Work and Pensions Committee
Wednesday 11th November 2026
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09:30
Speaker 1
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Speaker 1
Don't have scandalous levels of pensioner poverty and pensioners living in deprivation. One is we want to have a state and private pension system that is ensuring that we are had periods in history where very large proportions of the pensioner population, extremely large proportions, are living in very low income households for a long period of time, and thankfully we don't have that anymore. There are some poor pensioners, but pensioner poverty is below the working age poverty rate. The other objective of pension policy and the round, is to try and create an environment where we're helping individuals to achieve a standard of living which is smoothed through their lifetimes so they don't have undue hardship in working life.
When saving unnecessarily. And they also don't have perhaps too much to spend in working life and then get to retirement. And they're disappointed with what they can afford. So we're helping people smooth their living standards over their over their lives. So it's those two objectives, I think , kind of a minimum standard in retirement plus some earnings replacement so that people can have a living standard that relates to what they enjoyed when they were working. And actually, that's pretty close to what Beveridge had in mind in his report. And I think it's really the kind of system that we've been moving, getting better at and moving closer towards since about 1980, to be honest, where we've been making the the flat rate component of the state pension closer and closer to universal for those who spend their whole working lives here.
And we've done more and more to ensure that a greater proportion of the adult population are in a private pension, in particular women.
When saving unnecessarily. And they also don't have perhaps too much to spend in working life and then get to retirement. And they're disappointed with what they can afford. So we're helping people smooth their living standards over their over their lives. So it's those two objectives, I think , kind of a minimum standard in retirement plus some earnings replacement so that people can have a living standard that relates to what they enjoyed when they were working. And actually, that's pretty close to what Beveridge had in mind in his report. And I think it's really the kind of system that we've been moving, getting better at and moving closer towards since about 1980, to be honest, where we've been making the the flat rate component of the state pension closer and closer to universal for those who spend their whole working lives here.
And we've done more and more to ensure that a greater proportion of the adult population are in a private pension, in particular women.
09:31
09:31
Speaker 2
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Speaker 2
Yeah. No, I, I agree with what a lot of what Carl has just said. So I think if you look at what we're currently using, that is the kind of two main measures, one, in terms of the kind of minimum standards that are used and that I think is very important for low earners. As Carl was saying, it's trying to make sure that there is a standard of living that people have in retirement, which allows them to, to participate in some way in society, I think is really important, but also not seeing big drops in living standards when people reach retirement.
I think that in itself is difficult. It's a different type of objective from the kind of poverty alleviation objective that the government must have as well. I think there are also some real challenges in how we've been measuring that up until this point. One of the things which is often overlooked and not included is the role of housing, and in particular, work that we and others have done is suggesting there will be an increase in the numbers, or the proportion of pensioners who are renting in retirement, rather than being homeowners, as perhaps previously expected on the trends we were seeing.
And that in itself creates different challenges, I think in terms of the amount of income that people might need in retirement, or how you measure that adequacy.
I think that in itself is difficult. It's a different type of objective from the kind of poverty alleviation objective that the government must have as well. I think there are also some real challenges in how we've been measuring that up until this point. One of the things which is often overlooked and not included is the role of housing, and in particular, work that we and others have done is suggesting there will be an increase in the numbers, or the proportion of pensioners who are renting in retirement, rather than being homeowners, as perhaps previously expected on the trends we were seeing.
And that in itself creates different challenges, I think in terms of the amount of income that people might need in retirement, or how you measure that adequacy.
09:32
09:32
Speaker 3
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Speaker 3
Just to build on these, this is all right. And, you know, these two objectives match to these kind of minimum living standards or replacement rates as adequacy objectives. I think the only concern I have about the minimum living standard kind of framework is that I think 20 years ago, we would have looked at minimum standards are broadly being around, you know, pensioner poverty, pensioner poverty has come down so much. And the state pension, the 2010 reforms and the new state pension create a much more solid basis for helping to avoid poverty than was before. And so although in principle, I think we should all be thinking of some level of minimum standard, I think the current levels that are discussed around the from the pensions UK retirement living standards are quite high when you compare them to working age incomes.
