Automatic Enrolment: Lower Earnings Limit

I beg to move,

That this House has considered the lower earnings limit for automatic enrolment.

I am very grateful to have been granted time for this debate, especially during a rather chaotic week. It serves as a reminder that although all eyes are on Brexit, a number of massively important issues still need to be dealt with; that is the day job for some. One of those problems is the low earnings limit for automatic enrolment.

I want to make it clear that we support automatic enrolment. It has had a lot of positive impacts, as I am pretty sure all hon. Members agree. An estimated 10 million workers have been enrolled in workplace pensions by more than 1.4 million employers. That is an estimated £18.4 billion a year extra in workplace pensions due to auto-enrolment. Opt-out rates have been lower than expected, and participation by eligible 22 to 29-year-olds has increased. There are obvious moves in the right direction but, as with most things relating to pensions, the devil is in the detail.

The first issue is the delay in scrapping the limit. I have a problem with the lower earnings limit, and I am glad that the UK Government agreed to scrap it eventually, but I cannot understand why it is taking so long. All we have been told is that no changes will take effect until the mid-2020s. TUC research shows that a delay of six years in scrapping the limit could cut a saver’s pension pot by £12,000. That is for workers with annual earnings of £10,000, and it includes missed contributions and investment growth on funds. An employee who earns £10,000 would get more than double the amount of employer pension contributions when the limit is scrapped. The UK figures show that that would mean an extra £2.6 billion a year going into workers’ pensions, including £1 billion more from employers. If we are serious about creating a culture that recognises our ageing population and the problems relating to pensions that are on the horizon, and if we want people to save persistently throughout their lives, the low earnings limit cannot continue. It does not make sense.

The positive impacts of auto-enrolment are evidence that it is working and that things are moving in the right direction. We should be trying to include everyone in auto-enrolment. Those who are paid the least are the very people we should be looking out for the most, because they are the most likely to slip through the cracks. Their pension pot, no matter how small it is, is probably the only useful capital they have in retirement. Will the Minister give a concrete guarantee, rather than a vague timescale, about when the limit will be scrapped?

The second issue is that those on the lowest incomes are the most likely to lose out as a result of an increase to the lower earnings limit. For the lowest earners, £6,136 is a large proportion of their earnings. If employers do not include that amount in people’s earnings when calculating pension contributions, pension savings will be affected considerably. Worryingly, the changes will predominantly affect women in multiple part-time jobs, as the rise means that less of a low earner’s salary attracts pension contributions. The TUC has rightly pointed out that there is no mechanism to include those working multiple jobs with earnings below £10,000 in auto-enrolment.

The Pensions Policy Institute calculated that if income from multiple jobs was taken into account, a further 80,000 people could be saving for retirement. That breaks down to 60,000 women and 20,000 men. Once again, the Government are not responding fast enough—or, arguably, at all in some cases—to women’s concerns about their pensions. That is a theme that I have seen since I was elected.

Those concerns have been raised previously. Baroness Drake put it perfectly when she said:

“we are designing a private pension system that does not work for women who work part-time.”—[Official Report, House of Lords, 10 February 2014; Vol. 752, c. 201.]

I would argue that women do not have an adequate state pension to rely on at the moment. Ultimately, this increase is contradictory to the apparent aim of scrapping the limit altogether.

The third issue is that as the gap widens between the personal allowance and the lower earners limit, low earners are in a pension lottery through no choice of their own. The Treasury has said that the personal tax allowance will rise to £12,500. However, under the net pay method, pension contributions are deducted before tax is calculated, and savers’ tax relief is based directly on their marginal rate. That means that savers who earn less than the £12,500 tax threshold do not receive the 20% relief that they would through their employer if they were in a relief-at-source scheme. This issue affects more than 1 million people who earn more than the earnings trigger of £10,000, but less than the personal allowance of £12,500. As auto-enrolment brings in more lower-paid earners, the number caught in the net pay trap is likely to increase.

