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Peter Dowd (in the Chair)
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.
Gareth Davies (Grantham and Stamford) (Con)
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.
Paul Howell (Sedgefield) (Con)
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?
Gareth Davies
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.
Paul Howell
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.
Gareth Davies
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.
Alan Brown (Kilmarnock and Loudoun) (SNP)
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.
Gareth Davies
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 pension 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.
Jim Shannon (Strangford) (DUP)
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.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
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.
Jim Shannon
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.
So often, people find that they have been paying into a couple of pensions. Only a couple of years ago, I found out that I had being paying into four different pensions along the way. It is great way of saving. I may not have seen that at the time, but I see it now.
Paul Howell
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?
Jim Shannon
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.
Rob Roberts (Delyn) (Ind)
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?
Jim Shannon
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.
I want to conclude because I am conscious that others wish to speak. Automatic pension enrolment for workers makes sense and is a good deal. Pensions not only help the local economy but are a win-win situation for employers, employees and local business owners. The figures are astonishing: since 2012, more than 10.2 million workers have been automatically enrolled in pension schemes and that is on the increase.
The scheme is a success, and we thank the Government for their encouragement and promotion of it. I only suggest that it could be approached educationally at an earlier stage. I urge the Department for Work and Pensions to look at the issues others will raise on pension enrolment and to step in to solve them. None the less, I thank the Minister and Government for all they have done.
Peter Gibson (Darlington) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd, and to be called to speak in today’s debate, which has been so ably led by my hon. Friend the Member for Grantham and Stamford (Gareth Davies). The debate raises an important issue and I congratulate my hon. Friend on securing it. It follows on from the excellent ten-minute rule Bill recently introduced by my hon. Friend the Member for North West Durham (Mr Holden).
When auto-enrolment was introduced, I recall being fearful of the impact it might have on my business at the time, and of the costs that it would pass on to me as an employer, but auto-enrolment has proved to be a huge success, reversing the decline in workplace pension saving and ensuring that millions more people are now saving for their future. I saw at first hand the benefits that the scheme has had on the lives and futures of my employees. Employees who would never have considered being part of a pension scheme were put in a position where it became a simple and easy process. For the first time, they were ensuring that they did not fall into the trap of under-saving for retirement, encouraging self-reliance and responsibility.
There are still huge numbers of hard-working people who are not auto-enrolled in pension schemes, with many excluded on the basis of youth or purely because they are not working enough hours or earning enough. For those under the age of 22, the numbers are woefully low. Among those in part-time employment, although some will earn more than the £10,000 threshold, the numbers auto-enrolled are still significantly lower than among those who are in full-time employment.
The minimum age of 22 simply does not work for those who choose not to go to university. Why should someone who chooses to start working at 18 not pay into a pension from that age, in the same way as someone who is 22 does? They would have so much to gain from auto-enrolment being extended to them; we have already heard about the magic of compound interest.
The current system also disproportionately affects women and the poorest in our society, who are more likely to be in part-time work and have multiple part-time jobs, like many in my constituency of Darlington. Although Darlington has 1,820 employers, with 26,000 employees auto-enrolled, I am encouraged that the proposed extension advocated by my hon. Friend the Member for Grantham and Stamford would add almost 900,000 extra savers across the country. Those workers are often employed in industries, such as hospitality or retail, that have faced huge difficulties during the pandemic, but are in many cases the backbone of our workforce. It is only right that we do all we can to ensure that they do not miss out on future financial security; that is levelling up.
Extending auto-enrolment could add trillions to the nation’s pension pot. It is a chance to ensure that people start to save for their future while they are young. It also allows us to ensure that the poorest in society have a more secure future and takes steps towards closing the gap between men’s and women’s pension savings.
In 2019, I stood on a manifesto to level up communities across the United Kingdom and the extension of auto-enrolment is a policy that has the potential to have a really positive impact on people’s futures. It would be a commitment to level up for the long term.
As we contemplate how auto-enrolment can help us deliver on our levelling-up agenda, we must not forget the role of pension companies and the positive impact that these changes could have on their work. Auto-enrolment increases the resources available to them and provides a steady, long-term stream of capital for investment across the UK—investment that can be directed to the communities that are home to those who currently miss out on auto-enrolment, letting them see the benefits of their own savings.
I know that the extension of auto-enrolment would have huge benefits for many people in Darlington and across the country, so I hope that the Government will give this policy real consideration, as we continue to build back better from the pandemic and level up our country.
Peter Dowd (in the Chair)
For the benefit of Members, if you do wish to speak—notwithstanding that you have asked to speak—would you rise? Thank you.
Duncan Baker (North Norfolk) (Con)
I thank my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for getting us all up so early—9.30 am on a Wednesday—to talk about our favourite subject, which is clearly auto-enrolment.
I will start by being very rude and saying that we often see private Members’ Bills introduced that are nothing more than political graffiti. However, the one recently introduced by my hon. Friend the Member for North West Durham (Mr Holden) on this issue is far from that, and we should give a great deal of consideration to how it fits with this debate. People might expect me to say that, because I am an old bean-counter. Before I came into this place I was a former finance director, and I remember with utter dread the systems and processes that we had to implement to deal with auto-enrolment.
Although most people tend to glaze over when we talk about pensions—present company excepted, obviously—this idea is really sound. That is because, let us face it, we are living in an ageing population all of the time, and in any person’s view the need to save for our retirement is extremely important; and the crux of the matter is that the sooner someone does it and has the opportunity to do it—two important parts of what we are discussing today—the better for society. After all, many people will have in their pension savings the highest asset that they will ever hold.
