I beg to move,
That the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021, which was laid before this House on 20 January, be approved.
It is a great privilege to be here in the House to move the motion. This order reflects the conclusions of this year’s annual review of the automatic enrolment earnings threshold required by the Pensions Act 2008. This is the ninth annual review. The review considered the earnings trigger and the qualifying earnings band for the tax year 2021-22. The earnings trigger determines the point when a qualifying worker becomes eligible to be automatically enrolled into a qualifying workplace pension. The qualifying earnings band determines the earnings upon which workers and employers pay contributions into a workplace pension. This order sets a new upper limit for the qualifying earnings band and is effective from 6 April 2021. The lower earnings limit is not changed. Similarly, the earnings trigger is not changed.
The Government’s commitment to automatic enrolment was demonstrated through the support for the statutory minimum employer pension contributions originally included in the coronavirus job retention scheme. I thank everyone who continues to support automatic enrolment, whether that is the participating employers or, more particularly, the 10 million-plus employees who are saving 8% per annum. I can confirm that we will be pursuing the 2017 automatic enrolment review and bringing that in in the mid-2020s. The 2019 stats show the success that is automatic enrolment, with women in workplace pension participation now at 86%—that was 40% in 2012—and young people between 22 and 29 in workplace pension participation now at 86%; that was 35%. I commend the order to the House.
I thank the Minister for his remarks. Auto-enrolment has proven to be one of the most positive developments for savers and in securing people’s long-term prosperity in recent memory. It was a Labour Government in 2008 who first introduced legislation to require auto-enrolment, and millions of people have benefited since. It is heartening that the current Government appreciate the value of the scheme, and are committed to continuing and, indeed, expanding it.
The current economic climate is a tough one. The coronavirus pandemic has left many employers and employees facing unexpectedly difficult decisions. In this light, it is right that the Government focus on ensuring the long-term sustainability of schemes and helping employers weather the immediate crisis. It is for this reason that Labour will not be voting against the statutory instrument tonight, even though it only represents a relatively small real-terms increase in the number of employees set to be automatically enrolled by their employers into pension schemes and a small real-terms increase in the earnings that employers must pay contributions on. I would like to take this opportunity to urge the Government not to abandon the ambitious spirit in which the original legislation was introduced in 2008, and to make sure that, once the economy has regained its strength, the Government do all they can to ensure workers are saving more and are saving earlier for their retirement.
Many experts have made the case for lowering the qualifying earnings threshold and, indeed, the minimum age. The People’s Pension, for example, has endorsed proposals to do so. It argues that millions of new savers would be created, many of whom would be women and people from ethnic minority backgrounds. Similarly, the Association of British Insurers found that employees would be able to save an additional £2.6 billion a year if the earnings trigger was scrapped. At a glance through Hansard, we can see that a large number of colleagues, many of whom have expertise in this area, from all major parties and in both Houses have also called for these changes. In fact, I remind the Government that they made a commitment themselves in 2017, in the review of auto-enrolment, among other things to remove the lower earnings limit and to reduce the age threshold for automatic enrolment to 18 by the mid-2020s. It would be disappointing if this goal could not be met on time or soon after, and I urge the Government to clarify their position on this issue.
It is also important that the Government are clear about the implications of freezing the earnings trigger and only modestly increasing the upper limit for the qualifying earnings band. Labour has pushed for this in previous years, pointing out last year, for example, that 37% of female workers and 28% of black and minority ethnic workers are still not eligible for the scheme. This is an area of pensions policy that I urge the Minister to look at most closely.
I would like to use this opportunity to provide some context for the decision that we are being asked to make tonight. We will see how the roll-out of the pensions dashboard in the not-too-distant future may benefit savers and we must do all we can to ensure that this service lives up to its potential. Similarly, it is right to work hard to continue the fight against pension scams, to increase the take-up of pension credit and to give savers more transparency around their investments. I would also like to take this opportunity to remind the Minister of a commitment that he made to my predecessor, my hon. Friend the Member for Birmingham, Yardley (Jess Phillips), about meeting the Allied Steel and Wire pensioners group, which is very concerned about its pension scheme.