So 23% of working age people in a working household fall below the minimum pensioner level. It's much higher for working age singles, lone parents, for example. And so what we have is if you think that is a very strong, important barrier level to get people to, what you're saying is that you really want pensioners to get to a much higher level minimum than you do for working age people. And then there's a question of, is it appropriate for the state to use resources to try to get to that level, or is it appropriate to get individuals to save, you know, reducing their resources in working age to get to that higher level in pensioner period.
So 23% of working age people in a working household fall below the minimum pensioner level. It's much higher for working age singles, lone parents, for example. And so what we have is if you think that is a very strong, important barrier level to get people to, what you're saying is that you really want pensioners to get to a much higher level minimum than you do for working age people. And then there's a question of, is it appropriate for the state to use resources to try to get to that level, or is it appropriate to get individuals to save, you know, reducing their resources in working age to get to that higher level in pensioner period.
09:34
Speaker 3
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Speaker 3
So I think there is some merit in a hybrid approach. In a sense, you can think about a hybrid approach taking replacement rates where roughly, you know, the higher income you have, the higher retirement income you have need, although not a not necessarily the same, you know, you might need only 50% of, of, of pre-retirement income if you're a very high earner, for example, the ways of making a hybrid approach are broadly to put a cap on the amount. So anyone with an income above X is adequate, irrespective of if they have, you know, 3 million, £5 million a year.
And, and at the bottom, you know, below which we say that you are inadequate, even if you've got a good replacement rate. Broadly, putting a cap on the top doesn't make very much difference to overall adequacy measures unless you pull it down a very long way. The bottom cap in a in a hybrid measure would make a lot of difference. The only concern I have is it confusing by integrating two very separate concepts into one.
And, and at the bottom, you know, below which we say that you are inadequate, even if you've got a good replacement rate. Broadly, putting a cap on the top doesn't make very much difference to overall adequacy measures unless you pull it down a very long way. The bottom cap in a in a hybrid measure would make a lot of difference. The only concern I have is it confusing by integrating two very separate concepts into one.
09:35
09:35
Speaker 2
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Speaker 2
Yeah. I mean, it's it's interesting, isn't it? I think I think for low earners, you probably the overriding impact would probably be on the standards rather than the, the target replacement rate. If you're talking about very low earners as part of that, a hybrid approach does have some attractions. It really depends what you're using it for. I think if you're using it as a way of, of, of evaluating policy over time, then I think that can be useful if you're trying to use it for, to help individuals understand better than it probably is a much more difficult concept to try and get across.
I just wanted to add a couple of bits to what Jonathan said as well, about the comparison between pensioners and the rest of the working and the working age population as well. I mean, I think there are some differences that you also need to take into account in there. One is that for pensioners, when they get to that income level, that's then set for the rest of their life, whereas some of the lower groups or some of the groups are seeing in the working age population may not be in that situation or in that low income situation for the rest of their life.
Low earnings can fluctuate, and people's position in the earnings distribution can fluctuate as part of that as well. And you also need to take account of the additional needs that pensioners might have as well in terms of disability benefits or lack of mobility and things like that. So you need to make sure that even if you set a standard of living that you think is higher for pensioners and the rest of the population, there could be very good reasons for doing that. But you need to be aware of what you're doing and why I think that's important.
I just wanted to add a couple of bits to what Jonathan said as well, about the comparison between pensioners and the rest of the working and the working age population as well. I mean, I think there are some differences that you also need to take into account in there. One is that for pensioners, when they get to that income level, that's then set for the rest of their life, whereas some of the lower groups or some of the groups are seeing in the working age population may not be in that situation or in that low income situation for the rest of their life.
Low earnings can fluctuate, and people's position in the earnings distribution can fluctuate as part of that as well. And you also need to take account of the additional needs that pensioners might have as well in terms of disability benefits or lack of mobility and things like that. So you need to make sure that even if you set a standard of living that you think is higher for pensioners and the rest of the population, there could be very good reasons for doing that. But you need to be aware of what you're doing and why I think that's important.
09:36
Speaker 1
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Speaker 1
Yeah, I, I think as long as we keep clear that the broad objectives are what is the outlook for pensioner poverty and what is the outlook for the number of people who perhaps get to retirement, who might be disappointed with the standard of living they have relative to their working age level incomes? I think that's what really matters. I think we can have a range of measures to try and get at that. When thinking specifically about low earners. I think I'd also add that not only do earnings change over someone's lifetime, so they may have more capacity to save in some years than others.
