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House of Lords Hansard
Automatic Workplace Pension Enrolment
25 June 2018
Volume 792

Question for Short Debate

Asked by

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To ask Her Majesty’s Government what steps they intend to take to address the issues arising from the 2017 review of automatic workplace pension enrolment; and what is the proposed timetable.

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My Lords, I welcome the opportunity to open this short debate about the progress of auto-enrolment and its future development, particularly in light of the 2017 review, sub-titled Maintaining the Momentum. Our starting point must be to acknowledge the undoubted success of this policy, which has enabled some 9 million individuals to have been automatically enrolled into a workplace scheme by their employer. In topical parlance, perhaps, it has been a game-changer.

As we have debated before, this success has been built on a political consensus, thorough research of the data, stakeholder engagement and a robust analysis of the state of pension provision in the UK. This was underpinned, of course, by the intellectual rigour of the Pensions Commission. The commission’s work focused on the consequences of rising life expectancy, a highly unequal distribution of pensioner incomes and the dispersion of private pension provision, along with a state system with gaps in provision for those with interrupted working lives and caring responsibilities, especially of course women. That was no basis for a sustainable pension system in which people could have confidence to save. The settlement proposed that the foundation of our pension system should be reform of the state pension to make it easier to understand and less means tested, and an earnings-related private pension which moves on from voluntary provision but stops short of full compulsion. It acknowledged the challenges of funding such a system and the logic of raising the state pension age—as it put it, the “unavoidable long-term trade-off” between public expenditure and state pension age—notwithstanding the need for fair notice of changes.

Hence we have come to a national pension saving scheme for those not otherwise covered by adequate pension arrangements. The participation is not mandatory but the obligation of employers to enrol employees and use the power of inertia was anticipated to be a significant nudge; so it has proved. There are of course mandatory minimum contribution levels for employers and employees. Sitting alongside this is a low-cost defined contribution scheme with a universal service obligation, NEST. Other providers have also engaged; specifically, we have seen the growth of master trusts and the consequent need for regulation.

With total contributions of 8% of earnings above the LEL threshold, including tax relief, the commission estimated that a median earner would eventually secure a pension at retirement of about 15% of median earnings, on top of an estimated 30% from the state system. For lower earners, the replacement rate would be higher because of the proportionally higher amount coming from the state pension. There was an assumption that further private saving would bridge the gap to support higher individual aspirations but this has not happened.

The Government’s review can rightly claim that auto-enrolment is transforming saving habits. This year, the rollout of automatic enrolment to employers will be completed. Minimum contribution rates increased to 5% from April this year and will increase to 8% in 2019. It remains to be seen what the effect of any of this is on opt-out rates and, perhaps more importantly, the rate of attrition where individuals subsequently withdraw from the scheme. However, workplace pension participation has increased from 55% to 78% in the four years to 2016. For the private sector, participation among eligible employees has risen to 73%. Annual contributions into workplace pensions amounted to £87 billion in 2016. So far, opt-out rates have apparently remained lower than anticipated, at approximately 9%, but rates of attrition have been twice this. Perhaps the Minister would confirm that.

We consider that automatic enrolment is becoming the foundation of workplace pensions in the UK: an important component of providing millions of workers with a reasonable standard of living in retirement. But as the review and other studies have identified, challenges remain. Most significantly there is the level of contributions, which, as the review itself identifies, currently presents a significant risk that the expectations of a substantial proportion of the working-age population will not be adequately supported in retirement.

There is also a great deal of evidence that the success of auto-enrolment is less prevalent for such groups as part-time workers, women and those from ethnic minorities. This is particularly a consequence of the earnings trigger. The TUC’s research found that 4.6 million employees earn less than the £10,000 trigger, three-quarters of whom are women. The trigger has a particularly unfair current impact on some 100,000-plus workers who hold multiple jobs, which when combined would take them over the £10,000 threshold. The TUC points out that in many sectors, particularly among employers new to pension provision, the minimum contribution rates have been established as the norm, but it is understood that there is little evidence of levelling down by existing pension providers. Again, perhaps the Minister would confirm that.

