Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021
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Baroness Stedman-Scott
That the draft Order laid before the House on 12 January be approved.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)
My Lords, I am pleased to introduce this instrument, which, subject to approval, reflects the conclusions of this year’s annual review of the automatic enrolment earnings thresholds required by the Pension Act 2008. The review considered the earnings trigger and the qualifying earnings band for the tax year 2021-22.
The earnings trigger determines the point at which a qualifying worker becomes eligible for automatic enrolment in a qualifying workplace pension. The qualifying earnings band determines the earnings upon which workers and employers pay contributions into a workplace pension. This order sets a new upper limit for the qualifying earnings band and is effective from 6 April 2021. The lower earnings limit is not changed within the order and remains at the level set in the automatic enrolment threshold review order of 2020-21, so no further provision is required. Similarly, the earnings trigger is not changed within this order and remains at the level set in the automatic enrolment threshold review order of 2014-15, so no further provision is required. I am satisfied that the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021 is compatible with the European Convention on Human Rights.
Automatic enrolment has been a hugely successful policy resulting in over 10 million workers being enrolled into workplace pension savings since 2012. Over 1.7 million employers have met their automatic enrolment duties. Automatic enrolment has become business as usual for employers and workers, and this success, supported by all sides of this House, is something that we all can celebrate. Automatic enrolment is re-establishing a culture of retirement saving and making workplace pension saving the norm for a new generation. However, that does not mean that it is mission accomplished. The Government recognise that there is still more to do as we continue to work towards our commitment of helping people to achieve greater financial security in retirement. We also understand that there is more to do for those who are not saving into a workplace pension, which is why we look at the automatic enrolment thresholds annually, ensuring that the coverage remains right.
As noble Lords will be aware, the Automatic Enrolment Review 2017: Maintaining the Momentum, set out our ambition to remove the lower earnings limit and lower the age threshold in the mid-2020s. While I recognise that there has been a reasonable degree of interest in when these measures will be implemented, we also must consider how they will be implemented and find ways to make them affordable for all parties.
It is important to recognise that the success of automatic enrolment has been achieved through a considered and systematic approach to implementation over a period of years which recognises the need to understand and manage the impact on employers and individuals as well as taxpayers. That is why the 2017 review report was clear that implementation will be subject to learning from changes in the automatic enrolment minimum contribution rates, discussions with employers and others on the right approach, and on finding ways to make these changes affordable. As with other areas of public policy, it is important that we pay close attention to the impact and costs of making changes and consider the optimal approach on implementation. This has been further highlighted by the impact of the pandemic and our overall support for the economic recovery. We will continue to support long-term saving, balancing the needs of savers, employers and taxpayers.
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.
Baroness Stedman-Scott (Con)
My Lords, I thank all noble Lords for their contributions to this important debate and echo the words of the noble Baroness, Lady Sherlock, about how interesting and robust it has been. I have listened to the questions and sought to prepare my answers, but I am sure that I will not get them all in during the time that I have. If I do not answer all questions, I will undertake, as always, to write to noble Lords.
The noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, asked about implementation of the AE review measures and whether it was appropriate to take forward the 2017 review. Our ambition is to introduce the changes set out in the Automatic Enrolment Review 2017: Maintaining the Momentum to the lower earnings limit and the age threshold in the mid-2020s. We will do this in light of the impact of the pandemic and our overall support for economic recovery. We will continue to support long-term saving, balancing the needs of savers, employers and taxpayers.
The noble Lord, Lord McKenzie, spoke about explaining the modelling changes and calculating their impact. It is important that our estimates are as accurate as possible and that we review our analysis regularly to make best use of the data available. We have therefore moved to a new model that better reflects the latest data available since the full implementation of automatic enrolment. This has improved the accuracy of our estimates.
The noble Lord, Lord McKenzie, asked why the Government did not change the AE thresholds to enable more women to save; other noble Lords also made that point. Automatic enrolment has helped millions more women save into a pension, many for the first time. Participation among eligible women working in the private sector has risen from 40% in 2012 to 86% in 2019. Our ambition is to remove the lower earnings limit, which would ensure that all workers benefit from an employer contribution if they are enrolled or opt in.
The noble Lord, Lord Bourne, the noble Baroness, Lady Bowles, and my noble friend Lady Altmann raised net pay arrangements. I am not trying to avoid answering the question, but this is a matter for the Treasury and in the 2020 Budget the Government announced a call for evidence on pension tax relief, which also set out the Government’s views on the proposal already put forward. The call for evidence is now closed and the Treasury is analysing the responses received from stake- holders and will respond to the call for evidence in due course. I appreciate that this cannot come quickly enough for noble Lords.