Some low earners are partnered to someone who's not in work or another low earner, and they're really in hardship today. Other low earners are often people working part time, perhaps with a higher earning partner. And actually for them, perhaps they're not in a low income household. So there's issues around what we think of, you know, is this household poor or is this about an individual's circumstances? And clearly then there's risks around, well, what happens if that couple split up subsequently? And there's clearly issues for women there when often the lower earner, the part time worker might often be a woman if she's got a higher earning husband, for example, you might think that she would benefit from saving more, whereas another household with a low earner, perhaps with a partner who's not in work, you might really question whether they should be saving more at the moment.
And I think it's quite difficult to think of policies, at least in the private sector space, that can really target that well. And there's lots of trade offs here.
Some low earners are partnered to someone who's not in work or another low earner, and they're really in hardship today. Other low earners are often people working part time, perhaps with a higher earning partner. And actually for them, perhaps they're not in a low income household. So there's issues around what we think of, you know, is this household poor or is this about an individual's circumstances? And clearly then there's risks around, well, what happens if that couple split up subsequently? And there's clearly issues for women there when often the lower earner, the part time worker might often be a woman if she's got a higher earning husband, for example, you might think that she would benefit from saving more, whereas another household with a low earner, perhaps with a partner who's not in work, you might really question whether they should be saving more at the moment.
And I think it's quite difficult to think of policies, at least in the private sector space, that can really target that well. And there's lots of trade offs here.
09:38
09:38
Speaker 2
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Speaker 2
I mean, I think it's it's important that policy is, is continually looked at in a holistic sense, whether that's done on a, on a statutory or regularly regular basis, or whether that's done in a different way. I mean, if you think about it in a broader sense, the IFS has recently done a pensions review at the PPI, we produce an annual report on pensions framework, which looks at sustainability, adequacy and fairness, which you may recognize as as pillars as well. So, so there is, I think, externally work that goes on in this place. I think it's really important that that independence is maintained.
But I think if you're thinking about holistic review, you really need to be very clear about what it is that you are actually reviewing. And what what is the output, what is the outcome of that? There are several different international models, but there are very few where it's actually binding. So I think it's more about can you can it be advisory? Can it be evaluating? Can it be monitoring? Is it maybe an early warning system? There's all sorts of different things.
It could be good.
But I think if you're thinking about holistic review, you really need to be very clear about what it is that you are actually reviewing. And what what is the output, what is the outcome of that? There are several different international models, but there are very few where it's actually binding. So I think it's more about can you can it be advisory? Can it be evaluating? Can it be monitoring? Is it maybe an early warning system? There's all sorts of different things.
It could be good.
09:39
09:39
Speaker 3
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Speaker 3
I think that holistic reviews are broadly a good idea. And I think we've had a lot of success in pensions policy in the UK, partly coming from the Pensions Commission and the implementation of the reforms there. By the time we got to the early 2020s, we thought that enough economic change and policy change had happened, that it was time for another review. And so, you know, if I had to say a number, maybe every 10 to 15 years, you might want a really good quality review to allow for both some stability in the interim, but also the ability to kind of reflect change.
09:40
09:40
09:40
Patrick Hurley
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Patrick Hurley
Thank you. Chair. I want to ask about the triple lock, specifically around the government's proposed changes to the triple lock. Could you speak to the impact of those proposed changes on the work of the Pensions Commission, and specifically whether or not the the kind of the predictability that we're going to see makes the job easier, or whether because it's less generous, it makes it more difficult. If there's something maybe you can just speak to on that perspective.
09:41
Speaker 3
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Speaker 3
I, I think it does make the Pensions Commission job easier in most ways, which is that, you know, we now will have a more predictable state pension tied in the long run to growth in average earnings, the kind of underpinning of living standards for the working age population, and will provide that kind of confidence base layer to the state, to the pension system. I also think it, you know, reduces the the reforms reduce the kind of fiscal risk to the government that they will have to, you know, cut back dramatically at some point in a crisis, whether that be on the level or the state or a much higher state pension age.
