this”.

The main concern was about the perceived bureaucracy and the time it takes to administer the system, but 2017 Government-commissioned qualitative research found that most small and micro employers thought that the cost and time burden involved was lower than they anticipated.

On outcomes versus expectations, one of the key points in the Government’s review, published last December, was that the proposal would increase median earners’ private pension provision by more than 40% and lower earners’ provision by more than 80%. The review stated that reducing the auto-enrolment to 18 is essential to ensure that we foster a generation of savers, and will bring a further 900,00 people into pension saving. Scrapping the £5,876 lower earnings limit so that every pound of earnings is pensionable means that someone with a career-average salary of £27,000 will build up an extra £50,000 over 40 years of pension saving. The review also seeks to increase engagement to reach all, partly by building a sense of personal ownerships of pensions through initiatives such as the pension dashboard.

The review considered what to do about the self-employed pension problem. The self-employed are currently not eligible for auto-enrolment, yet the number of self-employed people in the UK is rising—in fact, it rose by 730,000 between 2008 and 2015 alone. That increase is combined with a decline in the number of self-employed people opting into pension schemes to only 19%. It is predicted that, within 20 years, a third of the employment market could be self-employed, meaning that nearly a third of the employment market could be without a pension, which is the opposite of the vision for auto-enrolment. I have developed a reputation for banging on about this over the years I have been in the House, and I have pitched an auto-enrolment scheme for the self-employed to the current and previous Chancellors. I was delighted that the 2017 manifesto contained a commitment to make auto-enrolment available to the self-employed, but I noted the valid concerns raised in the Government review, and will shortly set out my own ideas about how it can be implemented effectively.

The Government review outlined a number of pilot projects to address the problem, but today I want to focus on creating a new system. I am not alone in calling for that. In fact, the Pensions and Lifetime Savings Association has called for it to be considered, and the Taylor review stated that the Government should treat the self-employed like any other section of the labour market. That is hard to achieve without rolling out a self-employed scheme for auto-enrolment.

Creating auto-enrolment for the self-employed is not simple. The obvious problem is that there is no employer to pay the contributions, but there are no international examples and the self-employed market is diverse. However, the policy could be administered along the lines of auto-enrolment qualifications. A recent report by the Pension Policy Institute estimates that 38% of the self-employed would be eligible for auto-enrolment if they were employed. In addition, the income of the self-employed is often much more volatile, which discourages people from committing to standard pension provisions.

I want briefly to share my analysis of the four options reviewed by Aviva and Royal London. The first option was published in Royal London’s paper, “Britain’s ‘Forgotten Army’”. The option is to increase the rate of class 4 national insurance contributions by 3% for pension contributions, plus a matching pension contribution from profits. This would put all the outlay on the self-employed, offers little incentive and could appear to be a tax rise.

Under the second proposal, the Government acts as the employer by equally matching self-employed payments at 4%. Although that offers the incentive, it would be very costly and there would be no room to increase payment contributions from the self-employed unless the Government follows, which limits the long-term scope of the policy.

The third proposal is an opt-in tick box on tax returns for pension provisions, perhaps with a 1% Government contribution. It is an easy option and offers a 1% incentive, but relies on an opt-in. Many self-employed would just match the 1%, making it unfit for purpose. There was a proposal to extend lifetime individual savings accounts, but I do not believe that they could address the problem in full. The report prefers some form of default pension option as part of the annual tax return.

The Government review suggested the possibility of introducing a behavioural prompt in the accounting process. The concept has merits, which my plan builds on. I believe that linking a system to self-assessment is the best approach and would be simple—simplicity was one of the key reasons for the success of auto-enrolment. Auto-enrolment has shown us the power of the opt-out. There needs to be an incentive for the self-employed. All the research shows that their pension-saving mentality is very different, because incomes are more volatile. That was highlighted by the disparity before auto-enrolment was introduced. The self-employed need a compelling reason to commit to and prioritise pension contributions.

It is undeniable that the auto-enrolment opt-out rates are so low because the employer contribution acts as an incentive. However, I take on board the 1% drive to the bottom. We should offer a Government contribution of 1% for the self-employed who invest 3%, and 2% to those investing 5%. The rates at which the Government contributions kick in could be increased as we develop a pension saving psyche, but the Government and employee contributions would not be intrinsically linked. It would be cheaper than the 4% concept and would offer an incentive for higher savers.