The other reason that this debate is so important to me is because I am going to do something that not many MPs do in this place—admit how wrong I have been about things. Yes, I will now say that I made a mistake. That is because I remember the days when auto-enrolment first came in—my hon. Friend the Member for Grantham and Stamford makes me feel very old, because 2005 feels like a very long time ago—and I remember that at the time I thought, “What a waste of time auto-enrolment is.” I bemoaned how much it would cost us as a company, and the meaningful contributions that people would make were so small when auto-enrolment first started that it was a total nuisance to administer and I wondered whether it would really make much of a difference, precisely because people’s contributions were so low. In addition, I expected that people would simply opt out—that there would be a knock on the door three months later and someone would ask, “Duncan, can you please take us out of this scheme?” But people did not, and that is because the Government got it right. They made those initial contributions so low that people got used to it.
So, on those two counts, I got it completely wrong. That is why I back what my hon. Friends the Members for Grantham and Stamford and for North West Durham are proposing, because with nearly 90% of people now participating in a workplace pension, old cynics like me have been proved totally wrong. The fact that we now have 10 million workers in an auto-enrolment scheme in this country is a testament to how extremely good auto-enrolment has been. It has created momentum—momentum for people to take responsibility and save for their retirement.
My constituency of North Norfolk is very beautiful, but we have a disproportionate number of lower earners. It is a coastal community; hospitality and retail are very important, and therefore form a chunk of lower earners. Why are we not making it easier for everybody to contribute, to allow younger people—that rump of my workforce—to have that chance earlier? All the statistics show that they will reap the benefits of getting started on that ladder earlier. It is a very simple proposal, but it has far-reaching consequences. If it opens up more people to take that responsibility, to be able to earn for their retirement, I think it is extremely worth considering and I am very happy to back it.
Simon Baynes (Clwyd South) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd. I thank my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for bringing this very important debate to Westminster Hall this morning. I am not declaring an interest but, like other hon. Members present, I was involved in the financial world in a previous life, having worked for 25 years in the financial services industry. I have also been a trustee of several charitable investment portfolios, and served as a member of the pensions and investment committee on Powys County Council during my time in local government.
I fully support the point made by my hon. Friends the Members for Grantham and Stamford and for Sedgefield (Paul Howell) that the issue of auto-enrolment is not only about benefiting employers and employees, but about the huge amount of capital that builds up in those funds and the constructive way that it can be invested for social and environmental good, and for the general improvement of the economy.
Much mention has been made of the statistics showing the remarkable transformation of the pensions industry since the introduction of auto-enrolment, so I will not go on at length about them. However, I would like to pull out one or two contrasting statistics. We have heard that nearly 90% of employees are now workplace pension members, compared with only 50% in 2012 before auto-enrolment was introduced. Auto-enrolment has resulted in a significant increase in pension membership, particularly of defined contribution schemes—another very important aspect. The statistics carry on; they are extremely impressive. The hon. Member for Strangford (Jim Shannon) has alluded to that, so I will leave it there.
The introduction of auto-enrolment has been what I would consider to be a quiet revolution. It has helped to normalise pension saving in my constituency of Clwyd South and elsewhere in the UK, increasing the proportion of people who see pension saving as a good thing and who say they know where to go if they want more information.
That is another vital aspect of auto-enrolment: it is about not only the amount of money and the level of take-up, but a cultural change that has huge benefits for the country in the long term. A recent British social attitudes survey found that 79%—a majority—of individuals interviewed viewed automatic enrolment as a good thing for them, 77% agreed that saving into a workplace pension was normal for them, and 75% knew where to go to find out more about workplace pensions. That reinforces my point about the cultural change that is so vital in this process.
Another point that is vital to draw out in this debate is that the latest data suggests that auto-enrolment has reduced some of the regional disparities in workplace pension participation. Figures from 2020 show that rates of employee workplace pension participation are fairly consistent across the UK, with little geographic variation. Regional data prior to auto-enrolment is not available, but the continued roll-out of auto-enrolment over the last five years has been accompanied by increased rates of participation by private sector employees in regions other than London and the south-east, which is hugely important to many hon. Members who represent seats far away from the south-east of England.
Another important point emerged from the 2020 study by Karen Arulsamy and Liam Delaney, “The Impact of Automatic Enrolment on the Mental Health Gap in Pension Participation: Evidence from the UK”. It showed that, particularly for people who are not particularly experienced in financial matters, auto-enrolment has completely removed the mental health gap in pension participation.
Finally, the private Member’s Bill introduced my hon. Friend the Member for North West Durham (Mr Holden) is absolutely vital, particularly for my constituency of Clwyd South, where auto-enrolment figures are good but could be higher. There are 1,040 employers involved in auto-enrolment and 3,000 job holders. That is, in a sense, connected to the points raised by my hon. Friend the Member for North Norfolk (Duncan Baker), because my constituency has a real mix of different employment patterns. Like his constituency, tourism and hospitality are important parts of the employment make-up of Clwyd South. There are many young workers and people working part time who fit their jobs around their families and other considerations.
I am sure my hon. Friend the Member for North West Durham will be speaking later, but I want to quote one thing that he said:
“three quarters of those aged 22-plus are auto-enrolled into pension schemes, but under the age of 22 it is only 20%...of people in work, not students. That is a big difference, and the difference that auto-enrolment has made since 2012. For part-time workers, while some will earn more than the £10,000 threshold, auto-enrolment is 57.8% compared with almost 90%”
—as has been established earlier—
“of workers in full-time jobs. If we assume a similar take-up, the Bill could see an extra 30% of the part-time workforce auto-enrolled”.
The other point he makes, which again goes back to a point I made earlier, is that an
“extra £2.77 trillion…would be invested in our pensions for the lower-paid and younger workers”.—[Official Report, 5 January 2022; Vol. 706, c. 81.]
It benefits not only them and their families, but the general economy.
In conclusion, I am delighted that we are discussing this important issue. As I said, it is a quiet revolution that brings hope and comfort to many families, particularly among those who are not particularly experienced in financial matters, and adds greatly to the prosperity and health of the economy of the United Kingdom.