The Pensions Policy Institute estimates that two-thirds of those enrolled in pensions in 2030 will be on minimum contributions. The 2017 review states that using the savings adequacy measures introduced by the Pensions Commission, 12 million individuals are undersaving for their retirement—12 million individuals who comprise 38% of the working-age population. The review proposes a number of measures with which we agree and which should help to increase savings. Lowering the age from 22, which was originally based on the national minimum wage criteria, to 18 is one. NOW: Pensions data shows that younger ages are less likely to opt out so, by inference, are keener on pensions. Perhaps the Minister can say whether this is generally the position.

The proposal to abolish the lower contribution level for a band of earnings so that contributions become payable from the first £1 of earnings would simplify things, increase the amounts brought into pensions savings and improve incentives for those with multiple jobs to opt in. It would also enable the entitled workers definition to be scrapped.

The level of the earnings trigger is the most contentious issue. The review records no clear consensus. Keeping it where it is at £10,000 amounts to a real-terms decrease in its value, which for the current year would bring another 100,000 people, 72,000 of whom would be women, within the scope of automatic enrolment. It is the trigger that ultimately determines who will be auto-enrolled. The pays-to-save analysis is complicated, but is perhaps made less so by changes to the state pension. It is also to be regretted that the tax anomaly—the different tax outcomes of net pay and relief at source arrangements—has not been resolved.

Setting the earnings trigger clearly involves judgments about a range of issues—affordability, opt-outs, provision for pensions—and the review excuses itself from a longer-term view on the basis of not wanting to pre-empt further threshold reviews. However, the Government cannot look aside for ever from the fundamental point about the levels of undersaving and the risk of poverty in retirement at current contribution levels.

Another conundrum is the 4.8 million self-employed and how they can be brought into auto-enrolment. As the review sets out, this is a group for whom pension saving is declining, notwithstanding the range of products available, including access to NEST and lifetime ISAs. This is at a time when self-employment is increasing, fuelled by the gig economy. The review suggests that many of them should already be included in auto-enrolment via agency worker and other provisions. There are also those inappropriately classified as self-employed—the bogus self-employed. This is a matter for enforcement by the regulator and HMRC, but for others the review proposes the development of nudges and prompts including through Making Tax Digital. Can the Minister say something about progress on this, especially in the light of HMRC announcements about the slowing up of Making Tax Digital to cope with the consequences of Brexit?

The third strategic problem identified by the review is that although individuals are saving more than ever before, they are not looking to take greater responsibility to plan and save more for their retirement. Policy looks to inertia to capture savings while expecting positive and proactive engagement to save more and make decisions about savings, particularly the decumulation options. There is no longer just the obligation to annuitise.

The overall pensions landscape has changed considerably since auto-enrolment was conceived. Much of this has to do with pensioner protection: advice and guidance, some mandatory; a charge cap on default funds; the prospect of regulation of master trusts; the prohibition on cold calling; and a pension dashboard. This should be conducive to an environment of engagement, but we know there is some way to go to address the general low level of financial education in the UK, which undermines effective engagement.

Despite the success of auto-enrolment, there is still much to do to address undersaving. We have no doubt that automatic enrolment should remain the bedrock through which a workplace pension can be provided. We accept the need to maintain the consensus for the proposed changes and that this should involve employers, savers and the pensions industry. However, we question why the government timeline for making positive progress seems set at the mid-2020s. Those missing out now deserve a more expeditious approach. I look forward to the Minister’s comments.

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My Lords, I congratulate my noble friend Lord McKenzie on initiating this debate. I echo the very positive points he made about auto-enrolment: it is a good thing and has enabled millions of people to be drawn into workplace pension systems for the first time. The government review published last year concluded that, regrettably, of the 10 million people enrolled for the first time by 2018, only 3.6 million were women. We have the opportunity now to reflect on the introduction of auto-enrolment and the changing nature of the labour market and government policy, and to find ways of ensuring that we continue to draw more workers into auto-enrolment to enable them to save for their retirement.