I should also say that Labour supports the pensions triple lock as a way of ensuring a fairer state pension, and that we will be working hard in the coming months and years to continue to push the Government to take bold steps to use the economic might of pension funds to support the fight against climate change. I have raised these points to emphasise that there is much to do in the pensions and savings sector, and because I believe that it is important to consider the whole picture when taking big decisions such as the one being made today.
Labour wants to make this the best country in which to grow old. If we are to achieve that goal, we must be ambitious and build on the success of auto-enrolment to make it as good as it possibly can be. We should address the other issues that I identified earlier as part of that work.
The statutory instrument before the House tonight is yet another example of how the UK Government are failing our pensioners, causing some of the most vulnerable to slip between the cracks, proving that pensioners are so often an afterthought for this Conservative Government.
Despite repeated calls from the SNP, the UK Government are refusing to lower the earnings trigger for pensions automatic enrolment. The fundamental issue with this is that workers on lower wages will continue to lose out on vital retirement savings. This is yet another example of the Tories pushing through policies that see the rich get richer and the poor get poorer.
We in the SNP have continually called on the UK Government to remove the £10,000 earning threshold for pensioners’ automatic enrolment in 2021 and 2022. In the Committees for this instrument, my SNP colleagues have made clear our concerns. Indeed, my hon. Friend the Member for Aberdeen North (Kirsty Blackman) outlined that the £10,000 earnings cap is unsuitable and that the UK Government have given very little evidence as to why the £10,000 threshold was put in place. Currently, that £10,000 threshold for automatic enrolment means that workers on lower wages, either in low-paying jobs or working part time, will lose out on retirement savings.
At this juncture, I want to thank colleagues at the Association of British Insurers for their very helpful briefing note in advance of today’s debate. The ABI rightly identifies the gender and ethnicity pensions gap, which is baked into our pensions legislation. Put simply, the threshold that we are debating tonight is a kick in the teeth for women who are disproportionately low paid or in part-time work and are more likely to experience later life poverty. To put the gender divide in context, we know that the average pension pot for a woman aged 65 is one fifth of that of a 65-year-old man, and women receive £29,000 less state pension than men over a 20-year period. Indeed, this deficit is set to continue, all else being equal, only closing by 3% by 2060. Extending the coverage of automatic enrolment further by reducing the earnings threshold to a lower level, ideally the first pound, would bring hundreds of thousands of people, mostly women, into pension saving.
Consideration also needs to be given to the ethnicity pensions gap, with the latest Office for National Statistics data showing a stark contrast between the private pension wealth of white British savers and savers from ethnic minorities. Arguably, this instrument will only exacerbate that gap further, causing many women and those from black and minority ethnic groups to experience later life poverty.
In addition, when we look at the impact of this pandemic, many of the effects will be far-reaching. The jobs market has already completely changed, with more people having to take on low-paid and part-time work, and it is only right that these people are not penalised for a situation that is demonstrably outwith their control. No one could have predicted this global pandemic and the many resulting consequences that have arisen for our economy.
I am here not just to highlight the problems, because we in the SNP have offered clear solutions. The UK Government should remove the lower limit—the qualifying earnings band—so that contributions are payable from the first pound earned, lower the age threshold from 22 to 18, and expand the contribution rates beyond the 8% statutory minimum. The UK Government must begin to address the faults in pensions policy and not further exacerbate the current issues.
From WASPI—Women Against State Pension Inequality Campaign—to frozen pensions for UK citizens living abroad, the £10,000 earnings cap is another example of poor pensions policy from a Tory Government that we in Scotland did not vote for. It is vital that workers on lower wages do not continue to lose out on their retirement savings and find themselves in pensioner poverty. It is time for the UK Government to step up to the plate and support pensioners by giving them dignity in retirement.