So broadly, I think it makes it easier. It if you really believe that the triple lock was were to actually stay for a very long period of time. And I think we have to put a very big question mark about that. Then clearly the change now means a lower state pension as a fraction of average earnings in in the long run. And so you would probably want higher levels of private saving to make up for that. But I think it really is a kind of question whether it was ever credible that we were going to keep the triple lock for, for a very long period of time.
So broadly, I think it makes it easier. It if you really believe that the triple lock was were to actually stay for a very long period of time. And I think we have to put a very big question mark about that. Then clearly the change now means a lower state pension as a fraction of average earnings in in the long run. And so you would probably want higher levels of private saving to make up for that. But I think it really is a kind of question whether it was ever credible that we were going to keep the triple lock for, for a very long period of time.
09:42
Speaker 2
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Speaker 2
I mean, I think I think that's right. What it's done is definitely made the job clearer. I think it's brought it into a starker focus. I think there were I don't think anyone really expected the triple lock to remain until the 2050s or 2070s, which is the time frame that the commission is looking at in terms of where the outcomes of their changes are likely to really impact. And so by having the change in advance, it does make it clearer. It does provide more challenges, though. I think, as Jonathan was saying, in that the role of the state is now probably slightly better defined, but it's at a lower level than many of the projections, which the Pensions Commission would have been working with were actually showing.
And that does increase the importance of the role of private pension saving. We haven't had a chance to run all the numbers through and do a lot more different analysis. But but looking back at analysis that we did at the PPI when the triple lock was first introduced, we estimated that the introduction of the triple lock would mean that people could put about 6% less into their private pensions, because that would be coming from the state pension instead. It's probably not quite that big a gap now, because the triple lock has been actually more generous than expected and have been in place over time.
So it's probably smaller gap than that. And there was some some really interesting OBR analysis that was in the Pensions Commission report, the interim report which suggested that on the central scenario for for the triple lock going forward, we had the number of people under saving as 15 million. If it looked at a lower triple lock and probably the one that's going to give an outcome much more similar to the new policy, where it was about 0.1% ahead of average earnings, that increased to 19 million people under saving. So it does actually make it clearer how big the challenge is.
And that might be something which is more helpful to the Commission in making some of the decisions it has to make.
And that does increase the importance of the role of private pension saving. We haven't had a chance to run all the numbers through and do a lot more different analysis. But but looking back at analysis that we did at the PPI when the triple lock was first introduced, we estimated that the introduction of the triple lock would mean that people could put about 6% less into their private pensions, because that would be coming from the state pension instead. It's probably not quite that big a gap now, because the triple lock has been actually more generous than expected and have been in place over time.
So it's probably smaller gap than that. And there was some some really interesting OBR analysis that was in the Pensions Commission report, the interim report which suggested that on the central scenario for for the triple lock going forward, we had the number of people under saving as 15 million. If it looked at a lower triple lock and probably the one that's going to give an outcome much more similar to the new policy, where it was about 0.1% ahead of average earnings, that increased to 19 million people under saving. So it does actually make it clearer how big the challenge is.
And that might be something which is more helpful to the Commission in making some of the decisions it has to make.
09:43
Speaker 1
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Speaker 1
I agree with everything that Chris and Jonathan have just said. I mean, just to add one set of analysis, we did and published last month in a report for the People's Partnership, shows that if you take someone on 40,000 a year and you had them saving at 8% of qualifying earnings with the triple lock, and then you move to the adjusted triple lock to get the same retirement income after tax, we think they'd need to save about 12% of qualifying earnings. So I think the change that the government has announced makes the case for what the Pensions Commission needs to do much, much clearer, because they don't need to get into the world of predicting when the triple lock will go.
So they have a lot of clarity there. But it also makes the case for more private saving, as we just heard, stronger.
So they have a lot of clarity there. But it also makes the case for more private saving, as we just heard, stronger.
09:44
Patrick Hurley
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Patrick Hurley
You've all mentioned the changes or the the, the impact to levels of private saving. Could you speak to the disproportionate impact on how much low earners specifically might need to save people who are earning maybe quite, quite a lot less than 40,000? Is there something who would like to take that?