The government review also identified that 900,000 of the 1.6 million individuals who are under-saving and earn less than £25,000 a year are women. This is on top of the dramatic changes to the state pension for women, the changes to women’s entitlement to benefit from contributions made through national insurance by their husbands, and the fact that women often have multiple part-time jobs to fit around caring responsibilities, be that childcare or care for a relative. They then find themselves unable to be auto-enrolled because they do not have “a job” that gets them over the £10,000 trigger. It would be a very poor outcome for the introduction of a good scheme in theory if, in 10, 20 or 30 years’ time, we found that women in many sectors of our society were still totally excluded from an ability to provide for themselves in their retirement through a contribution in this way.

According to the Annual Survey of Hours and Earnings—ASHE—8.8 million employees are not currently saving into a pension scheme. This headline figure is worrying in itself but it disguises a greater inequality in the UK workforce. In some occupations, up to 85% of the lowest paid are not in a pension scheme and are missing out on the employer’s contribution that better-paid workers receive. Some industries, such as agriculture and the wholesale and retail sectors, lag far behind other areas. The TUC published an analysis based on the latest ASHE data, which shows that among highly paid professionals earning more than £600 a week, nearly nine out of 10 are saving into a pension. But at the other end of the spectrum, nearly 86% of those in, for example, sales or customer service jobs who are paid far less a week are not members of a scheme. Four in 10 employees undertaking care, leisure or other service work are not entitled to enrol in a pension scheme, including nearly three-quarters of the lowest paid.

It therefore appears that the current pension arrangements are in danger—I put it no higher at this point—of hardwiring inequality between the lowest-paid and the better-paid occupations into the auto-enrolment pension system. As my noble friend said, those who earn under £10,000 from one employment do not have an automatic right to enrol in a workplace pension. The lack of pension provision means that the pay gap is wider than at first appears, with low-paid workers missing out from the employers’ pension contribution. It also suggests that whatever the gap in pay workers experience in their working lives could be amplified into retirement.

Many under-pensioned sectors typically employ large numbers of women. Thus, the rules governing automatic enrolment at present mean that women are less likely than men to come into the workplace pension system. A series of points makes this difficult for women, and my noble friend touched on the first one: contribution rates. The structure hinders contribution, in my view, so the legal minimum contribution of 1% for each employer—rising, I know, by 2019 to a total contribution from all of 8%—means that those who come in at the lowest point will not accrue enough for their retirement to give them a basic income.

When this is compounded by applying contributions to a band of earnings rather than based on a full salary, for someone on £10,000 a year, only £4,124 is pensionable, so 8% of qualifying earnings actually means that only 3.3% of their total salary is being contributed. When we put into that complicated mix insecure work, the growth of self-employment, where employers are contracting out and wanting to employ people on a more flexible basis, we can see that the contribution rate for employers is simply not high enough at present.

Then we have the question of the trigger of £10,000. As I have already touched on, for many women in low-paid, part-time work, juggling care responsibilities and a number of jobs, that £10,000 is simply not a viable measure for them. Again, the research conducted by the TUC, published in 2016, found that 106,000 workers—70% women—held multiple jobs but could not enter the trigger at £10,000. Cutting or abolishing the earnings trigger would help low-paid women to come into workplace pension schemes.

Why do we not use the national insurance contribution level, which I think is referred to in the report’s summary of conclusions? Using that would bring about 1.5 million more people into workplace savings, of whom 73% would be women.

A case can be made that those with wages below the trigger can opt in to a workplace pension anyway, although we know that pensions are often complex. Importantly, however, individuals who are on low incomes rarely feel that they are, if you like, flush for cash and, not unreasonably, when budgets are tight, they favour the short term over the long term. We know this from experience with the married woman’s national insurance contribution rate, a much lower rate with less benefits for that woman. Many women opted for that to help the household budget, with the consequences that we now find for them with the development of policy in pensions, excluding them from a decent pension. With the trigger, as my noble friend said, linked to the tax threshold, which is now much higher than originally envisaged as a result of coalition Government action, this situation can only get worse.