I am grateful for the fact that Her Majesty’s Revenue and Customs has said that it recognises this issue and is looking at ways to resolve it. It has said that one of the possible routes is a digital answer. I only hope that it is within closer reach than the so-called digital answer to the Irish border question. It would be helpful if the Minister could update us and say what conversations he has had with colleagues in HMRC about potential fixes.

On top of that, there are rumours that the UK Government will reduce tax relief on pension contributions in the upcoming Budget. Will the Minister give us a concrete commitment that that will not happen under this Government? Has he sought confirmation from the Chancellor that the inconsistency between the net pay schemes and other schemes will be corrected before the spring statement?

I have made these comments in this Chamber and elsewhere quite a few times. Pensions are a mess just now, and anything we can do to get more people saving has to be seen as a positive. The evidence so far suggests that auto-enrolment is a positive, so I ask the Government to stop dragging their heels and get this in motion.

I am grateful to you for calling me to speak in this important debate, Sir Gary. I congratulate the hon. Member for Paisley and Renfrewshire South (Mhairi Black) on securing it.

Since October 2012, the Government have placed new duties on employers to ensure that their workers are automatically enrolled and contributing to a workplace pension. The duties ensure access to workplace pensions for workers who were not previously in a workplace pension scheme, who earn more than £10,000 and are above 22 years old.

The automatic enrolment into workplace pension schemes has broadly been a success. Ten million workers have now been enrolled into workplace pension schemes by more than 1.4 million employers. That means that 84% of eligible employees were participating in workplace pension schemes as of 2017—a nearly 30% increase since 2012. An estimated additional £18.4 billion a year will now go into workplace pension schemes because of automatic enrolment. I am also pleased that 79% of young workers aged 22 to 29 were participating in workplace pension schemes as of 2017, alongside 84% of women. The increase in workplace pension scheme participation among private sector workers is also welcome. There has been a nearly 40% increase between 2012 and 2017.

Despite initial concerns, opt-out rates from automatic enrolment into workplace pension schemes stood at 9% in 2017. That is significantly lower than initial Department for Work and Pensions estimates of 25% and highlights that employers and workers recognise the benefits of participating in workplace pension schemes. The initial success does not mean that more progress cannot be made. An estimated 12 million people are still thought to be under-saving for their retirement. Workers who earn more than £10,000 per year are automatically enrolled but end up losing out because their contributions are calculated from the bottom of the qualifying earnings band. Non-eligible workers who earn £10,000 or less a year in each of their jobs do not qualify for automatic enrolment, even if their combined earnings exceed £10,000.

Some eligible workers who earn at or just below the lower earnings limit in each of their jobs are not necessarily entitled to an employer contribution, even if they opt into a workplace pension scheme. Those earning less than £10,000 are missing out.

Young workers—particularly those aged 18 to 21—do not benefit from automatic enrolment because the lower age limit is set at 22. Employers are not required to automatically enrol workers whose earnings are below £10,000. There are other issues around automatic enrolment of those with multiple jobs and fluctuating earnings, and of the self-employed. I can add zero-hour contracts to that, because they often mean earnings of less than £10,000.

It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) on securing this debate, and I thank the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) for his contribution.

I am a firm believer in workers’ rights, but with Brexit on the horizon, it feels like even the most basic rights are no longer guaranteed or a priority. It speaks volumes that we are having this debate in this Chamber while the Brexit debate takes place in the main Chamber. It is important to recognise where the Government are taking positive action. Although it is not perfect, the attempt at auto-enrolment was one way for the Government to recognise the huge issues with the current pensions system. It has meant that eligible workers are automatically enrolled on a pension scheme, with the employer obliged to pay towards their employee’s pension.

In reality, however, it will allow pensions contributions to be paid at set limits and with set criteria, which the Government have set out in a phased timeline. The Government have made no firm commitments on when exactly the conclusion of that timeline will be, and in reality, it does not quite meet the mark of what is required for people to truly be able to plan for financial retirement.