A common argument used against the Government acting as the employer is that it would represent a substantial transfer of tax from the employed to the self-employed, which could be seen as unfair. To address this concern, first, I have benched this lower than the employee system will be in 2019. Secondly, our entire system is based on redistribution and acts as a giant insurance scheme, so that transfer exists in thousands of other ways. Thirdly, in the long run it will cost the state less, because otherwise a massive cohort of the population will be reliant on the state pension provision. Fourthly, we are currently in danger of the opposite. Martin Palmer of Zurich stated:

“We are creating a rapidly growing new divide between those who are employed, with access to auto-enrolment, and the self-employed. We need to ensure nobody is excluded from the chance to build up a nest egg simply because they don’t work…nine to five.”

I do not believe that a default nudge is the same thing as an auto-enrolment system, nor will it be as successful. I urge the Minister not to discount auto-enrolment for the self-employed, and to commission a detailed review into options that include the Government as the employer. In reference to the employer-employee relationship, the Taylor review stated:

“The Government could look to establish a similar principle for the self-employed”,

yet the 2017 Government review dismissed that option without even costing it.

In conclusion, automatic enrolment has reversed the decline in workplace pension saving. Total annual contributions are at their highest for a decade. Around 10 million people will be newly saving or saving more by 2018. The policy is proving successful, but the review has highlighted that there is room for improvement. I am pleased that the Government are making progress. To create a truly sustainable, long-term solution for pensions, we must ensure that we have a system that works for the self-employed, given that one in seven self-employed people in the UK are saving into a pension, versus three-quarters of employees, and the number of self-employed is rising at such a considerable rate.

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Chippenham (Michelle Donelan) on securing this important debate. I will not waste my precious five minutes by recounting the triumphant statistics on how successful auto-enrolment has been, but about 1,250 businesses in Amber Valley have been enrolled and about 13,000 of my constituents now have access to a workplace pension for the first time, which is a very important achievement.

It is important to look at where we can go in future. I have been through the important work of the auto-enrolment review. There are so many great ideas in there. My only slight frustration is that it will take so long to bring them all into force. I accept that we have not even finished the roll-out, we have not done the escalation and there is not much time in Parliament, but some of the ideas are important. Perhaps the mid-2020s is a little later than we could achieve them by.

We need to find a fix for people who have multiple jobs but are earning under £10,000 in each of them, so are not enrolled by any of their employments. There probably are not that many people with two jobs that sit perfectly under that, but bearing in mind that we have a tax coding system—we tell employers every year, via Her Majesty’s Revenue and Customs, how much personal allowance they can give each employee and how much tax to take off—it does not strike me as beyond the wit of man to put on that coding notice how much pension contribution they ought to pay. Not much data would be given away. We could just say that a person has sufficient income elsewhere, so the employer should enrol them and pay a full contribution. I hope that can be looked at.

I agree with my hon. Friend that we need to find a system for the self-employed, although I am not sure that we can force it into auto-enrolment, because the whole idea of inertia will not work. I am a little more cautious than her, because I am not sure how we could square having a much lower national insurance rate for the self-employed with giving them a pension contribution in excess of what we give people who are employed and earning the same income. That may be a step too far.

I tend towards a default from the tax system. If the Government move forward with making tax digital and requiring quarterly returns, that may take out some of the big annual bills to pay if there is just a default on the annual returns. Perhaps the way forward is having a default quarterly system where the self-employed could be encouraged to take a pension contribution of the right percentage. I am not sure how we fix choosing them a pension scheme. I suspect that, if we did that, we would have to choose NEST as the default option. The Government should be a bit cautious about defaulting people into an individual scheme. If that scheme goes wrong, they will get the blame for returns not being right.

Even if we get to the 8% that we are due to get to in a couple of years without seeing opt-out rates go far higher, that will still not be enough pension saving for most of those people to have the savings that they need for their retirement. We will have to do more to encourage people to put more into those pension schemes. The trick to that has to be greater engagement. I hope the Government will take forward the dashboard as a key part of that, so that people can understand what they have in pension saving across myriad pots.

We need clear and consistently applied savings targets so that people know how much they should have saved by the time they reach 35, 40 or 45, and understand how much they have saved for their pension, what that means and how much more they ought to save. That is the missing link. I get my annual pension statement and I have no idea whether it is good. It sounds great that I have a few thousand pounds—that sounds like a great asset—but what does it really mean in pension terms? How much more do I need? How much do my peers have? A system with clear guidance about how much people should save and what that really means would boost pensions engagement.