Rob Roberts (Delyn) (Ind)
It is a pleasure to serve under your chairmanship, Mr Dowd. I give credit to my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for securing the debate and, indeed, to the Minister; it is always a pleasure to see him responding to a debate. He must get tired of hearing from everyone, every time we have a pensions debate, “Auto-enrolment has been wonderful and the things the Government are doing are outstanding, but we could always do more.” We are always asking for more. That is the way of things, and I think he has come to appreciate that over time.
As everybody else has done, I pay tribute to my hon. Friend the Member for North West Durham (Mr Holden) and his private Member’s Bill. When I read back through the Bill last night, I saw that it contained many of the things I wanted to cover, so I shall be very brief, which will please everybody no end. I will just mention three points that I hope the Minister can cover later.
My hon. Friend the Member for Sedgefield (Paul Howell) mentioned excluded people. Someone earning £9,000 in each of two different jobs would not be enrolled despite having £18,000-worth of income, which would otherwise clearly qualify. Like those of my hon. Friends the Members for North Norfolk (Duncan Baker) and for Clwyd South (Simon Baynes), my constituency is very rural, and we have lots of people in those circumstances. Something as simple as taking away the £10,000 qualifying point would be a real benefit to those people.
On the under-22s, I was a financial and pensions adviser for a decade and a half, and one of the key things that we always said—the hon. Member for Strangford (Jim Shannon) mentioned it earlier—was, “Start as early as you can.” An extra five years will add in the region of 26% to 30% to the end value of a pension pot. The hon. Member for Kilmarnock and Loudoun (Alan Brown) used the golden words “compound interest”. Those extra years at the start make such a huge difference at the end.
That is particularly relevant in my own situation. My daughter is 17 years old. She has decided that university is not for her and has gone into full-time work, but she is not being auto-enrolled. Of course, she can opt to be enrolled when she gets to 18, but, as my hon. Friend the Member for North Norfolk mentioned, it is easier when it is done for us; it is harder to opt out than to opt in to something. I completely appreciate that.
My second point is on qualifying earnings. People may well be under the illusion that if they are earning £30,000 a year, they are contributing 8% of £30,000. Sadly, that is not the case. The lower earnings limit, which is £6,240, is taken off before that 8% is calculated, so someone earning £30,000 grand is only paying 8% of £23,760. Getting rid of the lower earnings limit and making pension contributions start from zero would add another 26% to the final value of someone’s pension pot by the time they come to retirement. Just those two changes—making auto-enrolment available to under-22s and making it count for all earnings—would add 29% and 26% to the final value of a pot. That is a huge amount and would make a huge difference.
My final point, which is very simple, is about complacency risk. We hear that auto-enrolment has been transformative—my hon. Friend the Member for Grantham and Stamford used that word, and we have all heard the statistics—but has it? Eight per cent. is not enough. Even if it was 8% of all earnings, it would not be enough. My cousin is a financial adviser over in America. I talked to him over many years about how I did my processes and worked out how much people should save, with the calculations and the risk levels and all the interesting bits that go into forming a conclusion. He said, “I don’t do any of that. I just tell people, ‘Just do 20% and you’ll be fine.’” He advises people of relatively high net worth, and 20% is a relative amount to different people, but 8% just will not do it.
We have this complacency: because the Government have mandated 8%, people think, “Well, that must be okay, then; that must be what I need to do to get a good standard of living in retirement.” Somebody earning £30,000 per year, leaving out the earnings that do not qualify, will be contributing £1,900 per year over 35 years. Assuming 4% growth, they will have amassed a pot of about £140,000 after 35 years. That does not sound a terrible amount, but when we adjust it for inflation, in today’s prices, that is a pot of about £86,000. That will not buy a lot in retirement.
This is where the two things that I mentioned earlier will come in. If we added 29% and 26% to that pot, while it would still not be a massive amount, or enough to get people to where they need to be, it would certainly be something. As was mentioned earlier—I spoke about personal responsibility—people need to go and see a financial adviser and take the guidance that is available from the Money and Pensions Service.
What we are doing is not enough. People must wake up and open their eyes; what we are doing is great, but we could absolutely be doing more. There are a couple of ways we could do more. Back when we had defined-benefit pensions, the employer would pay about £3 for every £1 that the employee paid. That was unaffordable, and it was the main reason that most defined-benefit pensions were closed down. Under the defined-contribution schemes that existed before auto-enrolment, employers paid about £2 for every £1 that employees paid. Now, that figure is 60p or 70p. Although I talk about personal responsibility, there is a lot more scope for employers to do more, as they used to.
Another potential option would be to roll the principle of auto-enrolment forward into other savings options. Why can we not have an auto-enrolment individual savings account? Why can we not do what my hon. Friend the Member for Grantham and Stamford said about saving for a house deposit? Why can we not use the same principle in other arenas? Why can we not make pensions a bit more flexible, as they are in the United States, where the 401(k) product can be utilised in a lot more ways a lot sooner? That could provide the deposit for a house or be used at other crucial times in life. There are lots of things we could do.
I have offered a bit of a sandwich, with a nice opening and a nice ending, and bit of a demand in the middle. We are doing wonderful things and they have been successful—everybody says so. We can do more and we probably should, and I think the Minister knows that.
Mr Richard Holden (North West Durham) (Con)
It is a pleasure to serve under your chairmanship, Mr Dowd. I pay tribute to my hon. Friend the Member for Grantham and Stamford (Gareth Davies) for securing this debate. I have been trying to secure one for a couple of months, but he seems to have managed to pip me to the post.