09:45
Speaker 2
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Speaker 2
Well, I think as we've already touched on a little bit, the state pension is is really important for low earners in terms of what it provides as a proportion of their full income in retirement, they're likely to get. We've. We know and we will talk further, I'm sure, about the challenges for low earners in saving and diverting money away from what they need to live on today, to future, to contributions to fund their future as well. But I think this does make it clearer that there is still a role for private saving for low earners.
I think it does. It does provide that longer term level that the state will provide. As part of that. We already know that the level it's likely to be at around 30% of national average earnings is already below the pension UK minimum retirement living standard. So there's already a gap there that needs to be filled. So I think it brings into relief, into sharp relief the fact that there will need to be saving across people's working lives, irrespective of what level of income they have across that working life. But it does also bring those challenges.
I think it might disproportionately impact in terms of reaching the minimum level, the lower earners, but it also does have an impact on higher earners as well, who now have to do more in order to to avoid that fall in living standards that we were talking about.
I think it does. It does provide that longer term level that the state will provide. As part of that. We already know that the level it's likely to be at around 30% of national average earnings is already below the pension UK minimum retirement living standard. So there's already a gap there that needs to be filled. So I think it brings into relief, into sharp relief the fact that there will need to be saving across people's working lives, irrespective of what level of income they have across that working life. But it does also bring those challenges.
I think it might disproportionately impact in terms of reaching the minimum level, the lower earners, but it also does have an impact on higher earners as well, who now have to do more in order to to avoid that fall in living standards that we were talking about.
09:46
09:46
Speaker 2
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Speaker 2
I think it depends. Going back to what we were talking about, the adequacy definition as part of that. But what I would say is that the current level of the new state pension and what it's predicted to be when it gets to the new triple lock arrangement, will be below what is currently used and has been used by the commission and others as the minimum income level.
09:47
Speaker 1
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Speaker 1
I mean, different people will reasonably disagree about what the right level of standard of living for someone to have is. I think it's worth noting that if you've got a couple where they both receive a full new state pension, they are, and they've got no housing costs, they are well above the commonly used poverty line. I'm not saying they have a fantastic standard of living in retirement, but they're well above the poverty line. If you take a single pensioner getting a full new state pension, they're pretty close to that poverty line. I think for them, a really big issue is their housing costs and whether, you know, if they're an owner occupier who owns outright no housing costs, if they're in the private rented sector and their housing benefit covers their rent, no housing costs.
But often pensioners are living in the private rented sector and often the housing benefit is not covering their rent. So I think there is an issue for those, as we spoke earlier around the housing market and around the costs there.
But often pensioners are living in the private rented sector and often the housing benefit is not covering their rent. So I think there is an issue for those, as we spoke earlier around the housing market and around the costs there.
09:47
09:48
Speaker 1
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Speaker 1
In my previous role at the Institute for Fiscal Studies, I was working with Jonathan. A suggestion that we put forward was that and this would cost money, but that maybe if you're a single pensioner or a couple pensioner, no one else in the household at the moment, you're entitled to a one rent that's based on the local rents of one bedroom accommodation. We put forward the suggestion that maybe every pensioner should be entitled to at least two bedrooms. That would give them more money if they still wanted to live in a one bedroom accommodation, of course.
And you might think there's arguments why pensioners need slightly a bit more than working age population. They spend more time at home. They might have special caring needs. There may be reasons why. They may have adult children that want to come and visit. They may just be reasons why. You might think it would be justifiable to suggest that the second bedroom would be justified. And in the social rented sector, the policy, which is commonly known as the bedroom tax that's not its formal name, does not apply to pensioners. So it would also be an equalisation between those two sectors.
And you might think there's arguments why pensioners need slightly a bit more than working age population. They spend more time at home. They might have special caring needs. There may be reasons why. They may have adult children that want to come and visit. They may just be reasons why. You might think it would be justifiable to suggest that the second bedroom would be justified. And in the social rented sector, the policy, which is commonly known as the bedroom tax that's not its formal name, does not apply to pensioners. So it would also be an equalisation between those two sectors.
09:49
09:49
Peter Bedford
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Peter Bedford
09:49
Speaker 3
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Speaker 3
I don't have a kind of recommendation for exact number, but broadly, I think that a move towards 12% is sensible, although I would be much more supportive of a 12% on qualifying earnings. So that's income above earnings above about £6,000 than of 12% on all earnings. Because of the disproportionate impact of reducing the qualifying earnings lower limit down to zero on the the living the living standards kind of today of low earners.