The Government now need to go further and build on the success of auto-enrolment and what they say in their review. They need to ensure that employers make decent contributions to a pension scheme for all workers from the first pound earned, that women workers and low-paid workers get the same pension benefits as their colleagues. They need to cast an eye over their review and undertake a gender analysis on take-up in this area. I think that they will see that there will be vastly different work practices in different sectors, and that that directly influences the ability of those workers to enter the workplace pension provision.

Increasing employer contribution rates, reducing the trigger, looking at every pound earned counting, allowing people to use more than one job to contribute to their pension and dealing with the vastly increasing economic precariousness for the self-employed—that is a good starting point for the Government to get further accolades on building a proper pension system. But that will not be done without a timetable, and it will not be done without clear identification by the Government of what they hope and intend to do next. I hope that when the Minister replies to this debate, she will give noble Lords some comfort that the Government intend not to sit on their laurels but to energetically, urgently and with determination build on this scheme to make an even better one for women workers in this country.

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My Lords, when automatic, direct enrolment was introduced there were real anxieties about capacity, non-compliance, and opt-out rates. Six years on, I recognise the good work that the DWP and the regulator have done. Indeed, the regulator has not been reluctant to use its formal powers. In 2016-17, it made more than 50,000 interventions, including nearly 34,000 compliance notices.

To maintain that confidence, however, we need to see the analysis of the 700,000-plus small and micro-employers whose staging ended in February 2018. It will be some time before the full impact of the phased increases in the statutory contribution rate is known. I note that the Government have identified around 1 million individuals working in atypical ways in less standard forms of employment, and they are liaising with the regulator to ensure sufficient clarity so that automatic enrolment operates effectively. Will the Minister elaborate on that problem, and on what greater clarity may be needed?

It is welcome that the Government decided not to exempt certain employers from auto-enrolment. The proposal to lower the age criteria from 22 to 18 would bring a further 900,000 young people into pension saving, which is welcome. So too, is the proposal that pension contributions would be calculated from the first pound earned, thereby increasing the contributions going into pensions. It is estimated that these proposals would bring an extra £3.8 billion in pension saving annually, and significantly increase the pension pot of lower and median earners.

The Government assert in their review report:

“We want to help lower earners build their resilience for retirement; to support individuals, predominantly women, in multiple part-time jobs”.

But, as my noble friend Lady Primarolo has so clearly articulated, too many women are still excluded from the targeted group of 11 million intended to benefit from auto-enrolment, and 63% of that target group are still men.

Women suffer a caring penalty in pension saving. They are more likely to have single or multiple part-time jobs that pay below the £10,000 earnings trigger. The employment pattern of women reveals periods when they are typically caring for young children, grandchildren or elderly relatives and their paid work reduces. They are penalised by exclusion from automatic enrolment. The proposal that pension contributions will increase—calculated from the first pound earned, so increasing pension contributions—will make the caring penalty even greater, because the loss of contributions for women becomes greater too.

The Government argue that a change to the contribution rules would improve the incentives for those in multiple jobs that each pay at or below £10,000 to opt in to their workplace scheme. Women can choose to opt in, but automatic enrolment is rooted in behaviour assumptions that most men and women will not opt in. It is perverse to assume that opting in will effectively address the pension penalty for those earning £10,000 or less in any one job. Pension freedom of choice has changed the rules of the game. People are no longer obliged to secure a replacement income. Their savings provide a pot to spend as they wish. I see no reason, other than a regressive one, why low-paid women and men should not be auto-enrolled, so that they too can build a savings pot to give them greater financial resilience when they retire.

It was disappointing not to see some new thinking about tackling the caring penalty in pension savings coming out of the review—for example, a state credit of contributions to private pension savings during defined periods of caring. The Government’s ambition is to implement their proposed changes in the mid-2020s—a long way off. They want to develop detailed plans for consultation but does that need to take seven years? The Government recognise,

“that these changes present significant additional costs, in particular for employers and the Exchequer and significant changes for individuals”.

They say that,

“we will seek to better understand the full impacts for all stakeholders as part of the consultation process and will explore cost mitigations and funding options. We plan to do a full impact assessment of the increased costs for businesses”.

There is a lot of conditionality in those sentences: whether the changes to the automatic enrolment rules proposed will be implemented at all, and the trade-offs to be made.