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Chippenham (Michelle Donelan) on securing this debate and commend her for the brilliant way she outlined some of the issues we need to think about. I commend in particular her dissection of the challenges of self-employment and the options we have for creatively addressing the lack of provision by the self-employed for their retirement incomes.

It is not often in this place that we get to debate policies we can genuinely describe as having been well executed and successful, and it is even rarer that we do so about a policy that both the Labour party and the Conservative party can claim credit for, having initiated and overseen it—the policy has been around since at least 2008, when it was first implemented. I would go further and describe auto-enrolment as transformational. It has profoundly positive effects for our society, and it was achieved with remarkably little opposition from employers or employees. We have seen a collaborative approach involving Government agencies, business, the Pensions Regulator and others. The strong sense that auto-enrolment is the responsible and right thing to do in the face of the overarching challenge of declining employer-provided pensions is one of the great strengths underpinning its success.

Auto-enrolment’s success has received remarkably little attention in the mainstream press compared with the coverage of the various strikes and protests in recent years in response to the changes we have tried to introduce to make public sector pensions more sustainable. The successes of auto-enrolment have, by and large, passed under the radars of those not immediately affected by it, but as I said, it ultimately benefits the whole of society. I will highlight a couple of points that I would like the Minister to touch on. My hon. Friend the Member for Chippenham covered the self-employed far better than I would, so I will not cover it.

Behind the success of auto-enrolment is a great recognition of people’s central behavioural trait of spending far too little time thinking about their retirement income and even less time taking positive decisions to make provision for it. By coming up with a system that automatically enrols people and puts the onus on the employee actively to opt out, we successfully increased the number of people benefiting from pensions. The system relies on inertia—passive decision making by millions of people. However, we have introduced other pension changes that will require those very same people, when they reach retirement age, to take a close interest in a complex menu of retirement options, and the last thing that we need them to be at that point in their lives is passive decision makers. That is a concern. We do not want people to take decisions that ruin the retirement income they spent decades building up.

My right hon. Friend makes a crystal clear point about the tipping point that we will all reach at a certain stage of our lives. Does he agree that a pensions dashboard that provides greater transparency and access, and a mid-life MOT whenever we judge our mid-life is—between our 45th birthday and our 50th birthday is the optimum time for that reassessment to take place—will address the point he rightly makes?

I agree with everything my hon. Friend says. Pension freedoms are great, but we want people to be well informed and educated about the consequences of the choices that will be available to them, particularly when it comes to drawing down large cash lump sums from their retirement pots.

Low opt-out rates are part of the success story of auto-enrolment, but let us not be complacent about them. So far, contribution rates have been very low. Those rates will go up this April and again in April 2019. Despite all the positive effects of increasing the minimum wage and raising the personal allowance threshold for income tax, there will be people on lower incomes who feel a financial pinch in their take-home pay, and opt-out rates may increase as a result. I encourage the Minister to monitor what goes on in response to the increase in contribution rates and to be ready to reinforce the strong positive messaging about the importance of employers and employees sticking with their pension arrangements so that they do not see that increase as a reason to get energised and look at actively opting out of the system.

My hon. Friend the Member for Chippenham mentioned young people. I strongly welcome the Government’s indication that they will look to lower the minimum age threshold to 18, but why 18? If 16 and 17-year-olds are working and earning £10,000 or more, why should they not also be captured by auto-enrolment and benefit from it? No 16, 17 or 18-year-old should leave school without basic education in what auto-enrolment is all about and without being equipped to make good decisions.

As an ex-careers adviser, I certainly share those concerns. Education is vital. The right hon. Gentleman talks about a tipping point. If education were given at an earlier stage, people would make more effective and informed decisions at that tipping point, which is a key transition. Too many people see a pension as an unaffordable luxury. Education would help.

The hon. Gentleman makes an extremely important point very well.

Let me make one further point before I conclude and allow other hon. Members to speak. My hon. Friend the Member for Chippenham appeared to indicate that she supports rates increasing above those that have been set out for April 2019. I absolutely agree: both employees and employers will need to make even greater contributions. It is easy to talk about that in this place, but it is much more difficult to get it across to the businesses and individuals affected, so I would be interested to hear what the Minister has to say about that. He is a brilliant Pensions Minister. I heard him speak in another part of the Palace earlier, and he has an incredibly strong grasp of the detail, which is exactly what we need from Ministers as we get to grips with the challenges of auto-enrolment.