09:50
Speaker 2
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Speaker 2
I think there is certainly a case for higher contributions, whether 12% is the right level or not. It depends on individual circumstances. I think I think the case for higher contributions is, is partly around individuals providing for themselves in retirement. I think there's also a wider general economic case that we're thinking about more generally in terms of investment into the UK and the relatively low savings rate that we have in the UK, and a way of improving that and the wider potential implications there as well. I think the real challenge, as Jonathan is alluded to, is the real crux of automatic enrolment is low earners.
And we know that some people will benefit and will be able to afford 12% contributions and some won't. So we have to make a view as to do we want an inclusive system which includes people who will benefit at the risk of some people who will end up, if I can confirm it that way, over saving being in that situation, or do we have an exclusive system which protects those people from over saving, but brings in or means that people who might benefit from automatic enrolment don't get the employer contributions? It's very gendered in how we look at this as well.
So women are disproportionately impacted if we go for an exclusion system and disproportionately benefit if we come to an inclusive system, whichever way you want to go, irrespective of what the contribution level is, you really need to look at the mitigation. So how you help those people, either in an exclusive system, come into saving or in an inclusive system, protect them from over saving in doing that. And I think that's one of the real challenges the commission is going to have to grapple with.
And we know that some people will benefit and will be able to afford 12% contributions and some won't. So we have to make a view as to do we want an inclusive system which includes people who will benefit at the risk of some people who will end up, if I can confirm it that way, over saving being in that situation, or do we have an exclusive system which protects those people from over saving, but brings in or means that people who might benefit from automatic enrolment don't get the employer contributions? It's very gendered in how we look at this as well.
So women are disproportionately impacted if we go for an exclusion system and disproportionately benefit if we come to an inclusive system, whichever way you want to go, irrespective of what the contribution level is, you really need to look at the mitigation. So how you help those people, either in an exclusive system, come into saving or in an inclusive system, protect them from over saving in doing that. And I think that's one of the real challenges the commission is going to have to grapple with.
09:51
Speaker 1
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Speaker 1
I mean, I think the case for going for something bigger than 8% of qualifying earnings is really clear. There's a significant minority on Dwp's own numbers of middle earners under saving. We're talking 40%. Plus. Those numbers will go up when we move to looking at under the adjusted triple lock. And if you take the first Pensions Commission report, it said we'll do automatic enrolment. And actually that's happened and it's been really successful at bringing people in. It said we'll have these 8% defaults, and that will bring about a load of additional saving. And it's been really successful at doing that, and I think probably more successful than was predicted on those.
It also said a whole load of additional voluntary saving would come on top of that, and that has not happened. So even the first Pensions Commission report, I think, was basically saying we needed more saving than we've ended up with. And so we know automatic enrolment really works. It's really powerful. We just need to be careful where we're using that power.
It also said a whole load of additional voluntary saving would come on top of that, and that has not happened. So even the first Pensions Commission report, I think, was basically saying we needed more saving than we've ended up with. And so we know automatic enrolment really works. It's really powerful. We just need to be careful where we're using that power.
09:52
Speaker 3
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Speaker 3
I think there's a big difference here about whether when if you go to 12%, say, is it a default or is it a minimum, right? If we're going to if we're going to increase it, are we going to allow people to to save slightly lower or if they want to save slightly lower, do they have to leave entirely and go to go to zero? Because, you know, if you don't allow people to, if you default them in at 12, say six and six from employer employee, and you don't let them, then you know, you're making the choice of, of staying in or staying or going out much starker than you are at, say, 8% of qualifying.
09:53
09:53
Speaker 3
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Speaker 3
I would agree that, you know, the higher certainly the higher you push the these these default rates, the stronger the case is for allowing people to save, stay in a pension scheme, retain an employer contribution, and save a little bit less. And that kind of underlies various things that Carl and I proposed a couple of years ago, either allowing an extremist people to actually, you know, retain an employer contribution even if they didn't save themselves and, or, you know, being able to opt down to a lower level. But that doesn't increase flexibility. And it does at least give people the potential to do something different than just go, I'm opting out entirely.