If the Government were to scrap the lower earnings limit, as my hon. Friend outlined, that would allow pension contributions to be paid from the first pound of every worker’s salary. Currently, employers do not have to include the first £6,032 that an employee earns when calculating pension contributions, so if the Government removed the lower earnings limit, that would mean a significant increase to the employee’s pension pot.

As was outlined earlier, that would account for an extra £2.6 billion a year going into workers’ pensions, including £1 billion more from employers, according to the Government’s own figures. The Government released detailed plans to scrap the lower earnings limit in 2017, but have given only a vague commitment to take action on it in the mid-2020s. When does the Minister envisage that that will happen? 2023? 2024? 2025? 2027? Rather than the vague timescale that the Minister has set out previously, can he give a concrete guarantee about exactly when the lower earnings limit will be scrapped? To put that into perspective, research by the TUC outlines that a six-year delay could cut a saver’s pension pot by £12,000—based on the 2022 figure rather than the 2028 figure—which would make a sizeable difference to the affected individuals.

A whole raft of evidence, relating particularly to young or middle-aged women, shows that the Government are not hitting the mark on these matters. The WASPI women issue has run for many years and, if we consider the last economic crisis, women took the brunt of it: £14 billion was taken from women, through various tax measures, to deal with the crisis. Does the hon. Lady agree that it is about time that something was done about that?

I wholeheartedly agree. The Government have been remiss in their responsibilities to address those epidemic concerns that have increased during their stewardship in government.

I will turn to the concerns that I have outlined, including those of women, low-paid workers and the WASPI women, on whom the Government have a shambolic record. Low-paid workers, including those who have multiple jobs that do not meet that threshold, are more often than not below the earnings threshold and do not therefore meet the criteria for auto-enrolment. There is no mechanism for auto-enrolment for the self-employed.

Another group of individuals has also been completely forgotten in this programme. There is a duty to enrol for those aged between 22 and the state pension age. Those in the six-year gap between the ages of 16 and 22 will therefore be adversely impacted by that decision. The Government acknowledged that problem, but addressed it by saying that many people in that age group tend to move jobs a lot, so it is not administratively worthwhile to account for them in the programme.

What do the Government say, however, to a young person who goes into a full-time permanent job at 16? Are they not entitled to pension contributions? The UK Government have said that they will lower the age to 18 by the mid-2020s. Can the Minister tell us exactly when that will happen?

The contribution is currently set at £6,032, going up to a threshold of £46,350. That has been on a phased increase since 2012. In reality, the minimum recommendation that is currently estimated for pension savings is 15% to 18%. If the Government were to remove the lower earnings limit, it would add £2.6 billion to the annual pensions pot. That would still account for only 8% of the estimated required pension savings. That means a shortfall of 12%, on average, for each individual of working age in the UK. The Government have to address that.

I hesitate to interrupt the hon. Lady’s flow—but I am also allowing her to take a sip of water. Of course I will cite the pensions dashboard, which I am sure that the SNP very much support and in reality will make a significant difference, but there is also the Single Financial Guidance Body, which was set up under legislation passed last year. It is there specifically to cater for the vulnerable and to assist those who require greater ongoing access to pension advice. I hope that she will accept that such matters, passed on a cross-party basis, are evidence of ongoing assistance to people she and I genuinely care about.

I thank the Minister for that intervention. He might well remember that the SNP supported the concept of a pensions dashboard, but the Government rejected a number of key amendments in which we argued for the protection of vulnerable individuals. We are singing from the same hymn sheet about our ambitions and aims, but the fact of the matter is that the Government have the responsibility to introduce the scrapping of the lower earnings limit and the introduction of auto-enrolment pensions contributions, at the very least for those aged 18 and over, and at present they have not made a commitment to do so. He must act on his own words.