I thank so many hon. Members for mentioning my ten-minute rule Bill to look at extending auto-enrolment. Everyone who has spoken has pointed to the success of auto-enrolment. It has been a cross-party success, as my hon. Friend the Member for Darlington (Peter Gibson) said. It is slightly sad that there are not more Scottish National party or Labour Back Benchers here to welcome that success and talk about the future, but this is something we can proceed with on the basis of those on all sides of the House coming to an agreement.
The main point, which has been made by many Members, is that an extra 10 million people are now looking to save. The reason they are saving is that for every 50p they put in, they get £1 in their pension pot, because they get the tax relief plus the employer’s contribution. That is seen as a simple and straightforward thing. For every £4 an employee puts in, their employer puts in £3 and they get £1 in tax relief. That is a simple, straightforward way of explaining it to people. It is important for us to have this debate and to look at the success and the future of auto-enrolment.
Many hon. Members made the broader point that we want people saving for themselves, their families and their futures. This is a small “c” conservative principle that cuts across working class communities across the country, including mine in North West Durham. It provides a really important stake in society when people save into a pension over time and see that money invested in UK companies, as well as in companies across the world—although my hon. Friend the Member for Darlington made the important point that if we are looking to expand auto-enrolment, we need to enable people to see the benefits of those savings in their communities.
I therefore hope that the Government will look at ways to ensure that that patient capital can be invested more in things such as social housing projects and transport infrastructure schemes. I do think it is time to expand. I could understand why, in the past, employers were concerned about auto-enrolment, but it is great to hear from my hon. Friend the Member for Darlington, who ran his own business, that he has seen those concerns alleviated by the impact that it has had on his employees.
Let me say to my hon. Friend the Member for North Norfolk (Duncan Baker) that, as the hon. Member for Strangford (Jim Shannon) may know, Luke 15:7 states that
“there will be more joy in heaven over one sinner who repents than over ninety-nine…persons who need no repentance.”
I am glad to see my hon. Friend on board and helping to drive the agenda; as he mentioned, it is so important for those lower-paid part-time workers in his constituency and mine. I will come to that in a moment.
There are two groups that future changes could really affect. One, as my hon. Friend the Member for Grantham and Stamford said, is that younger age group. It is unbelievable to me that someone of my age—any person in this room, in fact—will benefit from the employer contribution and tax relief, but someone aged 18, 19 or 20 will not. That seems demonstrably unfair, and it is something that we really need to get a grip on. As the hon. Member for Strangford said, compound interest created by saving early makes a real difference in retirement.
Reflecting on what my hon. Friend the Member for Clwyd South (Simon Baynes) said, the statistics from before and after auto-enrolment kicks in are stark. Before it kicks in, a fifth of people are enrolled; after it kicks in, 17 out of 20 are enrolled. That is a massive change. We need to bring those figures into line, particularly for people who do not go on to university but choose a different path. As my hon. Friend also mentioned, that is a very important factor in the regional disparity of where people pursue their careers. My hon. Friend the Member for Sedgefield (Paul Howell) also made a very good point: how can it be right that those earning £50,000 or £80,000 per year get the tax relief and employer contribution, but others—particularly part-time workers—do not?
I mentioned some examples when I introduced my private Member’s Bill in the House. Women are particularly disadvantaged. Part-time workers often juggle multiple jobs around childcare or other caring responsibilities; it seems to me totally unfair that someone doing two part-time jobs that are above the threshold just does not get the tax relief and employer contribution. If we could reduce the age of auto-enrolment to 18, we would be looking £25,000 in younger workers’ pension pots. That is not going to be transformative in and of itself, but taken together, the changes will be transformative. Getting young people auto-enrolled early is crucial to allowing them to see their savings start to build early, and that is what we need to see.
In addition to what hon. Members have already said, I say to the Minister that we need to see an age reduction, we need the qualifying earnings amount to be reduced, and we need the threshold for earnings to be lowered too.
Guy Opperman
I thank my hon. Friend for his speech. I was ill when he introduced his ten-minute rule Bill, but I read his speech in Hansard. He will understand that Ministers are not able to respond to a ten-minute rule Bill in the normal course of events. Cleary, he is in the process of drafting his grave and weighty Bill, but am I led to believe that the intention is not to introduce the extension until the mid-2020s, which was the original intention of the December 2017 automatic enrolment review?
Mr Holden
Yes, it is. I think that it needs to be introduced in a phased way, exactly for the reasons that my hon. Friend the Member for North Norfolk and others have mentioned. We need to phase it in over time so that employers can be ready for the increased cost, but also so that we do not burden young employees very quickly with an enormous extra cost.
Phasing in the extension is exactly the right thing to do; that is how auto-enrolment has been such a success so far. If we had hit people by taking a large chunk of their income at one point, people would have withdrawn and auto-enrolment would not have been the success that it is. Instead, we are seeing take-up rates for full-time workers of nearly 90% now. The phased approach is so crucial. I would like to see it on that sort of timetable—phased in throughout the mid-2020s. That is where we need to be to ensure that as many people as possible take it up and can save for the long term.
We have come such a long way over the last few years. We saw the proportion of people saving for their pensions drop to around 45% before auto-enrolment was introduced. It had been between 55% and 45% for the previous 20 years or so. We have seen the proportion rise rapidly due to auto-enrolment; it is now well above 70%. If we can include part-time workers as well, as my hon. Friend the Member for North Norfolk alluded to, we could see the proportion reach 80% or 90%, which is exactly what we want. Some 6,000 employees in North West Durham are already auto-enrolled, with 1,500 employers. We need to see more people auto-enrolled to save for their retirement.
Overall, extending auto-enrolment is probably the strongest levelling-up measure that we could deliver. I want people across the country who work and play their part in our society to see the same response from the Government, with support to pay into their pensions, and support in their old age and retirement.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Mr Dowd. Like everybody else, I congratulate the hon. Member for Grantham and Stamford (Gareth Davies) on securing the debate. There have been a number of Tory Back-Bench contributions; I was worried that I would end up agreeing with all of them, but I have managed to find a couple of aspects to disagree with—I am pleased about that.