I understand the case for stability in the course of the pandemic; that is represented by the order and I would not quarrel with that at all. However, the order does raise a number of issues about the Government’s longer-term intentions on auto-enrolment, which others have raised and which the Minister touched on, and I would like to ask him about that.
On freezing the earnings trigger, again, £10,000 probably represents a very modest increase in the number of people brought into auto-enrolment. The Government’s analysis refers to another 8,000 people, of whom 72% will be women, but the order does not represent any real progress towards the changes set out in the 2017 review, which, as my hon. Friend the Member for Reading East (Matt Rodda) reminded us from the Front Bench, would see contributions made for all employees aged 18 and over from the first £1 that they earn. When the review was published, the Government said, and the Minister reiterated it this evening, that the ambition was to implement those changes before the mid-2020s. We are now halfway from 2017 to the mid-2020s, and it would be helpful if the Minister was able to give some indication to us of when the legislation necessary to achieve that will be made. Is it the Government’s aim to legislate for those changes in the pensions Bill, which the Minister has said he wants to introduce perhaps next year? Is that when we can expect concrete steps to be made?
The previous Work and Pensions Committee recommended in its auto-enrolment report that, as part of their review, the Government should consider
“approaches to increasing contributions beyond the statutory minimum of 8% of qualifying earnings, including mandatory increases in employee and employer contribution rates and means of encouraging greater voluntary contributions”.
Can we look forward to progress along those lines in a 2022 pension schemes Bill as well?
As the Minister knows, and this has not previously been raised in this debate, the Supreme Court recently found that Uber drivers are workers for the purpose of section 54 of the National Minimum Wage Act 1998. That means that Uber drivers are entitled to a minimum wage for the period when they have the app switched on in the area covered by their licence. If they and other gig economy workers are entitled to the minimum wage, they may well also be eligible for auto-enrolment on the terms set out in the order. Auto-enrolment contributions might well need to be paid retrospectively in relation to them. Will the Minister set out what the Government’s view about that is? Are they considering how gig economy workers could be brought into auto-enrolment? Is there a need for legislation to address this, or is it the Government’s view that the existing legislation can do the job?
The Work and Pensions Committee has now launched the second of our three-stage inquiry to assess the impact of the pension freedoms five years on from their introduction, following the first part, which was on pension scams, which I hope we will be able to produce a report on later this month. The third part of the inquiry, which we will launch later in the year, will look at these issues around auto-enrolment for gig economy workers such as Uber drivers and for self-employed people more generally.
The Government launched a series of trials and research exercises around enabling retirement saving for the self-employed at the end of 2018. That followed a report from the Select Committee at the end of 2017, “Self-employment and the gig economy”, which said:
“Low levels of retirement saving amongst the self-employed risk storing up grave problems of potential hardship and reliance on the welfare state in later life. While auto-enrolment for employees has been a great success, current structures are not encouraging sufficient pension saving by the self-employed. The idea of using an opt-out system on tax returns to encourage greater contribution to pensions is an interesting one that merits further consideration.”
Can the Minister, following the trials, which began a couple of years ago now, indicate what the Government’s plans are for extending the success of auto-enrolment to the self-employed?
Those trials involved: marketing interventions aimed at people who previously saved, such as those being automatically enrolled while employed, to encourage them to continue their saving; marketing interventions using trusted third parties for the self-employed, such as trade bodies and trade unions, to promote the value of saving and to provide an easy connection to an appropriate savings vehicle; and behavioural prompts, including testing messages combined with prompts through invoicing services or the banking sector to try to engage self-employed people to think about starting regular saving at a point when they are receiving their income.
What has been learned from those activities over the past couple of years? When will the Government publish the findings? When does the Minister intend to take an initiative based on those findings for the benefit of self-employed people?
The Government’s annual automatic enrolment evaluation report is a testament to the success of automatic enrolment, with the most recent edition from 2019 showing that more than 10.2 million employees have been automatically enrolled across more than 1.6 million employers. As a result, the number of eligible employees with a workplace pension has skyrocketed from 10.7 million, or 55% in 2012, to 18.7 million—nearly 90%—in 2018. That is very much to be commended.