My noble friend Lord McKenzie’s question is most helpful in seeking more certainty. I agree that the immediate priority is to secure the implementation of the phased increases in the statutory contributions without significant increases in opt-out rates. However, the Government intend to carry out further work on the adequacy of retirement income, using the evidence gained to review the level of contributions. I hope they will subject their findings and considerations to the most robust scrutiny and transparency. In recent times, some pension policy decisions have not been preceded by detailed analysis or assessment; long-term impacts have not been fully considered. The coherence of policies on long-term savings and funding social care is unclear.

The boundary between statutory contributions and voluntary additional saving is important. The balance in the allocation of future increases in the statutory contribution between the employer and the worker is integral to ensuring persistency and improving levels of saving. The drivers of higher voluntary contributions are not equally distributed across the labour market. The priority which employers give to pensions varies significantly. Some mechanisms for raising contributions may work with higher paid workers but will not be effective with moderate or less secure ones.

The self-employed are now 15% of the workforce and a large proportion of them have significant and worsening gaps in pension savings. A focus on the self-employed, who would benefit from a nudge into saving, is much needed. The Government have announced an intention to legislate before the end of this Parliament, but it would be helpful if the Minister clarified whether targeted interventions will actually take place in 2018 and when the department expects to publish its evaluation. The position of the self-employed is getting worse as each year passes.

Finally, the review found that an,

“extensive review of the evidence-base tells us that actions aimed at improving engagement will not in themselves materially change savings behaviour ”.

None the less, the Government believe that engagement can reinforce savings behaviour.

The problem is that public policy is now predicated on splitting pension saving into a savings phase and a draw-down phase. At the savings phase, policy recognises the power of inertia in the face of complexity and behavioural biases which inhibit optimal decision-making. Regulated defaults, auto-enrolment and investment funds are applied. At the drawing-down phase, policy assumes behaviours to be dramatically different, with the same individuals fully engaged and bearing the responsibility for making optimal choices. This inconsistency is simply not rational. There needs to be consistency during both phases, with good communications sitting alongside a system of supportive default products and processes, particularly in the light of emerging market failures. That would not contradict individual choice, but it would support securing a stable income in retirement.

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My Lords, it is a tremendous pleasure, as always, to follow the noble Baroness, Lady Drake. Years ago, as one of the original pensions commissioners, she set the agenda for the United Kingdom and that has been pursued on an all-party basis ever since. I agree with most of the analysis of the noble Lord, Lord McKenzie, so that consensus is still clinging on by its fingertips. I hope that the Minister will reflect carefully on the three intelligent and penetrating speeches that we have had so far. I agree and concur with a lot of the analysis and many of the conclusions.

Like the noble Baroness, Lady Drake, I was slightly disappointed that the pensions review published at the back end of last year did not have a bit more new thinking. I also reflect some of the disappointment felt by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Primarolo, about the lack of urgency about what happens next. So far as I am aware, next to nothing has taken place since December 2017. One would like to think that the urgency of the issue and the changes we are seeing in our labour market—never mind the pensions environment—would have encouraged our new Pensions Minister, who is an able young politician. I was expecting him to blaze a trail using the pensions policy, even if it was by throwing out new ideas, starting new consultations and getting new lines of inquiry started. There has been a deafening silence since December 2017, which is unfortunate.

We need to concentrate on some of the issues that the pensions review raised. I agree with the noble Lord, Lord McKenzie, on underprovision, the trigger level and the overall landscape, but in particular we should focus on the unemployed. The noble Baroness, Lady Primarolo, concentrated on the excellent TUC evidence on women and the gender issues that hide behind some of this important policy creation. They are all very important.

I was glad to see that the chosen subject for this evening directly references the proposed timetable. To aim to get things in place and properly changed by the mid-2020s is far too unambitious. Of course we need to be careful about planning changes in good time. Planning needs to be done and we need to be careful and study how the increased contributions in 2018-19 will affect the success of the policy, because it has been successful so far. But there is a difference between 2019 and 2025, and consultations can be carried out in six weeks. There is a yearning that the Government will be Maintaining the Momentum—a wonderful title—as that cannot easily be done by anyone else.