I agree completely that auto-enrolment has been a success. The hon. Member for Grantham and Stamford set out well its history and success. I agree, too, with the principle of creating larger pots for investment in infrastructure. That is an age-old argument, but we never seem to get there; I agree that that needs to change. I am slightly concerned about the talk about pension savings funding housing deposits. I know that people want access to the housing market. However, I worry that, depending on how deposits are funded, that will not take the heat out of the housing market, but will actually increase it, because more people will be chasing a smaller pot of houses. We need more affordable houses as much as new ways to get people deposits.
The hon. Member for Grantham and Stamford made the interesting point that only 12% of job adverts advertise pension contributions. If we are talking about advice and people understanding the benefits of pension contributions, we need to look at that. The hon. Member for Strangford (Jim Shannon), who would have been surprised to have been called so early, further set out the success of the scheme, and talked about his personal experience and, importantly, education—that is clearly important for everybody. It was brave of the Minister, in the current climate, to intervene on the hon. Member for Strangford to talk about cake—fair play.
We heard from the hon. Members for Darlington (Peter Gibson), and for North Norfolk (Duncan Baker). It was very good to hear the employer’s and the director’s points of view. Both Members admitted that they had concerns, but they were pleased to see how successful automatic enrolment is. It is good to have that buy-in.
The hon. Member for Clwyd South (Simon Baynes) spoke about access to advice; I will come back to that, because I agree with him on that point. The hon. Member for Delyn (Rob Roberts) made a good point about complacency. We need to make sure that people understand that they might need to increase their contributions and pay more. That is very important, and it links to the point about getting proper advice.
Finally, we heard from the hon. Member for North West Durham (Mr Holden). I, too, congratulate him on his efforts in bringing forward his private Member’s Bill. He set out his stall really well on that day, as he did, briefly, today. His key point—that for every 50p somebody contributes, they get £1 in their pension pot—sums it up perfectly; it is a great illustration.
As we have heard, auto-enrolment has clearly been a good thing, and a success in getting way more people to save for their retirement. In fact, it has been so successful that we have to ask why it took so long to bring in such a scheme. The Association of British Insurers states that automatic enrolment has brought a further 10 million people into pension saving. As we have heard, 88% of eligible employees participated in their workplace pension in 2020, which is up from 55% in 2012. That is a fantastic step forward.
However, there are concerns that an estimated 12 million people are still under-saving for retirement, and that needs to be addressed. Given what we have heard today about the success of auto-enrolment, and given that the Government think it is important that people save for retirement and believe that auto-enrolment is a success, the Government should logically ensure that as many people as possible are eligible. That means implementing the recommendations of the 2017 review as soon as possible. During the passage of the Pension Schemes Bill, Labour and the SNP worked together to introduce amendments that would do that, so it was disappointing that the Government voted those down. The Minister did commit to implementing the recommendations of the 2017 review by the mid-2020s, but rejecting the amendments does not give confidence.
We know how unstable UK Governments have been in recent years, and now the Leader of the House is threatening us with another general election, so it seems to me—without being too flippant—that there is a risk, if action is not taken sooner rather than later to get legislation through the House, that matters could slip further. As I said, the hon. Member for North West Durham has his private Member’s Bill, which we would support. I am still concerned, though, that we are looking at the mid-2020s. If we agree that this change is so good, we need to look at bringing it forward and getting things moving much quicker.
Rob Roberts
The hon. Gentleman makes an excellent point about bringing forward measures, but if we make these changes, is it not really important to give businesses enough lead-in time to plan properly and budget for them, rather than springing a significant change on businesses?
Alan Brown
There is a point there, but we have heard from an employer and a finance director that their concerns were allayed once the scheme came in, so I think that there will be fewer concerns as we go forward. Speaking of giving employers notice, we need only think about national insurance contributions. That rise was introduced in a short space of time, so we should not be too concerned about how we phase this in. If we do not do it, more people will lose out, which defeats the purpose.
Everybody here agrees that we should lower the age threshold for auto-enrolment to below the age of 22. I have said that I would rather have 16 than 18 as the threshold. I would be content with a two-stage process on that; we could review the situation with regard to 18 to 21-year-olds, just to see how successful it was, and to check that they were not opting out, but in the long term we definitely need to move to 16-year-olds, who could be in full-time employment. We also need to look at removing the lower limit of the qualifying earnings band, so that contributions are payable from the first pound earned. As we have heard, its removal would benefit the low-income workers who otherwise would have little prospect of a decent private pension.
To repeat what other hon. Members have said, the issue is particularly acute for women, who are more likely to be lower paid, in part-time work and doing multiple jobs. We have a massive gender pensions gap. In a recent report, the Pensions Policy Institute found the following:
“Men have substantially more private pension wealth than women, with disparities increasing across age groups. For those aged 65-69, median pension wealth for men is just over £212,000 compared to just £35,000 for women…Divorced women’s pensions are much lower than divorced men’s.”
The Association of British Insurers states that the average pension pot for a woman aged 65 is one fifth of that of a 65-year-old man. Women receive £29,000 less in state pension than men over 20 years. The deficit is set to continue unless further action is taken. We also need to look at expanding the contribution rates beyond the 8% statutory minimum, to allow people to maximise their pot. That builds on what the hon. Member for Delyn was saying.
As I have said, further delays are unacceptable. I hope that the Minister will say that the UK Government will set a clear timetable for their plans for expanding automatic enrolment. Morally, they should do that, given that they have made other decisions that are affecting pensioners both in the here and now and in the long term. We have a cost-of-living crisis, and I note that Tory Back Benchers are now using it as a defence for keeping the Prime Minister in his place, even though the cost-of-living crisis happened on his watch. They are arguing that there is a cost-of-living crisis that warrants our attention, but they still voted through the removal of the triple lock in the November Budget, costing pensioners more than £500 this year alone and a cumulative £2,600 over the next five years. That cut comes despite the fact that UK pensions are already the least generous in north-west Europe in comparison with the average wage.