I have spoken before about the importance of intergenerational fairness in our pensions policy. The decisions we take now will continue to have an impact decades down the line. The automatic enrolment policy means not just that people in the next 10 or 20 years will be better off in retirement, but that the generation who are just entering the workforce now will be, too.
As other Members have referenced, what is perhaps most notable about this order is not what it changes, but what it does not, with only the upper limit for the qualifying earnings band being revised, but not the lower limit or the earnings trigger, which the shadow Minister, the hon. Member for Reading East (Matt Rodda), and the SNP spokesperson, the hon. Member for Glasgow East (David Linden), referenced. While I understand the rationale for making this decision, which the Minister set out in his opening remarks, it is important that the progress made over the past decade does not start to slow down. In the words of the Government’s 2017 review, we must “maintain the momentum”.
The 2017 review contained proposals to lower the age threshold down to 18 and to abolish the lower earnings limit, with an estimated target date of delivery in the mid-2020s. We are now nearly four years on from that review and, as the Chair of the Work and Pensions Committee, the right hon. Member for East Ham (Stephen Timms), mentioned, we have seen no change. Although “mid-2020s” can potentially be a bit elastic, that target is inching closer and today’s statutory instrument does not change the lower earnings limit either. Like others, I would be grateful if the Minister updated the House on progress towards the changes.
Another area that the review highlighted was the gaps in coverage, which particularly impact on people with multiple low-paid jobs and young people. The recent Supreme Court judgment on Uber workers has profound implications for the gig economy. Like the Chair of the Work and Pensions Committee, I would be grateful if the Minister set out how his Department intends to respond to that ruling in respect of auto-enrolment and set out a timescale.
A reduction in the earnings threshold for automatic enrolment would also help the ongoing problem of the gender pensions gap, and I thank the hon. Member for North Ayrshire and Arran (Patricia Gibson) for tabling an early-day motion on that very topic. According to the Chartered Insurance Institute, the average pension pot for a woman aged 65 is just one fifth of the size of average pension pot for a 65-year-old man. Prospect estimated the gender pensions gap to be 39.5% when measured in terms of income, which is more than twice the size of the gender pay gap.
One factor in that inequality is that people with a salary below the earnings threshold are disproportionately women. More broadly, Members will be concerned to see reports in the press by the former Lib Dem Pensions Minister Steve Webb that thousands of women have been underpaid their state pension, so we would be grateful if the Minister updated the House on that issue, as well as setting out his plans to reduce not only the gender pensions gap but other gaps, including the gap in relation to those from black and other minority ethnic groups. Will he set out whether the Government will move forward with changes to automatic enrolment to help to deal with that? As I said at the beginning of my speech, automatic enrolment has been a success.
In the debate on the Ministerial and Other Maternity Allowances Bill, there was much discussion about the use of impact assessments so, finally, I would be keen to hear what assessment the Department for Work and Pensions has made of the impact of today’s changes on women and other minority groups. I look forward to the Minister’s winding-up speech.
It is clear that automatic enrolment for pensions has been a good thing for many people, so I am pleased to add my support for the measure. The Library briefing puts it succinctly:
“The policy has reversed the decline in workplace pension saving. The rollout of automatic enrolment from 2012 onwards has led to a tenfold increase in total membership of defined contribution occupational schemes, from 2.1 million in 2011 to 21 million in 2019.”
That is a success story if ever there was one. The briefing continues:
“Actively contributing membership rose from a low point of 0.9 million active members in 2011 to 10.6 million members in 2019.”
Success indeed! Employers who had to furlough staff because of coronavirus could claim help for pensions contributions before 1 August 2020. Since then, however, they have had to meet costs themselves both for furloughed hours and hours worked. May I ask the Minister whether that will be looked at and changed or reviewed, as it has left some employers in a difficult position? While many have been able to access grant schemes for their closed businesses, anyone who owns more than one shop in Northern Ireland only receives a grant for one business—no matter that their staff could be employed in four shops or even more.