I am grateful for the opportunity to speak, Mr Davies. I am most grateful to my hon. Friend the Member for Chippenham (Michelle Donelan) for calling this debate. Too often, we come to the Chamber to have a good moan about things, but I sincerely hope that we have cross-party agreement today. Auto-enrolment should be warmly praised on both sides of the House, because it has been a great success. Some 19 million people are now enrolled in qualifying workplace pensions, 9 million of whom came through auto-enrolment. That means that we have increased by a quarter the percentage of the population who are in qualifying schemes. That is a success on any terms.

In addition to the policy being a success, its execution has been a success. My right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) was too modest to refer to his role in that, but a succession of Secretaries of State, both Conservative and Labour, oversaw the successful introduction of a good policy. For 1 million employers to be part of the scheme—including, I am proud to say, 1,860 in my constituency—and for opt-out rates to be as low as they are is a success.

I will dwell on that success for just a second longer while I talk about the long-term implications of what we have done. It is estimated that by 2019-20 an extra £20 billion a year will be being saved in pensions, which will ensure that people have a more comfortable retirement than would otherwise have been the case. There is more success in the small print: the biggest increase in participation has been among those on lower incomes and those working for smaller employers.

Unfortunately, as we are all aware, that is not the end of the story. We have had such positive buy-in from employers that, like other Members, I am nervous about the increase in the contribution rate to 3% in April 2019, but that is clearly a risk we have to take. If we cannot take that risk and push that envelope at a time when we have record rates of employment, there will never be a time for it. Even from there, as has been alluded to by my hon. Friend the Member for Chippenham and by my right hon. Friend the Member for Preseli Pembrokeshire, a savings rate of 8% will still leave 12 million individuals undersaving for their retirement.

We all know the huge power of inertia. There is a real risk that if people are told that is what they have got to save, they believe that is what they need to save, but we in this House know that that is not the case. The evidence from Australia and elsewhere is that higher rates will be required. I welcome the scheduled review of contribution rates. It may be difficult and painful, but it is necessary. I also welcome some of the other proposed reforms over the next few years that have been alluded to, such as lowering the relevant age from 22 to 18, bringing an extra 900,000 workers into the scheme, and removing the lower earnings limit, which will add nearly £3 billion a year to benefit in particular lower earnings workers, those with a part-time job and those with a number of part-time jobs.

My hon. Friend the Member for Chippenham eloquently described the issues faced by the self-employed. I agree that a participation rate in that growing sector of 19% is far too low. That is rightly a matter of concern. She produced some interesting ideas, and I look forward to the ministerial response. She and I would agree that there needs to be a structure in place for the self-employed. Again, it comes back to default and inertia: as long as there is no structure in place, they will not feel a need to go in, participate and make the provision for retirements that they require.

Many good things are coming out of the review. Of course, I have extra questions to ask my hon. Friend the Minister. Has the Department made an estimate of the number of individuals with earnings below the trigger rate of £10,000 per annum who are opting into the scheme? That would be good to know, to work through whether the scheme can be usefully extended below that rate. Opt-out rates are particularly low, but less so for small and micro-employers. Is that a matter of concern for the Department? What is it doing to address that?

My hon. Friend the Member for Amber Valley (Nigel Mills) referred to the need to understand the position and what can be done about it. I would love to hear more from the Minister about the pensions dashboard, which he referred to in his intervention, which I want to see extended to cover not just pensions but more assets. I also want to hear more about the mid-life review. My hon. Friend the Minister is a mere spring chicken, so he may not be under any personal time pressure to implement a mid-life review, but an MOT, as recommended by John Cridland, would be an excellent way to help people, as the Minister said, understand where they stand.

Thank you, Mr Davies. I am pleased to speak in the debate, and I congratulate my hon. Friend the Member for Chippenham (Michelle Donelan) on securing it. We are here to debate one of the most successful savings policies in pensions history. As a result of auto-enrolment, more than 9 million additional people are saving for their retirement, including 5,000 in East Renfrewshire and more than 63,000 in Scotland as a whole. Four in five of today’s eligible workers are saving, and those benefiting the most are the lowest earners, those aged 20 to 29, and women. Opt-out rates still sit at under 10%.

There is wide consensus in both politics and the industry that the policy is working, and that holds true even for some groups who people feared would struggle with implementation, such as small businesses. Those businesses make up a large proportion of the 990 businesses in East Renfrewshire now complying with their auto-enrolment duties.

As others have said, the utilisation of inertia to build a savings culture with a new generation of savers is the key element of the policy. As the People’s Pension—a master trust serving just under 3 million savers in auto-enrolment—said when I met it a few months ago,

“the policy was developed following a variety of failed pension saving initiatives which lacked the necessary incentives to encourage low and moderate earners to save for retirement in practice.”