A number of things are available to the Government to introduce the nudges, the policy developments and the progress that needs to be made through the new single financial guidance body. Financial guidance is an integral part of developing auto-enrolment, because financial education is still deficient and people still do not realise the consequences of undersaving. The progress we should be making on the pensions dashboard is important; perhaps the Minister could say something about the progress that has been made on that. Some issues are emerging, such as some of the split small pension pots for low-income households, which is slightly concerning.

A lot of work needs to be done, but more than anything else we want to see more commitment to making progress faster. It is not about being precipitate but about moving faster and getting some plans that we can all look at and intelligently cross-examine. None of that seems to be happening at the moment. If the Minister is determined to hold on to the all-party consensus—I know that she is—she will need to address some of these things with some urgency and satisfy us that everything that can be done is being done. This is an absolutely crucial part of future public policy for the United Kingdom. I know that she cares about it and that the new Minister cares about it as well. I just wish that we had some more tangible demonstration that the Government are thinking about it and coming forward with the kind of ideas that we all look forward to studying in the immediate future.

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My Lords, I thank the noble Lord, Lord McKenzie, for securing this debate, and thank all those who contributed to this evening’s discussion of this important issue.

The Government are proud of the progress of the automatic enrolment reforms, with over 9.7 million people enrolled into a workplace pension since the reforms began in 2012. In the last 12 months alone, hundreds of thousands of everyday employers have begun to offer a pension to their staff for the first time, helping their employees build up dedicated savings for a more secure retirement. I am especially pleased that all this good work has been achieved due to the commitment, support and collaboration between government, employers, the pensions industry and many other delivery partners. I should add that we welcome the cross-party support that has been evident throughout the delivery process. Given the scale of the technical challenges, the hundreds of hours of freely given time to help inform the most practical policy solutions and the sheer good will are a tribute to all those who have played their valuable part in successfully getting nearly 1.3 million employers to provide workplace pensions.

This year has seen the successful conclusion of the planned rollout of automatic enrolment duties to employers that existed prior to October 2017, known as the employer staging profile, which started with the largest employers in October 2012 and, following two extensions to help SMEs better prepare, saw the last cohort of existing micro-employers—those with only one or two staff—complete their declarations of compliance this spring. We are now delivering automatic enrolment as business as usual, with an estimated 180,000 to 210,000 new employers each year needing to comply with their automatic enrolment duties. We have also seen the first of two planned increases in contribution levels for automatic enrolment in April this year, with the latter increase following in April 2019.

I do not take lightly the challenge for employers in funding their share of these increases, and we are carefully monitoring the impact of this first upward shift in contributions for employers and their workers. I should stress, however, that these increases are essential to move savings rates up and will deliver more security in retirement. It is also important to note that many employers have chosen to pay contributions above the planned statutory increases, so faced no additional costs in April. It is important to add that, as automatic enrolment has been rolled out, the Pensions Regulator has been responsive to the need to help employers understand what they need to do. That included launching a simplified and much shorter step-by-step guide on its website, which has been adapted to the needs of small and micro-employers, which have less familiarity with pensions matters.

I turn now to the December 2017 review of automatic enrolment, Maintaining the Momentum, which sets out a clear direction for the future of workplace pension saving, and to which all noble Lords who have taken part in the debate have referred. Our ambition is bold and clearly builds on the success of automatic enrolment to date, with a comprehensive and balanced package of proposals which, crucially, recognises that costs will be shared between families and businesses and that they will need time to plan for change. Importantly, we are confirming that automatic enrolment should continue to be available to all eligible workers regardless of who their employer is. These reforms are focused on ensuring that retirement saving continues to be available to the widest possible number of workers in the UK.

We believe that the retirement saving habit needs to be established at the start of a working life. That is why we are going to make saving the norm for young people by lowering the age for automatic enrolment from 22 to 18, to bring an extra 900,000 people into workplace pensions. I can confirm for the noble Lord, Lord McKenzie, that research has shown that 18 year-olds are very keen for automatic enrolment to start—they care about their future and their retirement, which is very welcome.