There is absolutely pressure on employers at this time, which will increase if staff earn less than the required lower limit. I personally believe that while we should look at the lower earnings limit, as other Members have said, I am thankful that that is reviewed annually. That is important, and it is good to see that in place. This is not the time to put more pressure and obligations on employers, and I believe that this year we should keep the limit as it is. Some companies will need help to get back on their feet for the next six months, and will find themselves in completely new circumstances next year. Making a small employer’s contribution for a staff member on low hours should not be a final nail in the coffin.
I support everyone who works to have access to a private pension scheme, but I truly do not believe that this is the time to implement a change. I hope that the Minister will confirm in his response that the Government will support employers in every possible way over the coming months, knowing that we will reap the rewards with thriving businesses in the years to come if we sow and till now. Never has that been more necessary, as the covid-19 pandemic has illustrated.
It is a great honour and privilege to respond to the debate. As always with pensions, while we are engaging in a debate on a specific topic colleagues across the House never miss the opportunity to raise all manner of issues on pensions, to which I have been asked to respond. I am delighted to do so.
No sooner has Her Majesty signed the Pension Schemes Act 2021 on the dotted line—we thank her tremendously for that, and I thank the House for its endorsement of that wonderful piece of legislation, which will make our pensions safer, better and greener—than colleagues are urging me to bring forth another pensions Bill to further transform the pensions landscape. I am sure that those on the Treasury Bench, and the Deputy Chief Whip and the pairing Whip, will have taken due attention of that when bids for future legislation are put in.
My hon. Friend is a champion for his constituency and rightly raises the importance of what we are doing. I draw his attention to two key points: first, the Pension Schemes Act will make his constituents’ pensions safer, better and greener; and secondly, the automatic enrolment reforms that we have brought forward as a coalition Government and then a Conservative Government unquestionably support his constituents, who are saving in their thousands, to the tune of 8% per annum.
Of course, my hon. Friend will be aware that in 2012, approximately 35% of our young people were saving into a workplace pension, and now 86% in his community are doing so. Similarly, women, who were saving at 40%, are now saving, quite obviously, up at 86%, as I outlined earlier.
Very quickly, I have a compliment and a question. The compliment is that, as an MP of 20 years’ standing, I know that pensions are one of the most difficult things that we get inquiries on from constituents, and the Minister, when he replies, has a knack for explaining these things in everyday English that is simple to understand. I thank him for that.
My question is this. The very helpful notes that go with the instrument state:
“A full impact assessment has not been produced for this instrument.”
We were not expecting “War and Peace”. There will be a reason why the Government took that decision; perhaps the Minister will explain it to the House.
Indeed. The practical reality is that I will write to my right hon. Friend with more detail about the impact assessment, but clearly, this is an annual review that is done on an ongoing basis to ensure that the automatic enrolment regulations should be enforced in an appropriate way, and they should be reviewed and assessed in an appropriate way.
Some colleagues have raised matters of the Budget, and I leave that to my right hon. Friend the Chancellor. Similarly, the hon. Member for Strangford (Jim Shannon), whose comments we always appreciate—it is an honour to respond to the great man—asked for a specific assurance that the Government will continue to support employers. I can give him the profound assurance that my right hon. Friend the Chancellor on Wednesday will continue the massive support that this Government have made to employers on an ongoing basis. That will continue.
Clearly, we work on an ongoing basis to implement by the mid-2020s the automatic enrolment review; we continue to work forward on the pensions dashboard; section 125 of the Pension Schemes Act has made a significant difference on pension scams; and we continue to put climate change at the heart of pensions, which are now safer, better and greener under this Government.
Question put and agreed to.
I have to notify the House, in accordance with the Royal Assent Act 1967, that Her Majesty has signified her Royal Assent to the following Acts:
Covert Human Intelligence Sources (Criminal Conduct) Act 2021
Ministerial and other Maternity Allowances Act 2021.
We will now suspend for a brief moment in order to sanitise both Dispatch Boxes.