Automatic Pension Enrolment

Before we begin, I remind hon. Members that they are expected to wear face coverings when they are not speaking in the debate. This is in line with the current Government guidance and that of the House of Commons Commission. I also remind Members that they are asked by the House to have a lateral flow test before coming on to the parliamentary estate. Please give one another and members of staff space when seated and when entering and leaving the room.

I beg to move,

That this House has considered the matter of automatic pension enrolment.

It is a pleasure to serve under your chairmanship, Mr Dowd. We are considering the matter of automatic pension enrolment, but let us not speak too loudly about it. For the past decade, this has been one of the most remarkable success stories, yet also somehow one of our best-kept secrets. It all began in 2005 with the pensions commission looking out on a bleak private pension market. It knew that we had to act to boost the number of savers and savings in the UK to give people greater security in their retirement. The commission formally proposed, as part of its work, that those over a certain age and income be automatically enrolled in a pension. The Labour party, the Conservative party and the Liberal Democrats all agreed, and after the Pensions Act 2008 was passed the coalition Government carried this through.

The results have been remarkable, transforming the UK pension landscape. For example, whereas the rate of workplace pension participation fell to 55% between 2009 and 2012, that rate is now a remarkable 88%. Today, more than 19 million eligible employees participate in a workplace pension and, together, save more than £100 billion in a single year. More than 10 million people are now saving or saving more, increasing pension savings by an incredible £17 billion. Two million fewer people are under-saving for their retirement than would otherwise have been the case. There has been a 50% increase in participation among the young, between the ages of 20 and 29. The greatest increases in pension participation by earnings have come from low to moderate earners. Let me put it simply. Savers are up. Savings are up. Men and women are participating equally. And the lowest earners have benefited the most.

That is perhaps a sign of what we can do when we work together but other, indirect benefits have been seen. For example, studies have shown that auto-enrolment has eliminated the mental health participation gap. Our fight against climate change has been bolstered: with savings volumes increased, UK pension funds now have more assets to invest in high-growth technology that is green or in renewable energy.

Does my hon. Friend agree that the opportunity to invest that money exists and could be pushed further, into local communities—particularly ones such as Sedgefield?

My hon. Friend is a great champion of Sedgefield. I am grateful for that intervention, and he is absolutely right. I have spoken before about the many ways in which we can use and mobilise private capital to pay for green technology and renewable energy, but decisions about where those infrastructure sites are have to be taken by local authorities wherever possible.

Today, though, the top point that I want to make in terms of all these benefits is that auto-enrolment has helped to bring about a cultural change in our society. When our economy does well, our savers do well. Automatic enrolment helps to democratise capital. It creates millions of new investors, millions of new capitalists. It is part of what, over many decades, people have called the property-owning democracy, ensuring that most of those who can vote have a stake in our economy. When they put an x in a box on a ballot paper, they have that in mind—they have skin in the game.

However, when a policy has such an impact and is so successful, it is right that we debate and discuss how we can build on that success. Many in this place have put forward suggestions—I pay great tribute to my hon. Friend the Member for North West Durham (Mr Holden) for his excellent private Member’s Bill—the Pensions (Extension of Automatic Enrolment) Bill—and to the work that Onward, in particular, has done—so let me add my name to those calls. Of all the options the Minister has in front of him, expanding automatic enrolment to those aged 18 to 21 will have the most material impact for our country. Automatic enrolment should be extended as a priority to young workers, because for them the potential compound interest is greatest, the pressures of demographic change are most acute, the challenges of mental health and climate change are especially relevant and the need for greater financial inclusion is most pressing.

The challenge for this age group is stark. Only 18% of eligible 18 to 21-year-olds are currently enrolled in a workplace pension.

Does my hon. Friend agree that we need to ensure access to pensions for not just young people but those in multiple jobs who do not reach the £10,000 threshold in a particular occupation? In Sedgefield and the surrounding villages, there are many people in low-paid work who do multiple jobs to try to reach a certain earnings level.

My hon. Friend makes an important point. For the purposes of my remarks I want to focus on young people because, as I said, that will have the most material impact, but I know that others will speak about the points he raises.

Today, over four out of five 18 to 21-year-olds are missing out on the benefit of compound interest, despite belonging to the very group for whom the potential for exponentially increasing savings is the greatest.

