Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021

Helping people save for their futures remains a key priority for the Government, and the automatic enrolment duties continue to apply to all employers with eligible workers. We continue to monitor the impacts of Covid-19 on savers, employers and the pension industry. As part of supporting the UK’s economic recovery, our aim remains to help workers achieve greater financial resilience for the long term.

Turning specifically to this order, it determines key elements of the framework for the way in which automatic enrolment operates. It will continue to align the lower and upper limits of the qualifying earnings band with the national insurance lower and upper earnings limits for the 2021-22 tax year. The lower and upper limits are therefore £6,240 and £50,270 respectively. By continuing to align the qualifying earnings band limits to the national insurance thresholds, the changes relating to payroll systems are kept to a minimum.

The purpose of this framework is to balance the need to encourage individuals to take personal responsibility for pension saving with a sustainable compulsory minimum contribution level for all employers. Setting the thresholds at these levels will also ensure that contribution levels continue to be meaningful for savers. In doing so, we are mindful of the economic environment within which these changes are taking place. The order does not change the earnings trigger, which remains at £10,000 this year. The Government’s objective in confirming this threshold is, on the one hand, to strike a balance between bringing in those for whom it makes economic sense to be saving into a pension, and, on the other, affordability for employers and workers. Again, we must be mindful of the broader economic context.

Individuals earning below the £10,000 earnings trigger but above the lower earnings threshold will still have the choice to opt in to a workplace pension and benefit from employer contributions, should they wish. Those earning below the lower earnings limit also have the option of being enrolled by their employers in a pension scheme. To conclude on this point, the decision to maintain the earnings trigger at £10,000 and maintain the alignment of the lower and upper limits of the qualifying earnings band with the national insurance lower and upper earnings limit for the 2021-22 tax year maintains simplicity and consistency, while minimising burdens on employers and continuing to increase the total pension savings this year by an estimated £14 million.

I commend this instrument to the House and beg to move.

I heard what the Minister said about the implications of the pandemic and support for companies. It would be good to hear quite who is meant to pick up the cost of the various components of this in due course.

That probably concludes the things that I have to say, except for one thought. Is it possible to find more ways to encourage those who are near the £10,000 threshold and then fall below it—so that they get unenrolled, then re-enrolled when they go above it—just to stay in, given the benefits of doing so? That is a way in which we can make sure that more people stay in and get their pension. It is also a matter of some urgency to address the age limit at which we encourage people to start saving. I do not see much of a reason for delaying that.

I apologise for my ignorance here, but can the Minister enlighten me about what interaction there is between how benefit assessments are made and pension payments? Is there any account or effect there? I feel I ought to know, but I am afraid I do not.

I support the aim of aligning the national insurance lower and upper limits with the automatic enrolment contribution records, making it easier to administer, but, as the noble Baroness, Lady Bowles, pointed out, there remains a major problem for the lowest earners, most of whom are women. More than 1 million are caught up in this problem of net pay schemes, which are, indeed, misleadingly named. They force these lowest earners to pay 25% extra for their pensions. They do not receive less pension, but they have to live on less than they should, and their take-home pay is lower than it should be as a direct consequence of the scheme that their employer chose. These workers are often unaware of this, as, often, are the employers. Can my noble friend let us know when the Pensions Regulator and the Government will act to stop this and when we might find a resolution, as already proposed to the Treasury by the action group that I am a part of? That would at least remedy the injustice faced by these lower earners.

The £10,000 earnings trigger has been frozen, but it still means that women will make up well under 40% of the eligible population for auto-enrolment. If more unemployed women re-enter the labour market on lower earnings, even the estimate of 8,000 more becoming eligible could well be overstated. There are other inhibitors to women building up their pension pot. Noble Lords have already raised the issue of tax relief. However, some master trusts offer both relief at source and net pay. It is not the case that all schemes offer only one option. But the main point is that we still have significant unresolved inequalities in respect of women, auto-enrolment and private pension schemes, which the Government do not seem to have the drive to address.

Another casualty is that rising unemployment will accelerate the small pension pot problem, particularly in sectors where the incidence of small pots is already high. As a DWP report suggests, it is employment ending and transitions to new jobs that drive growth of small pots, rather than active decisions to discontinue saving. There is a really pressing need to find a solution. The Government tilted at one in 2013, with pot follows member, but then kicked the can down the road. By when do the Government anticipate they will have a solution for small deferred pots that is fit for purpose?

Finally, it is now over five years since pension freedoms were introduced. There is increasing evidence that industry and policymakers are creating a retirement market based on assumptions about savers’ behaviours which are inconsistent with how they actually behave. Pension freedoms have also reframed the pension pot away from being the means, together with the state pension, to secure an income for life in retirement to being seen as an accessible pot of money to fund priorities in the near-term future. If that reframing persists, there will be a real public policy failure in 20 or 25 years’ time in terms of the money that people have as income in retirement. When will the Government commission a review of the impact of pension freedoms on desirable public policy outcomes?

Perhaps I may also press my noble friend for some broader thoughts on the longer-term thinking of the department and the Government on pensions in general—in particular, on a point made by the noble Baroness, Lady Bowles of Berkhamsted, with regard to what we are going to do with people who, I fear, are in and out of employment in the current challenging circumstances, and how we are going to encourage pension savings in this difficult environment. Those points were also touched upon by the noble Baroness, Lady Drake. I assume that there is a desire to extend automatic enrolment in the future and to lower the trigger for automatic enrolment, but what is the current thinking and the longer-term outlook?

I join others—my noble friend Lady Altmann, for example—in noting the tax trap, or non-tax trap, for lower earners, and the need to incentivise savings for those people. The position at the moment is not satisfactory. I wonder whether my noble friend can give some indication of when the Government are going to get their teeth into this problem and come up with a solution.

Setting the minimum wage where it is now means that many people who take dividends out of businesses are finding those dividends financed, in effect, by the taxpayer in the form of tax credits to those at the bottom of the company who simply cannot afford to live on what they are being paid. The working poor are a major problem in this country, and that problem will of course be exacerbated when they retire and have only their state pension to live on.

At the other end of the scale, I endorse what the noble Lord, Lord Bourne, said when he asked the Government what they were doing to make more people aware of the importance of saving for their retirement. Although of course I have every sympathy for those who are not in a position to save for their retirement, I also believe that those who can save should, and that they should save not only on their behalf but on behalf of their children. Can the Minister tell me in particular what steps the Government are taking to promote the junior SIPP scheme—the junior pension—to which people could contribute small amounts from the birth date of their children and which would multiply over time to provide a decent pension?

I again appeal to the Minister to reconsider the issue of the 5 million self-employed, many of whom are low-paid and have no pensions at all. When will the Government find a solution to this serious gap?

With defined benefit schemes closing at an alarming rate, the current norm of completely inadequate defined contribution schemes means that the state will incur multibillion costs in future to save millions of people from abject poverty. The average pension pot is £50,000, which would give an annual income of just £2,500 a year—nothing like enough to live on, even with the full state retirement pension. Experts estimate that we should each save at least 13% of our income from the age of 25 but we are doing nothing like that. The Government are simply not addressing this situation. The blunt choice is between a future of poverty and misery in old age for millions or politicians today being honest about the need for workers’ and employers’ incentives to pay more into pensions and for the Government to raise extra taxation to help finance decent pensions and elderly care.