Women are often the primary parents or carers for loved ones. They are often the ones who take career breaks and part-time or flexible work to fit in with their responsibilities. They also live longer and work more hours to make ends meet. They are the most likely to be impacted by this Government’s decisions and will bear the long-term impact of the changes. Why is the Minister delaying, and to what end? Is he hoping to kick the issue further down the road so that this Government do not have to deal with it, and a future Government will, or will he give a cast-iron commitment today that he will do something to address the issue on lower earnings limits and for each of the vulnerable groups that I have mentioned?

Ultimately, ensuring that every pound earned by every worker counts towards their pension should be an ambition that we all strive for. If the estimated savings of a pension ought to be 15% to 18%, the Government’s ambition to reach 8% already falls short. The whole low-paid workforce should predominantly be recognised for their hard-earned contributions. I hope that the Government will answer the questions that my hon. Friend the Member for Paisley and Renfrewshire South and I have asked today, and that they will commit to deliver on this policy.

It is a pleasure to take part in this debate with you in the Chair, Sir Gary.

I congratulate my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) on securing this debate and once again leading the agenda in this place on pensions matters. Frankly, as the youngest Member of the Commons, she is an example and a role model to speak so well with authority and eruditeness on an issue that more young people should embrace and engage with. As I approach my 33rd birthday, I include myself and my peers in that youthful bracket—

We are going for consensus in this debate, Minister, so we should continue on that ground.

The SNP supports and has always supported auto-enrolment but, as my hon. Friend the Member for Paisley and Renfrewshire South highlighted, we remain critical friends. Only last month, I raised the delay in scrapping the lower earnings limit threshold when the Minister brought the relevant statutory instrument to the Floor of the House. My hon. Friend mentioned a number of benefits if only the Government would scrap the threshold, and during the SI debate the Minister said that auto-enrolment was a success story. I agree, but we could make it so much more successful if we only got on with it.

I hope that we can build on what my hon. Friend rightly said in arguing for the lower earnings limit to be scrapped and that, in summing up, the Minister will provide us with a clear and concrete timetable for the UK Government to meet and achieve their policy promise. I would also appreciate him clarifying whether implementation of the commitment to scrap the lower earnings limit will require a submission to the comprehensive spending review and, if so, is that being prepared by his Department?

I am sorry that I do not have more contributions to the debate to sum up. It is obviously an important debate and I am sorry that no one other than the Minister—I look forward to hearing from him—and his Parliamentary Private Secretary, the hon. Member for Gordon (Colin Clark), managed to drag themselves away from the unfolding Brexit mess going on in the main Chamber.

I am grateful to those who have contributed to the debate, including my constituency neighbour, the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), for being present and for his speech. He also spoke in favour of the Government’s policy being implemented, and he rightly reiterated much of the information and statistics that my hon. Friend the Member for Paisley and Renfrewshire South provided to the House in her speech. He was also right to refer to the age restrictions; he mentioned the WASPI women, and I am sure he would agree that no one outside the WASPI campaign has done more to raise the profile of those women, argue their case, or represent them in this place than my hon. Friend.

It is a pleasure to serve under your chairmanship, Sir Gary.

I pay tribute to the hon. Member for Paisley and Renfrewshire South (Mhairi Black) for initiating the debate. I strongly agree with her that however central Brexit is to the future of our country, we run the risk of issues of immense importance and concern to the general public not being properly addressed here. I therefore commend her for bringing forward the debate.

The Minister will forgive me if I say what I have said on previous occasions: auto-enrolment is a testament to the previous Labour Government. I played a bit part in the process by chairing the policy commission that led to the appointment of Adair Turner. It was his genius and the team he brought together that ultimately produced the proposals for auto-enrolment. That was at a time when there were great strengths in the pensions system, such as many more defined-benefit schemes than, sadly, there are now. However, it was clear then, as it is now, that millions of people were simply not covered, or not covered adequately, by the existing pensions arrangements, so auto-enrolment was an important step in the right direction.