I agree with the principle of extending automatic enrolment to young people, and I realise that the 2017 review of automatic enrolment recommended extending it to 18-year-olds. What does the hon. Gentleman think about the merits of extending it further, to 16-year-olds, who might well have left school and be in full-time work? If we are talking about the benefits of compound interest, an extra two years could make a huge difference.

The hon. Gentleman makes a good point: the earlier one starts saving, the greater the impact of compound interest. However, for me, balancing all the factors—particularly the impact on businesses—I think we should start where we can, with 18 to 21-year-olds. But it is not the case that we should not discuss his point at a later stage.

Is it any wonder that we find ourselves in this situation, given the general lack of savings culture in this United Kingdom? We have a culture, developed over decades, of relying on quick cash, quick results and tangible output. Although many talk about the aspiration to own a home, few talk about securing their retirement through a pension. Auto-enrolment will help with this, but we must also look at other ways to ensure that the option of saving for the future is more apparent.

Preparing for today, I was shocked to find a study by the National Association of Pension Funds that found that just 12% of job adverts mention the employment pension scheme that is offered. That compares to 71% of ads that mention the salary—even though the pension contributions can amount to about a third of total take-home pay. We need to look at this more broadly.

There is so much potential for our pension system to effect change, whether addressing the need for long-term savings, as I have discussed today, the need to tackle the fact that 10 million people have less than £100 in short-term savings or the fact that so many young people today never even get close to building a deposit for their first home. I believe that our pension fund market could provide the answers to those challenges. As such, given that it is now nearly 17 years since the Turner commission, I would like us all to agree cross-party that whoever is in government in 2024, we will look to launch a new pensions commission, looking specifically at the long-term challenges I have discussed and the opportunities the UK pension fund market can provide to citizens across this country.

It is always a pleasure to speak on these matters, and it was especially a pleasure to hear the hon. Member for Grantham and Stamford (Gareth Davies) set the scene so well. We are here to endorse his words, and we look to the Minister for a response on the issues that still concern us and on which we wish to see action taken. It is also a special pleasure to say that I am one of those who bought into a pension at an early age, and I want to emphasise the importance of pensions to young people who do not fully understand the necessity or the benefits of having one.

I am pleased to see the Scottish National party shadow Minister, the hon. Member for Kilmarnock and Loudoun (Alan Brown), and the Labour shadow Minister, the hon. Member for Reading East (Matt Rodda), but I am especially pleased to see the Minister in his place. I had the opportunity to have him visit my constituency some two and a half years ago, before covid. That visit was to the local credit union. George Proctor was the manager, and the staff were there. We are very pleased to have them there. We were also very pleased to welcome the Minister, and we invite him to come back and get an update, if at all possible—if he has space in his diary.

It is an honour and a privilege to be able to intervene on the hon. Gentleman, who is a legend in this House for the fact that he intervenes every single night in the Adjournment debate. I well remember the trip in July 2018, I think it was, to Newtownards Credit Union. It is particularly memorable—colleagues will understand about ministerial visits—because when I arrived I was presented with a ginormous slice of home-made lemon drizzle cake, made by one of the team there. In my view, that is how all Ministers should be greeted.

I think I can say on behalf of Newtownards Credit Union that when the Minister does return, the slice of lemon drizzle cake will be even bigger than the last one he had. I will send today’s copy of Hansard to the staff and let them know what his expectations are. Joking aside, the Minister understands these issues and is always keen to address the concerns we have. Before we have any debates, he will always come and say to me personally, “Is there anything at all you want to bring forward today?” and then he tries to address those issues, which is something I especially appreciate. I wish all Ministers were the same, but I congratulate this Minister on doing that.

Provisions in the Pensions Act 2008 placed a responsibility on employers to automatically enrol job holders into, and contribute to, either a qualifying pension scheme or a new personal account scheme. Those duties apply to all businesses, regardless of size, which I for one welcome because it is the right thing to do. In his introduction, the hon. Member for Grantham and Stamford encapsulated the thoughts of us all about the growth of pension enrolment and how it benefits people. It is crucial that those eligible to put small amounts of money aside into a pension pot, whether they work in a small local café or in a large mechanical chain company, do their bit.