I am incredibly proud of the Government and this policy, which—I do not think this is overstating it—is a savings revolution that has become the envy of Governments across the globe.

DWP analysis shows that reforms could increase median weekly private pension income by up to £261 a week by 2070—hopefully even I will be retired then. If sustained, the reforms could significantly reduce the risk of pensioner poverty over the longer term, which in turn will reduce levels of dependency on the state.

So far, auto-enrolment has been rightly heralded as a great policy success. However, it is a fragile policy. The test of its robustness will come when savers’ and employers’ contributions begin to be raised to a meaningful level. The rates of required contributions are too low and even at the final rate of escalation they will still be too low. Such contributions are also often combined with investments in a default fund that is not regularly and properly scrutinised, leading to poor investment returns.

While Pension Wise is sensible Government policy, it is predicated on individuals becoming engaged investors as they get to their 50s, so it will not mitigate the risks for most people, who do not think about pensions until six months out from retirement age. Pension providers should be tasked to establish high-quality default products, with appropriate and aligned governance. The Financial Guidance and Claims Bill, working its way through the Commons, is a good piece of legislation that can help address that.

Like others, I was delighted by the Government’s announcement before Christmas of reforms to auto-enrolment to ensure that saving was from the first pound. The system with the lower earnings limit was basically just an administrative hassle, and in many cases it was ignored by employers. It will particularly help those with multiple jobs, and expand auto-enrolment to cover those over 18 and under 22. I agree that there seems to be no good reason not to look at 16 and 17-year-olds, particularly those who have left school and are working full-time, earning more than £10,000.

Bringing a new generation into an immediate culture of pensions saving is incredibly significant and will have long-term benefits for society as a whole. That is why the Government must not slow down the escalation timetable for contributions. Yes, workers and employers need time to adjust, and we need to strike a careful balance so we do not get a sudden increase in the opt-out rate, but the current timetable is suitable, sustainable and should be stuck to.

Key to the success of auto-enrolment is a new culture of pension saving through better and more creative financial education and engagement. Again, the Financial Guidance and Claims Bill does a good deal of work on that. Although I will save default guidance for another day, the Minister has my full support for the work he is doing on that, and particularly on the pensions dashboard —an exciting development that will be hugely useful for people however much they are earning and wherever they are working.

Moving forward, the Government need to link pension provision and the next auto-enrolment review with further consideration of the Taylor report. The definition of “worker” in auto-enrolment regulations is becoming increasingly ambiguous, with employment status uncertainty growing. That needs to be addressed to determine precisely who falls within the scope of auto-enrolment so that business and individuals have certainty. Since auto-enrolment was brought in, I spent a heck of a lot of time giving legal advice on that, and it was always an absolute nightmare. We need to do some work to tighten up who falls within and outside the scope of the auto-enrolment regime.

I will not touch on self-employment, because my hon. Friend the Member for Chippenham did a good job on that. I am interested to see what she has up her sleeve, and if she ever wants any assistance in “banging on about it”, as she said, I am more than happy to help.

In 1948, a 65-year-old could expect to spend 13.5 years in the retirement phase of life. They now can expect it to be 33.6% of their life. The UK must remain one of the best places in the world to grow old, and ensuring that people have a decent income in retirement must be at the heart of that. I commend the Government, and this Pensions Minister—who is well liked in the industry and who I hope remains in place for a long time—for their work to make that a reality for everyone.

We can all agree that auto-enrolment has been a positive development in helping to encourage people to save and prepare for their retirement. I have been sitting here and enjoying the unusual consensus. I thank the hon. Member for Chippenham (Michelle Donelan) for securing the debate; I agree with almost every point she made.

A good, clear pension plan is an important tool in tackling existing inequalities that need to be eradicated, with fairness at the heart of our system. If I may threaten the consensus for just a second, in all the talk about pensions and preparing for retirement, I am briefly reminded of the hardships that our WASPI women are going through. They thought they had a little security in retirement, but they found that was not the case. I know that is not the focus of the debate, but it is a reminder of the importance of pensions in people’s lives.

Auto-enrolment is to be welcomed, and everyone supports it, but a number of concerns, which hon. Members have touched on, need to be addressed. As the hon. Lady and others pointed out, progress in ensuring that self-employed people are included in auto-enrolment has been disappointing. The announcement of feasibility testing is positive, but it still risks leaving too many millions of workers behind. That matters because, as we have heard, 4.8 million people in our workforce—about 15%—are self-employed, so the numbers are not insignificant.