We have just had the report on the shocking state pension underpayments, and there are comments that the system for state pensions is not fit for purpose. We have seen 118,000 people underpaid as regards benefits. We still have the injustice faced by the WASPI women—Women Against State Pension Inequality—and there are very low take-up rates for pension credit, which the UK Government acknowledge is an issue, but have not remedied.
The SNP continues to demand that the UK Government introduce a proper take-up strategy for pension credit, as the Scottish Government have done for devolved benefits. We continue to call on the UK Government to establish an independent savings and pension commission to ensure that pension policies are fit for purpose and reflect the demographic needs of different parts of the UK.
Another aspect of auto-enrolment that needs to be addressed relates to the self-employed. We have heard about the massive increase in employees in defined contribution schemes, but the trajectory for the self-employed has been the polar opposite—for them, the numbers have gone down: 48% of the self-employed contributed to a private pension in 1998, but the figure went down to only 16% in 2018.
Another key point is about professional advice. It makes no sense for people to save for retirement, or for support for when they are older, but to remain at risk when accessing their pension pots. That important matter was covered by the Work and Pensions Committee in its report “Protecting pension savers”, published last week. I support the calls for the Government to set a goal of ensuring that at least 60% of people use the Government’s Pension Wise guidance service or receive paid-for advice. That is a key consideration.
Pension Wise has proven to be a success. We need to make sure that more people access it. There should be a trial of automatic Pension Wise appointments, in order to encourage more people to access advice that will benefit them. The UK Government should initiate two trials: one in which people automatically get an appointment when they access their pension for the first time, and another in which they get an appointment at age 50, before they access their pensions—a mid-life MOT, as it has been called.
Auto-enrolment has been a good measure, but it needs further action to make it even better, so that it can benefit millions more people. Action to implement the 2017 recommendations should be a priority. I hope the Minister will agree, and will say that they will bring legislation forward at the soonest opportunity.
Matt Rodda (Reading East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Dowd. I thank all colleagues for taking part in today’s debate. We have had a rounded discussion of this important issue, and it has been heartening to see so much engagement from Members across the House.
As I know colleagues appreciate, pensions are a very long-term policy area. The decisions we make today have profound effects over many years. Encouraging sustainable and sensible saving now makes for much better retirement in the future. It is therefore right that we actively explore ways to help those who could benefit from further opportunities to auto-enrol in pensions. We must work with businesses to understand their needs, and to build a system that is fair and sustainable for all. We should be ambitious and responsible at the same time, particularly in the years following the covid crisis.
Auto-enrolment has proven to be one of the most positive developments in recent memory for savers, and for securing people’s long-term prosperity. It has been transformative in encouraging millions of people to save earlier in their careers. That will dramatically improve outcomes later in life, as hon. Members have mentioned.
I remind the House that it was the Labour Government in 2008 who first introduced legislation on auto-enrolment—a contribution of which my party should be very proud. However, the measures have cross-party support, and I pay tribute to colleagues from across the House who mentioned that. It is important that we work together, and that we remember the contribution made by those in the other place, who also recognised the policy’s potential and helped develop it before it came into practice. More than a decade since its inception, it is natural that we look again at auto-enrolment.
In conversations with the pensions industry, I have heard experts call for us to consider lowering the qualifying earnings threshold and the minimum age requirement. The People’s Pension, for example, endorsed those proposals. It argues that millions of new savers would be created, many of whom would be women and people from ethnic minority backgrounds. The Association of British Insurers found that employees would be able to save an additional £2.6 billion a year if the earnings trigger was scrapped.
There is justification, as well as a desire in the sector, for policy makers to look at all available options. That is especially true in the light of the Government’s commitments in 2017 to reviewing the situation, and to getting workers to save early by considering removing the lower earnings limit and reducing the age threshold for automatic enrolment to 18 by the mid-2020s, as we have heard reiterated today. The deadline is approaching fast, so I ask the Minister to clarify what stage the Government have reached in their consideration.
I also ask the Minister to set out the work his Department has done to understand the wider implications of last year’s decision to freeze the earnings trigger and only modestly increase the upper limit of the qualifying earnings band. Understanding those consequences is important for tackling inequality and helping more workers to get into the habit of saving, as has been mentioned. Studies have shown that only 37% of female workers and 28% of black and ethnic minority workers are eligible for the scheme. Finally, I reiterate the importance of this debate, and thank colleagues from across the House for taking part. I hope the Minister will respond to the points made.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
It is a pleasure to serve under your chairmanship, Mr Dowd. It is genuinely hard for me to disagree with anything that my hon. Friend the Member for Grantham and Stamford (Gareth Davies), who is an esteemed member of the Treasury Committee, put forward in his outstanding speech. I thank him for bringing this matter forward for debate. Contrary to popular opinion, I am always keen to debate all matters pension. I have done this job for about 1,680 days and continue to make the case for the change that we are driving forward.
I will address in more detail the speech of my hon. Friend the Member for North West Durham (Mr Holden), my constituency neighbour, who is a vast improvement on his predecessor. He helpfully enlightened us with the fact that St Luke is the patron saint of pensions, which I did not know. I will return to his ten-minute rule Bill and private Member’s Bill in due course.