My noble friend Lady Altmann raised the issue of data. I will need to write to her about that.
The noble Baroness, Lady Bowles, asked about the interaction between how benefit assessments are made and pension payments. I thank the noble Baroness for her question; it is a complex matter and I will write to her. The noble Baroness also asked about the conclusions on NPA/RAS rates and whether employers check how many employees are affected. It is for employers to choose the pension scheme that they use and the Pensions Regulator has guidance on its website about the implications of these two schemes. The Treasury is responsible for this; it has publicly carried out the consultation and will report on it in due course.
My noble friend Lady Altmann asked what we can do to ensure that the amounts paid in are correct. Where it suspects non-compliance, the Pensions Regulator carries out compliance investigations on all types of employers in all parts of the UK. In particular, the regulator conducts complex manual investigations into serious prolonged breaches and suspected offences related to automatic enrolment. In most instances, a compliance notice or unpaid contribution notice is sufficient to get the employer back on track.
The noble Baroness, Lady Drake, raised the issue of rising unemployment and asked whether it would increase small pots and when the Government would have a solution. The Government launched the small pots working group to help identify options to tackle the growth of deferred small pension pots. It is clear from the working group that more needs to be done by pension providers, working together with regulators and the Government. We welcome this work and, along- side this, the Government support the work by providers and others on developing proof of concept trials to help move towards solutions. We will study the working group’s recommendations in detail this year.
My noble friend Lord Bourne and the noble Lord, Lord Hain—who is to be congratulated on the work he did in introducing various pension changes when he was Secretary of State for Work and Pensions—asked why the Government did not change the AE thresholds to enable more women to save more. As I have said before, automatic enrolment has helped millions, particularly women, save into a pension scheme for the first time. Our ambition is to remove this limit to ensure that all workers can benefit from an employer contribution if they are enrolled or opt in.
My noble friend Lord Bourne and the noble Baroness, Lady Janke, asked whether we should be encouraging people to save more into pensions and what information about education is being provided. The Government have been active in raising awareness of the importance of pension savings and in driving tools, such as pensions dashboards and simpler pensions statements, to enable people to engage.
The noble Baronesses, Lady Wheatcroft, Lady Sherlock and Lady Janke, and the noble Lord, Lord Hain, all raised intergenerational fairness and the issues affecting young people. The Government’s approach to this is to ensure economic security for working people at every stage of their life. I note the points that all noble Lords have made, particularly the noble Baroness, Lady Drake, about the impact on young people of a very difficult economy and labour market. I confirm to the whole House that we are working flat out on our plan for jobs to get people back to work as quickly as we can. There is a huge focus on young people.
The noble Lord, Lord Hain, asked about the self-employed. The self-employed are a highly diverse population with different incomes and saving experiences. That is why we are committed to carrying out a trialling activity to identify the role of behaviour prompts.
I thank my noble friend Lady Gardner of Parkes for talking about the impact on women of freezing the trigger rates. The decision to freeze the trigger again between 2020 and 2021 has already been confirmed and an additional 8,000 individuals will enter the system.
I am touched by what the noble Lord, Lord Foulkes, said about me—I count him as a noble friend, too. The Government are very serious about the gender pensions gap. It is caused mainly by inequality in the labour market, including differences in working patterns and earnings. We need to ensure that women have the resources needed to make informed decisions. I take on board completely the point raised about charities, and I will write to the noble Lord on that.
The noble Baroness, Lady Ritchie, raised some issues regarding Covid-19 and its impact. We are gathering, monitoring and evaluating workplace pension participation and savings data in order to develop as complete and robust a picture as possible.
My noble friend Lady McIntosh asked about multiple job holders. I will write to her. The noble Lord, Lord Davies, raised the issue of Uber, which was also mentioned by the noble Baroness, Lady Janke. Again, I will need to write.
I am very sorry, but I have run out of time. I will write to noble Lords to answer their questions. To confirm, this order increases the automatic enrolment upper qualifying earnings limit to £50,270 and freezes the lower qualifying earnings limit at £6,240, thereby maintaining the alignment of the automatic enrolment qualifying earnings band with the earnings limits for national insurance contributions. The earnings trigger will also remain at its existing level of £10,000, all resulting in an estimated overall increase in total pension savings year on year. I commend this order to the House.