As far back as 2004, the Pensions Commission identified the self-employed as a group for which pension provision had always been deficient. The need to include self-employed people in attempts to improve pension provision for that group is hardly breaking news, but it simply has not been addressed. I know the Government have argued that that is a complicated issue—the hon. Member for Chippenham also set that out—but the fact that it is complicated does not mean that it should have been kicked into the long grass for as long as it has. There are too many people losing out on opportunities to build on their financial plans for retirement. The fact that something is difficult is not a reason not to do it.

It cannot be beyond the wit of Government. We have heard others, including the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), tell us that we have a great Pensions Minister. I am sure that it is not beyond the wit of the Minister to try to address the issue of helping self-employed people to navigate their way through that difficulty, as set out by the hon. Member for Chippenham. I agree with her, and others, that it is imperative that those on low pay are covered and included in auto-enrolment, for exactly the same reason. As long as they are not, they are denied the chance to prepare financially for their lives after work.

The 2017 review indicated that bringing the low-paid into auto-enrolment would be of great benefit to those workers, but that will not be implemented until the mid-2020s. Given that we know that the earlier in life someone starts paying into their pension, the better their pension is, we need to make progress on that much more quickly. Those on low pay during their working life must not be denied the opportunity to build up a pension pot for their retirement.

The hon. Lady is absolutely correct that persuading young people to save for their pensions is important. The fact that the inclusion of 18-year-olds in auto-enrolment is not expected to be implemented until the 2020s is also extremely disappointing. With a pension crisis looming for younger generations, those who are now 18 years old will have lost out on precious years of potential pension savings if the issue is kicked further down the road. I agree with the right hon. Member for Preseli Pembrokeshire and the hon. Members for Chippenham, for Horsham (Jeremy Quin) and for East Renfrewshire (Paul Masterton) that that really needs to change.

I would say to the Minister that good progress has been made with pension auto-enrolment and it is right that that should be recognised, as the right hon. Member for Preseli Pembrokeshire and the hon. Member for Horsham pointed out. We have to recognise success when we find it, but there are still whole swathes of the working population who as yet are not eligible for auto-enrolment, and they are at risk of being left without enough years of pension savings if that is not urgently addressed. I know that when the Minister gets to his feet, he will tell us how he intends to do that.

I will end by saying—the Minister will have heard me say this before, if he was listening—that we need a full and independent pension commission, looking holistically at every aspect of pensions, so that we have a system that is as fair as possible for all. We all need to have a system that we can have confidence in and rely on when our working lives are over. We need a pension system that is sustainable and takes into account shifting variables such as life expectancy, which is drastically different depending where in the UK someone lives.

With 1 million pension pots accessed early since reforms enabled that to happen, with the self-employed and young people not included in auto-enrolment until the mid-2020s and with rising life expectancy, the issue of pension provision and pensioner poverty is becoming all the more urgent. That is why I am keen to hear what the Minister has to say on how he will move forward with this.

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate the hon. Member for Chippenham (Michelle Donelan) on initiating this debate and on a thoughtful and challenging contribution, with some ideas in it that I shall come to later.

Forgive me if I say that the right hon. Member for Preseli Pembrokeshire (Stephen Crabb) was right: auto-enrolment is a testament to what the last Labour Government did in initiating the Turner review and putting the wheels in motion for auto-enrolment to be implemented. As I have often said to the Minister, it is deeply welcome that there has been continuity of policy. He said only yesterday in his address to the TUC that, on issues such as pensions, continuity wherever possible is absolutely critical.

I was personally involved in some of the discussions with successive Secretaries of State and with Adair Turner, and the basis that was laid and the point we have reached now are both very welcome indeed. It has led to a better workplace pension landscape than before, with an additional 10 million workers estimated to be newly saving or saving more as a result of auto-enrolment. It has led to an additional £17 billion of pension savings being put away, mostly by low-income workers. We welcome the move by the Government to reduce the age of eligibility for auto-enrolment to 18, as that should lead to more people becoming aware of the importance of pensions at a younger age. The sooner that is introduced, the better.

However, for all the welcome progress that has been made, it is not a perfect system and there are issues that need to be addressed at the next stages to make the pension landscape better. First, the threshold over which workers are automatically enrolled is too high. According to the latest statistics 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. The impact is felt in particular by female workers, workers with disabilities and black and minority ethnic workers, who are over-represented among low earners, the self-employed, those with multiple jobs and carers. That is why it is absolutely necessary, as the Taylor report recommended, to redefine workers in the gig economy as employees, meaning that they would be eligible for auto-enrolment. As Matthew Taylor said, if it looks like employment and smells like employment, it should be employment.