I listened carefully to the speech of the hon. Member for Kilmarnock and Loudoun (Alan Brown). It is a bit like taking an SNP horse to water and trying to make it drink; his speech started so well, with the statement that, by and large, he could not disagree with anything that had been said, but that sentiment disappeared in general criticism of the Government. He will know that the state pension is up by more than 5% in 2021-22. He will know that pension credit take-up is increasing. He will know that winter fuel payments and cold weather payments are well in excess of £2 billion. He will know that there are free eye tests worth £900 million and free bus passes of £1 billion. I could go on to address various other points he raised, but I want to focus primarily on the automatic enrolment issues raised by my hon. Friend the Member for Grantham and Stamford.
I am slightly concerned that the story of today’s debate may be, “Minister admits that in 2018 he, too, was ambushed by a cake—a lemon drizzle cake—while on a ministerial trip to Newtownards, Northern Ireland”. There are many points that the hon. Member for Strangford (Jim Shannon) made that I want to address. It was an honour and privilege to visit his local credit union. I would love to take him up on his kind offer and return to Northern Ireland. Because of covid, so much has happened as regards ministerial visits and progress on so many things. Our country has acquired approximately £400 billion on the nation’s credit card, and there are difficult fiscal choices to make, which have clearly impacted the roll-out of many economic and fiscal policies. Certainly, in 2022, provided I continue to hold this job that I enjoy, I hope to make the case across Northern Ireland. I have not visited Derry/Londonderry; the credit union there is one of the most successful in the UK and it would be a great pleasure to visit it.
The hon. Gentleman mentioned consolidation and said that he had four pensions. It is right to celebrate and laud the fact that probably the second biggest project that the Department for Work and Pensions is rolling out is the pensions dashboard. Auto-enrolment is the first, and I will come to that in more detail. The pensions dashboard will be transformational: he will be able to see his four pensions on his mobile phone, laptop or iPad. Just as people have a savings app or banking app, we will be able to take the tens of thousands of pensions out there, access that information and understand what an individual has. Crucially, so many colleagues raised the issue of awareness, and the dashboard is the key to understanding that.
There are other things that we are doing, and I could talk in detail about our plans—which will come forward this October—for what are called simpler statements, which basically amend the traditional, very complex pension statements that very few people understand, save for independent financial advisers, which some colleagues present have worked as in the past. The man or woman in the street simply does not understand those statements in sufficient detail, so we are putting them into a two-page form that tells people what they have and gives them proper information; it will do what it says on the tin. We in the DWP and, to be fair, people across industry believe strongly that that is the right way forward, in order to enlighten members, so that they have a better understanding of what they have.
The dashboard will come forward in 2023 and simpler statements will come forward in October 2022. There is much that we could say on the issue of financial education. It is a credit to my right hon. Friend the Secretary of State for Levelling Up, Housing and Communities that he introduced financial education in secondary schools, but we need to do more to enhance awareness about all matters of finance—that does not need to be pensions: it is about all matters relating to money and the usage of money—in primary schools, and to encourage wider understanding of that among our children through their education. I would certainly support that.
The hon. Member for Strangford raised the issue of the self-employed, as did other Members. I will make a couple of points on that issue. The first is that there are already plenty of self-employed people who can perfectly properly sign up to a private pension. I am an example. I was a self-employed jockey—I was not very good at all and did not make much money—and then I was a self-employed barrister and helped to run a charity before coming to this place. However, it is much more complicated for those people, because they do not have any of the benefits of automatic enrolment.
There is a way forward, and we are working on a trial with HMRC to explore the opportunities presented through Making Tax Digital. There is a clear solution for how to change the tax system, on which we are working with HMRC and the Money and Pensions Service. It will almost certainly be a drop-down box with an automatic deduction, which will allow people to do what they can presently do on their manual tax return, and it will make self-employed automatic enrolment much easier. It is a work in progress. Today is Australia Day; it is appropriate that we laud the fact that Australia has showed us the way on so much of automatic enrolment. Certainly, the Australians have addressed the question of how to enhance self-employed take-up of automatic enrolment in a variety of ways, and I am looking at that closely through the HMRC trial. I hope to update the House and parliamentary colleagues on that point in the very near future.
Several colleagues raised the point about 8% plus, which I will come to in a second. Let me first deal with the issue of the 2017 automatic enrolment review, which is also largely the subject matter of the work in progress that is my hon. Friend the Member for North West Durham’s ten-minute rule Bill. The simple truth is that when I acquired this job, back in the dim mists of time in June 2017, I was given two primary responsibilities by the late, lamented David Gauke, who was the Secretary of State. The first was, “Get us to 8%”—bear in mind that automatic enrolment was not even at 5% at that stage. It is a massive triumph for this country, the employers, the employees—who quite clearly have not opted out—and government on a cross-party basis that we have got to 8%. The world has not come to an end and drop-out rates are really low, so without a shadow of a doubt, that is a massive success story. However, my hon. Friend the Member for Delyn (Rob Roberts) is totally right that more needs to be done, and I am going to address that point in a second.
The second thing that happened, pretty much as I arrived in the DWP as Minister, was that I received a copy of the 2017 review in the autumn of that year. We took the decision that we would support it without a shadow of a doubt. It was an independent review; we did not have to support it, and Governments often do not support them. However, we then made the decision that the measures should be introduced on a phased basis.
Clearly, events have got in the way—the past four or five years have been somewhat complicated—but the practical truth is that the Government have an unquestioned commitment to bring forward the 2017 review measures: the lower earnings limit and the 22 to 18 threshold. The way in which we do that and the phasing of it is still a matter of ongoing debate within Government.
People above my pay grade have to make decisions on that—it is dependent on other pieces of legislation and other considerations. Clearly, a consultation would have to take place, but in broad terms the timetable would involve primary legislation to introduce the primary measures and enabling powers, secondary legislation and a consultation to follow, and timings thereafter. Certainly, my hon. Friend the Member for North West Durham was seeking confirmation that the measures would be introduced in a phased approach after the next election, in the mid-2020s, and I hope that is helpful for his understanding.