I welcome the fact that there has been continuity of policy. There is also cross-party consensus about the importance of auto-enrolment and of building on it at the next stages. There is no question but that a better pension landscape has been created; 10 million more workers are estimated to be newly saving, or saving more as a result of auto-enrolment into master trusts. That has led to an additional £17 billion and rising of pension savings put away, mostly by lower-income workers. We welcome the Government’s direction of travel, yet to be delivered on in practice, for those who are 18 and over; but I support the representations made that however welcome the direction of travel, it has to be acted on urgently at the next stages. I, too, look forward to the Minister’s response.

Although auto-enrolment is a landmark achievement, it is not a perfect system. Over and above the issue of the age threshold, there are other issues that crucially need addressing. First, the threshold for which workers are automatically enrolled is simply too high. In previous debates we have referred to the statistics, which speak for themselves. Department for Work and Pensions statistics show that 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 Government are undertaking pilot projects, and we support that crucial initiative. Sadly, because of the nature of work as a whole, female workers, workers with disabilities, and black, Asian and minority ethnic workers are over-represented among low earners, the self-employed, those with multiple jobs and carers.

I congratulate the hon. Member for Paisley and Renfrewshire South (Mhairi Black) on securing the debate. It is a fair and legitimate comment that some hon. Members are a little distracted by other matters taking place in the House of Commons, but I make the point that although we may have our differences on Brexit and all the difficult issues that are being debated in the main Chamber, the House is still debating and considering other matters, such as legislation on female genital mutilation, which was passed on a cross-party basis last night, and auto-enrolment, which is crucial to the long-term retirement future of all our constituents from all different backgrounds.

I genuinely welcome the debate. When I saw it on the Order Paper, I felt pleased to have the opportunity to debate auto-enrolment and to address this particular issue. The hon. Members for Paisley and Renfrewshire South and for Lanark and Hamilton East (Angela Crawley) have raised the issue in a series of parliamentary questions. I answered those questions at reasonable, but clearly not sufficient, length on 20 and 21 February, and I will attempt to address them in more detail today.

It is right to celebrate, as other hon. Members have done, the fact that in the constituency of the hon. Member for Paisley and Renfrewshire South, 6,000 men and women are benefiting from auto-enrolment. Thanks are due to the 1,130 employers that have genuinely stepped up to the plate and are in the position to make that contribution through their payroll deduction to employees up and down her constituency.

I should also say that it is a pleasure to serve under your chairmanship, Sir Gary. Given that I have a little time, I make the point that in your Devon constituency, you have 6,000 employees who are benefiting on an ongoing basis, and 1,350 very good employers that should be thanked.

It is embarrassing how often I agree with the hon. Member for Birmingham, Erdington (Jack Dromey), but he is right that this is a cross-party success story that, in my view, all political parties have got behind. I will turn to the points of the hon. Member for Paisley and Renfrewshire South in a second, but the hon. Member for Birmingham, Erdington is right to say that the process was started under a Labour Government with the Turner commission. It was then brought forward under the coalition, when my position was held by a Liberal Democrat, Steve Webb, late lamented of this House—although I think we took his seat, so he is not that lamented.

More particularly, I am the latest in a long line of pensions Ministers and Secretaries of State for Work and Pensions—including the right hon. and learned Member for Camberwell and Peckham (Ms Harman), who is married to the hon. Member for Birmingham, Erdington—who have brought forward these very positive changes. They were developed by the coalition Government, and we have expanded on them.

We accept and are grateful for the Government’s continued commitment to scrapping the lower earnings limit and reducing the age limit. We welcome that commitment today. It is not just the SNP and the official Opposition who have been putting pressure on the Minister. The Minister has put pressure on himself, because he committed that this would be done by the mid-2020s. Is that still likely? If so, my previous question stands: where is the timetable for that to be achieved?