Having said that, the statistics outlined in various contributions today are stark. Self-employment, and in particular bogus self-employment, are becoming increasingly prominent in the modern economy. Figures released last year suggest that the number of self-employed workers in the UK rose by 23% between 2007 and 2017, from 3.8 million to 4.7 million. That represents a dramatic shift in the nature of the world of work and the way in which the British economy works.

Self-employed people now represent around 15% of the workforce, and 91% of businesses say that they hire contractors. The latest figures from the Office for National Statistics show that only 19% of the self-employed are saving into a personal pension. That is a worrying trend, and more needs to be done, not least because those concerned face decreased security in their current working practices and in their retirement. That is why the hon. Member for Chippenham was absolutely right—dare I say it?—to bang on about this and to call for a detailed review at the next stages. I would strongly support that. That issue needs to be tackled because of the changing nature of the workplace.

Thirdly, as stated earlier, the advent of auto-enrolment has increased the number of workers saving for retirement, with more active savers now in defined contribution pension schemes rather than defined benefit schemes. While the overall trend toward a greater number of savers is positive, we do not want to see a growing threat posed to DB schemes. It was never intended that auto-enrolment should become a bolthole for employers seeking to move away from historic DB schemes. Indeed, I thought what the Minister said yesterday to the TUC conference was absolutely right—he said that DB is working well notwithstanding a whole number of problems, and that where employers can, they should continue with their responsibilities. I strongly agree with him.

Fourthly, the rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve in order to provide savers with an adequate pension. A report by the Pensions Policy Institute in 2016 found that the median saving of DC scheme members could yield only £3,000 per year as an annuity, which is not a lot of money. That therefore demands action at the next stages and on a whole number of fronts: more work, for example, needs to be done to improve the adequacy of returns on DC savings, including looking in greater depth at costs and charges. On the 8% target, it is clear that, for the current proposed automatic contributions—I stress again that they are a welcome step in the right direction—8% should not be the summit of our ambition as we look ahead over the years to come. I take the point from the hon. Member for Chippenham that we should get the balance right so that we do not impose unreasonable burdens as we progressively move forward. However, I stress again that 8% should not be the summit of our ambitions.

On how one might have the best possible DC arrangements, there is an interesting debate going on around collective defined contribution pension schemes and what is being proposed by both Royal Mail and the Communication Workers Union. We have been engaged in constructive discussions with the Government on opening the door for such arrangements to be introduced at the next stages. However welcome it is, I stress again that 8% is not enough, and we therefore need to look at several things, including transparency, costs and all those things that would make a difference.

More workers having access to a pension pot is welcome, but I refer to what my hon. Friend the Member for Weaver Vale (Mike Amesbury) said earlier: it is vital that there is greater knowledge about pensions. To that end, the Government have the opportunity, through the Financial Guidance and Claims Bill, which is welcome, to increase the provision for financial education.

In which case I will finish in about 90 seconds. Financial education is at the heart of that Bill, which is welcome. The role of the new single financial guidance body will also be important.

Auto-enrolment has been positive for the workplace pensions landscape in this country. It needs extending and improving—of that there is no doubt—to give workers greater security in retirement, but it is a strong and welcome step in the right direction, and it is deeply welcome that there is cross-party consensus.

I am delighted to respond to the important and timely debate introduced by my hon. Friend the Member for Chippenham (Michelle Donelan). She is right that this is the first time that this important issue has been debated in this Parliament since its introduction many years ago. This is an opportunity for us to air a variety of suggestions and ideas, which I will take on board. If I cannot address all the points she raised, I will definitely reply to her in writing.

It was kind of my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) to describe me in the way he did. It is a rare day that a Conservative Minister gets a good report from the Trades Union Congress, where I spoke yesterday. My only thought as I was listening to his speech was that things can only go down from here. It is also the case that, while I take all the compliments on the work we do as a Department—it is a team game, as any Minister will say—it is patently clear that the Chief Whip, should he wish to replace me at any stage, has available a number of capable personalities who have auditioned impressively today in their speeches.

We are considering auto-enrolment following the Government review in December 2017. I pay appropriate thanks to all the many people who contributed to it. It is certainly the case that we should start with unequivocal support for the hundreds of employers that have all made an amazing contribution. There are 1,250 in Amber Valley, 990 in East Renfrewshire, 1,860 in Horsham, 1,330 in Preseli Pembrokeshire and 1,590 in Chippenham. They have effectively been part of the change of the contract that exists between employee and employer. In my respectful view, that is utterly key going forward.