It is not for me to decide what is in Her Majesty the Queen’s speech, either this year or next, but clearly there are a variety of ways in which we can progress such legislation. First, there is a private Member’s Bill. That is not impossible, but it is be complicated for Government business for primary legislation on a large matter, particularly given the timings of this Session. I welcome my hon. Friend’s ten-minute rule Bill, but it comes very late in this Session. Obviously, there will be future private Members’ Bills.
Secondly, we are clearly looking to bid for a third or fourth Session pensions Bill that can take these matters forward as normal Government business. My intention is to bring forward the legislation, subject to all the usual provisos about being a Minister with larger collective responsibility.
Guy Opperman
The fact that there is cross-party support is relevant because, quite rightly—but sometimes wrongly—Oppositions oppose many pieces of legislation. Clearly, this legislation has the support of all political parties. I cannot speak for the one Member of the Green party, but I know that the Liberal Democrats and other smaller parties support the legislation. That is very relevant and needs to be shouted from the rooftops.
This matter has an impact, particularly on low earners, in every single constituency in the country. As my hon. Friend the Member for North West Durham said in his eloquent speech, such measures would be a really good example of levelling up in low-earning communities. Clearly, people above my pay grade—whether the Chancellor, Prime Minister or others—will decide what goes into the Queen’s Speech this coming May, and I wish them all good fortune with that. Some of the clarifications that my hon. Friend made will help, as will the way in which he is trying to bring legislation forward. Airing the matter in the House helps, confirming to all parties that such measures have cross-party support. So much pension policy is so long-term that the impact of pulling a lever is not felt until three to five years later, so it makes a massive difference to have cross-party support.
I will touch briefly on a couple of other points. With regard to longer-term plans to go higher than 8%, I totally agree with my hon. Friend the Member for Delyn that 8% is not enough. Again, subject to the ability to travel in future, I hope to engage with American colleagues to look at their 401(k) and the way they deal with it. Subject to the ability to take those things forward, the next goal after the 2017 review is clearly a discussion and a debate on how much above 8% is enough.
I am wearing my Australia Day tie, which was given to me when I and my hon. Friend the Member for Daventry (Chris Heaton-Harris) triumphantly crushed the Australians in the parliamentary cricket match a few years back. The Australians have got to 12% and are doing so much, particularly in utilising the defined contribution and automatic enrolment to do the things that my hon. Friends the Members for Darlington (Peter Gibson) and for Sedgefield (Paul Howell) mentioned —namely, safely investing those savings in local communities so that individual savers can say, “That is what is happening in my area.”
I can give examples. I have set up two banks, as colleagues will be aware: Atom bank, which I was a founder member of, and the Northumberland Community Bank. Another good example is the Cambridge and Counties Bank, which utilises the pension reserve to loan on asset-backed lending to assist with investment in the Cambridge local area. There are other examples—the Sparkassen in Germany do this all the time—of only lending to local communities in that way. Such examples will proliferate, which is a good thing, because this comes to awareness. Members are then aware of what their savings are invested in and are so much more engaged, and that can apply across the country.
I accept that we need to do more on awareness. The Money and Pensions Service is clearly doing great work, and I support totally what Pension Geeks is doing with Pension Awareness Day, and what Scottish Widows is doing with its pension awareness road trip. The reason I am a supporter of the statements season is that I do not think that pensions awareness or engagement is good enough, quite frankly. We have to have a product or process whereby people are engaged, much as we do in tax or educational results, so that they understand better what they have got at a time when they can really get engaged. Obviously there is a working group on statements season, and it is a matter of discussion with the industry, but we have to do more to create greater engagement.
In my last minute or so I want to try to address some of the final points. Clearly, consolidation is a matter that we are working on, and I can happily give colleagues more on that. My hon. Friend the Member for Grantham and Stamford raised two final points about the nature of savings and what we are saving for. The traditional product has clearly been a pension, but our parents and grandparents would all have had much greater awareness of rainy day savings. We should unquestionably laud and support all the companies that are already running a 1% savings club or working with credit unions and other organisations to ensure that our employers and constituents have the capacity for rainy day money. If that was a problem pre covid, it is a particular problem post covid. There is also a wider policy issue about how we enable products to be developed to ensure that people are saving for deposits, although that is about the wider culture of saving in the longer term.
To finish, I thank the 10 colleagues who came along this morning to make the case for pensions savings and the many who support this policy and are driving it forward. Certainly, we can find very little in my hon. Friend’s speech to disagree with. I thank all colleagues for coming along and making the case and for supporting our reforms. I accept that there is more to be done, but this Government are utterly committed to ensuring that that happens.
Gareth Davies
I pay tribute to the Minister, who is one of the longest-serving Pensions Ministers we have had in this country. As somebody who came from the fund management industry to this place, he is respected not just in this House but in the industry, too. I also thank all hon. Friends and hon. Members for their contributions. We heard from the hon. Member for Strangford (Jim Shannon) about the importance of getting in early and financial literacy. We heard informed speeches from my hon. Friends the Members for Darlington (Peter Gibson) and for North Norfolk (Duncan Baker), giving the perspective from business. We also heard from my hon. Friend the Member for Clwyd South (Simon Baynes) about the benefits of increasing the size of the pensions pot for social and environmental investment.
Of course, let me congratulate once again my hon. Friend the Member for North West Durham (Mr Holden) on his excellent private Member’s Bill. He is enjoying a tremendous amount of support today. I maintain that we should focus on 18 to 21-year-olds. If nothing else, we should take away from today the fact that our pensions system has a great deal of power in what it can bring to our communities. Let it be said that this should not be a hidden secret any more. The power of compounding and savings benefits everybody, and people should start as early as possible.
Question put and agreed to.
Resolved,
That this House has considered the matter of automatic pension enrolment.