That legislation has reversed the decline in workplace saving. There has been a drastic increase in the total membership of defined contribution occupational schemes, from 2.1 million in 2011 to an outstanding 21 million in 2019—if that does not take Members’ breath away, I do not know what else would. I am of pension age, but at approximately the age of 20, I remember my mother saying to me, “Jim”— or James, as I am on my birth certificate—“we need to go and start a wee pension for you.” I said, “Oh, Mum, I’m too young to deal with that. I am not going to bother.” Mum insisted, and whenever your mother insists, you do not have any choice. We trotted down to the local place and I enrolled in a pension, some 45 years ago. At the time, I may not have understood that pension, but I understand the benefits of it today as it comes to its culmination.

I am an accountant by trade. I contributed to a pension for a long time. My wife also contributed to a pension for a short number of years before we had our daughter. When I came to retire aged 56, just before I came to this place, we looked at the balance of the pensions and found she had made a disproportionate contribution in relation to the time that she had spent working, because it was right at the start. Does the hon. Gentleman agree that communicating with people about the importance of early and continuous contributions is vital? It is not just a triviality, as it is so important to the outcome at the end. Personally, I am benefiting massively from what happened at that early stage. I do not think we get the message out about how important this is for people. Does the hon. Gentleman agree that communications are important?

I thank the hon. Gentleman for his comments. He is right that it is best to make contributions from an early age. I can speak to that and the benefits of it. Even though I may not have understood that at that time, my mother was insistent, so I enrolled. Today, we see the benefits of all the things we did in the past.

To be eligible for a compulsory pension scheme in Northern Ireland, a worker must be at least 22, under state pension age and earning more than the minimum earnings threshold. I know some young people who have been paying into pension pots from as young as 18, but that is down the employer and employee discretion. I do not see a reason why young people who are in consistent work should not be contributing to their future, as referred to by the hon. Member for Sedgefield (Paul Howell).

As this subject is not taught in schools, young people feel unaware of the importance of taxes and pensions. I urge the respective Ministers to think about that in relation to schools. There may be a way of suggesting to young people at an earlier stage that they need to be making contributions, perhaps through an introduction provided while they are at school.

I find it difficult to believe that the hon. Gentleman started his pension contributions 45 years ago, as he cannot possibly be of that advanced age. He reminisced about how his parents drilled into him the importance of starting early. In his opinion, what has happened since those years? How did we go from the point of saying that it was a personal responsibility? How did we go from the point of our parents drilling into us the importance of saving for deposits for a house, as we heard earlier, and for retirement? Is the situation we have now on automatic enrolment satisfactory in terms of getting us back to where we were before?

I think the figure gain tells it as it is. We went from 2.1 million people to 21 million people; the increase was massive. People from my generation were very responsive to what our parents told us and we did what they suggested because they knew best. Today the companies are trying hard and encouraging people but, as the hon. Member for Grantham and Stamford said in his introduction, education might be another way of helping us get even beyond where we need to be.

In February 2021, a report from the National Employment Savings Trust looked at the impact of the covid-19 outbreak on its 9.5 million members. It found no significant changes in average contribution levels; the majority had continued to save, with around one fifth contributing more than the minimum contribution rate. That tells us that the scheme is successful for some—potentially, everyone—and helps people to save. I find those figures reassuring and proof that this legislation is beneficial, which may answer the question raised by the hon. Member for Delyn (Rob Roberts).

There is absolutely no doubt that this legislation has brought many benefits. Pensions help people maintain their standard of living in retirement, and savings provide important supplemental income for unforeseen expenses. Pensions are an economically efficient way to fund retirement, which means they are a prudent use of taxpayer money.

Others have expressed a few concerns about the lack of pension provision for the self-employed, and I have a question for the Minister. How and when should pension contribution rates increase above the 8% minimum? It is important that there is provision for the self-employed. There are 134,000 self-employed people in Northern Ireland. In Strangford, and perhaps in other constituencies as well, we have a tradition of many people being self-employed. I had a period of self-employment but continued to pay the pension contributions. That was probably when I increased the number of pension schemes I was in. Perhaps the Minister could indicate how we might encourage the self-employed to be involved. That is my question for the Minister, and I know I will get the response I wish for.