We want to broaden and deepen the benefits of automatic enrolment, particularly for those with low earnings and multiple jobs, to which all noble Lords have referred. We want to help them to save more for retirement by removing the lower earnings limit so that their contributions are calculated from the first pound of earnings.

We intend to deliver on our manifesto commitment to use the principles and learning from automatic enrolment to improve retirement provision for the self-employed. We recognise the diversity of the 4.8 million people who classify themselves as self-employed, and the review highlighted—supported by the available evidence—that no single or straightforward saving intervention has been shown to bring self-employed people into pension saving. We are therefore moving quickly to find out what might actually work by testing targeted interventions aimed at the self-employed to identify the most effective options to increase pension saving among this group. In addition, as we set out in the 2017 review, many of those working in atypical or non-standard forms of employment potentially already come within the automatic enrolment framework and will be able to save into a workplace pension. We are working with the Pensions Regulator to ensure sufficient clarity for them and those who engage them, so that the automatic enrolment compliance regime continues to operate effectively.

In addition, the Government have responded to Matthew Taylor’s review of modern working practices and have been consulting on employment status with the aim of making it clearer and more certain for both individuals and business what their status is. The consultation has now closed. The Government are currently considering the submissions received and will respond in due course. We will ensure that any changes are also considered with care in relation to automatic enrolment so that there is sufficient coherence and certainty about the enforcement of automatic enrolment duties.

Noble Lords have raised several important points. I respect all their concerns and will do my best to address as many of those as possible this evening. The noble Lord, Lord McKenzie, raised the question of attrition. I can confirm that employers estimated that 16% of employees who had been automatically enrolled in the last financial year had ceased active membership. However, there is hope that a certain amount of those who ceased membership when they left one employer will start again with a new employer.

Other noble Lords, including the noble Lord, Lord McKenzie, asked about the earnings trigger. They suggested that too many of those on low incomes were still excluded from AE because of the earnings trigger, which determines who is eligible to be automatically enrolled by their employer into a pension. Freezing the trigger at £10,000 continues to strike a balance so that those who can most afford to save are automatically enrolled into a workplace pension. We fear that lowering the trigger could result in diverting income away from the day-to-day needs of the lowest earners, and that risks impacting significantly on their living standards. For those low earners who are in a position to contribute, the option remains to opt into automatic enrolment.

Considerable reference was made to women, particularly by the noble Baronesses, Lady Primarolo and Lady Drake. The question is, of course, whether automatic enrolment is helping women in work to save. There have been large increases in pension saving for women since the introduction of automatic enrolment. The private sector has seen the largest increases in participation in workplace pensions. In 2012, 65% of women employed full-time in the private sector did not have a workplace pension. By 2017 this had fallen to 24%.

The question also relates to multiple job holders—women who are juggling different jobs and caring duties—what are we doing about that and whether we should remove the lower earnings trigger. The proposal to remove the lower earnings limit and the entitled worker status in legislation will ensure that multiple job holders who are eligible for automatic enrolment, or who choose to opt in, will qualify for employer contributions in all jobs and will be able to pay their own contributions from the first pound of earnings. This will give multiple job holders the opportunity to build the same retirement savings as individuals who have only one job.

Over the coming year, we will work to build a renewed consensus to deliver the detail, design and implementation of our proposals. We recognise the importance of giving employers and savers sufficient time to plan for changes. There will be some people, particularly those on low incomes, for whom it makes little sense to divert income away from their working life, but for those low earners in a position to contribute, as I have said, the option remains to opt in. The earnings threshold is reviewed every year to ensure that it continues to strike the right balance between maximising the savings incentives for individuals and minimising costs for employers.

The Secretary of State has decided to freeze the earnings trigger this year at £10,000, which will bring an extra 100,000 people into automatic enrolment, of whom around 72% are women. It should also be noted that the IFS, in a 2016 report, found that automatic enrolment had also significantly increased workplace pension membership among those outside the eligible group, particularly those with incomes under the earnings threshold, whose membership has increased by 28 percentage points.