That new contract, much as we see in relation to the living wage, sees a change in the employee-employer relationship, and we need to make the case that the employer pays in when an individual pays in. More particularly, I believe it has led to greater staff loyalty, greater retention and greater commitment to those businesses. We should support and applaud that on an ongoing basis.

It is an amazingly exciting time for me to have been given this job. It is one that I asked for, and the Prime Minister kindly added financial inclusion to my ministerial title. It is clear that the Government are committed to all aspects of financial inclusion and addressing debt advice and pensions guidance, whether that is through making pensions simpler, more accessible and increasingly transparent through the pensions dashboard; or providing improved debt advice, pensions guidance and breathing space, and cracking down on cold calling, which we are doing through the single financial guidance body, which is being created by the Financial Guidance and Claims Bill, which will return for debate in the House in approximately 10 days; or pioneering the mid-life MOT and the developments in auto enrolments.

The hon. Member for North Ayrshire and Arran (Patricia Gibson) made several points. I briefly say that the independent review of the pensions system she requested was done by the Government in March 2017—John Cridland very kindly did it. It included looking at life expectancy. Pensioner poverty has also reduced significantly under successive Governments, to give credit where it is due. The hon. Member for Birmingham, Erdington (Jack Dromey) made the fair point that the Labour party would like a consistency of approach. This is an example of that and, with respect, the raising of the state pension age from 1993 onwards is an example of consistent pensions policy across all parties.

More than 1 million employers are now successfully providing workplace pensions. It is a good time to take stock, because we are seeing the end of the first phase of our reforms as we go forward into the second phase and bringing on board newly created businesses into our growing economy. There will be approximately 180,000 to 210,000 new employers each year that will need to comply with automatic enrolment duties. They will very much receive assistance from the Government and the independent Pensions Regulator in taking forward that process.

I make it very clear—I say this in every speech that I give—that we need to change the way in which this country views savings, pensions and investments. We need a situation in which we are unequivocally supportive of enhanced savings, pensions and investments. Auto-enrolment will clearly make a massive difference, and the rises that we will see will clearly make a massive difference to savings.

In the limited time I have, I will try to address some of the crucial points that have been raised. Much was said about why we are delaying the implementation of reforms, whether it is the lowering of the lower earnings limit or the £10,000 limit, until the mid-2020s. I take the strong view that it is my job, helping the Secretary of State and No.10, to ensure that the April 2018 and the April 2019 increases land without a hitch. They are the most important things that the auto-enrolment review identified and, more particularly, that we need to get right.

Provided we get those two increases right, we can then assess where we are. We can then allow for the lessons to be learned and push on to further phases. On phasing, it is entirely right, as everybody has said on a cross-party basis, that 8% is not sufficient to retire. We all accept and realise that. The Government are crystal clear that it is not the end of the matter. We wish to continue with the April ’18 and April ’19 increases, and once we have done those, we will assess where we go thereafter. Hon. Members should be under no doubt that there is an acceptance in all parts of Government that 8% is not sufficient for a long-term retirement. There are various examples from around the world. Australia is several years ahead of us, and has pushed into double figures. That is clearly the direction of travel in which we will go at some stage.

My hon. Friend the Member for Chippenham raised several questions, and I will try briefly to answer some of them. I have a couple of quick points on the self-employed. NEST has a public service obligation to ensure that employers always have a scheme available for automatic enrolment. That now applies to the self-employed, who can join NEST itself. The review that identified the significant number of self-employed people—4.8 million—very much made the case that we need to come up with ideas to address that. The pilot projects we are putting forward aim to do exactly that. As my hon. Friend will be aware, NEST is pioneering the sidecar product.

I meet a number of private sector providers. I will shortly meet Plum, and there are others—to use a BBC expression, alternative providers are available. Clearly, Moneybox, Plum and Chip, and all these very interesting private sector providers that give alternative savings options, can be utilised. We are looking at such companies with great interest.

More importantly than that, we are trying to be immensely proactive. There will be the self-employed hackathon. If the invite to that has not landed in colleagues’ inboxes as yet, they should come on 26 March when, working with the Association of British Insurers at its offices, we will explore ways forward and the assistance we can give to the self-employed. There is absolutely no doubt that we want to do that.

Motion lapsed, and sitting adjourned without Question put (Standing Order No. 10(14)).