To answer a question asked by the noble Lord, Lord McKenzie, the analysis underpinning the automatic enrolment earnings threshold review suggests that freezing the trigger has no adverse effect on the proportion of black and minority ethnic individuals in the group eligible for automatic enrolment. Of the 100,000 people estimated to be newly saving as a result of freezing the trigger, 23,000 are black and minority ethnic individuals.

The noble Baroness, Lady Drake, asked about carers and how they are supported. The 2017 AE review concluded that there should be no change to the way that carers are currently treated through AE. Those who provide informal care are not subject to automatic enrolment as they have no employer to enrol them. However, bringing in individuals not subject to a contract of employment would be a fundamental change to the framework of AE, which works through an employee-employer relationship. Individuals who provide informal care for 20 hours per week are entitled to apply for carer’s credit, which helps to protect future entitlement to state pension. Alongside the wider work to address the challenges of social care for our ageing population, the Government are considering how to further support families and individuals who provide invaluable informal care.

I turn now to the net payment arrangements versus relief at source. Pensions tax relief is a matter for Her Majesty’s Treasury. The Government recognise the different impacts on pension contributions for workers earning below the personal allowance, but to date it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for this population. However, alongside further work on the AE changes outlined in the review, the Government will examine the processes for payment of pensions tax relief for individuals to explore the current difference in treatment to ensure that we can make the most of any new opportunities that emerge, balancing simplicity, fairness and practicality while engaging with stakeholders to seek their views. It is important that employers are free to choose a scheme that best suits the needs of their businesses and workers.

I was asked why we did not look at increasing the contribution rate as part of the 2017 review. As I have said, millions of people are now saving or saving more as the result of AE. As noble Lords may be aware, the first planned increase in contribution rates took place this year. As such, it is important that we understand the effects that the planned increases will have and to carry out further work on the adequacy of retirement incomes. We will look again in due course at the right overall level of saving and the balance between prompted and voluntary saving. It is important that this should be evidence-based. We are testing targeted interventions to identify the most effective options to increase pension saving among self-employed people during 2018. We are harnessing the ideas and enthusiasm that exist in addition, as I have just said, to developing the evidence base as our work goes forward.

The noble Lord, Lord Kirkwood, referred to the pensions dashboard among many other issues. The Department for Work and Pensions is leading the development of the pensions dashboard. We have carried out a feasibility study, the main conclusions of which we will share in due course. How we achieve increased engagement is not straightforward and it will not be solved by the use of a single tool such as a pensions dashboard. We need to make people feel confident about managing their finances and able to make informed decisions. The noble Lord also referred to the single financial guidance body, which we believe and trust will be a huge support in that direction.

Finally, all noble Lords have commented that progress is too slow. I shall start with the noble Lord, Lord McKenzie, who asked why nothing is being done until the 2020s. The review sets a clear direction to build a more robust and inclusive savings culture, specifically supporting younger generations with the opportunity to save for a more secure retirement. Our review proposes a comprehensive and balanced package which recognises that the costs will be shared between individuals, families and businesses, and we will need time to plan for change. We are working to deliver detailed design and implementation. The support of employers and their advisers has been key to the success of AE and we want to make sure that we recognise their situation as well as that of savers. We want sufficient time to take those decisions with care.

Testing targeted interventions to identify the most effective options is critical. It is our ambition to implement changes to the AE enrolment framework in the mid-2020s, subject to learning from the contributions increases this year and in April 2019. There will be discussions with stakeholders around detailed design this year into next year, in order to find ways of making the changes affordable, and this will be followed by formal consultation with a view to introducing legislation in due course.

Noble Lords who know me know that I am always impatient for advancement in areas that will help everyone. I am looking in particular at one proposal made by the noble Lord, Lord Kirkwood. He knows that I am very keen on this, as is the Pensions Minister, my honourable friend in another place Guy Opperman. But we need to do this with care. We have to consult. We will work with stakeholders to build consensus on the shape and design, and that will help us to develop our detailed plans and an implementation timetable.

I hope that I have managed to answer most questions put by noble Lords, and again I thank the noble Lord, Lord McKenzie, for introducing this debate.

House adjourned at 8.50 pm.