If they are financially stressed by, you know, default or minimum pension contributions.
If they are financially stressed by, you know, default or minimum pension contributions.
09:54
Peter Bedford
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Peter Bedford
I'm keen to hear views on how that that could be split. So if it was to go to 12% between employee and employer, there are different views on this. Some suggest it could be equally split between employee and employer. Keen to get your views on that, given that, you know, at the moment business in the UK is under a lot of pressure, they've had a lot of increases in taxation, inflation, all those economic headwinds, how that would work in reality without having an adverse impact on the broader economy.
09:54
09:54
Speaker 2
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Speaker 2
I'll take this one. So I think it's a lot depends on implementation and how you go about doing it. So I think the UK is is and the automatic enrolment system is quite unusual compared to international systems and to the previous system we had in the UK, with the split between employer and employee contributions, generally the employer contribution tends to be higher where there's a mixed economy system in doing that. And actually, if you go right back to the underlying economics, if you give employers enough notice of a change coming, then actually ultimately all the contributions come from the employee as part of the remuneration.
It's not necessarily completely that there is potentially some impact on on prices, there's some impact on employment. But if you give an employer enough notice, then they will adjust the remuneration package to make sure that earnings growth is slightly subdued to make up for the impact of the the contribution that the employer is paying on the individual's behalf.
It's not necessarily completely that there is potentially some impact on on prices, there's some impact on employment. But if you give an employer enough notice, then they will adjust the remuneration package to make sure that earnings growth is slightly subdued to make up for the impact of the the contribution that the employer is paying on the individual's behalf.
09:55
09:55
Speaker 2
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Speaker 2
I mean, I think if you look back at the successful implementation of the previous of the of automatic enrolment going starting to go ahead, we're talking a minimum of five, probably up to ten years in that in that situation. So I think when it was introduced, it was introduced for larger employers first at very low contribution levels, then the rest of the employers, and then slowly over time increased over another 2 to 3 year period. But that was set out a long time in advance. And I think that is is really important. Where it does matter is because it's the delivery is important is on incentives as well, because if you have a large employee contribution, individual contribution, and a small employer contribution, the incentive to opt out is that much greater because you get back more of a contribution and you give up less your employer.
I will caveat that by saying , we're not seeing a large number of people opting out at the moment, even though we have that imbalance, and we know that the automatic number is very sticky at the moment, but we don't know what that might be like at higher levels. So I think there is something about the delivery mechanism. There's something about it being a shared endeavour, I think, as well between employer and employee and government being in at all together. But I think you would probably see a better long term sustainable impact if it was more on the employer rather than the employee, assuming that you could give enough notice to allow employers to adjust, and assuming that you didn't introduce it at a time when it was already very difficult for employers.
I think you do have to look at the wider economic circumstances around the time of implementation as well.
I will caveat that by saying , we're not seeing a large number of people opting out at the moment, even though we have that imbalance, and we know that the automatic number is very sticky at the moment, but we don't know what that might be like at higher levels. So I think there is something about the delivery mechanism. There's something about it being a shared endeavour, I think, as well between employer and employee and government being in at all together. But I think you would probably see a better long term sustainable impact if it was more on the employer rather than the employee, assuming that you could give enough notice to allow employers to adjust, and assuming that you didn't introduce it at a time when it was already very difficult for employers.
I think you do have to look at the wider economic circumstances around the time of implementation as well.
09:57
Speaker 1
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Speaker 1
Yeah, I'm just a little bit to add to that. I mean, I think I definitely agree that give plenty of notice and then go gradually is really important. I think you want to encourage consideration of the National Living wage to be done alongside that. So if you're increasing costs on employers of employing people in one dimension, you might want to be just a bit more cautious in another dimension. And just think about the overall package. So you know, the case for slightly slower national minimum wage increases could be made if you're increasing employer contributions at that moment.
The other observation and this is easier to hope for, I guess, is that it's probably easier to do in an environment where there's relatively strong nominal wage growth, and therefore the the forecasts in the budget from a couple of weeks ago, suggesting that at least in this decade, real in real terms, incomes not growing very fast makes it a difficult time because clearly, if employers are going to if if the mechanism is that employers are going to run wage growth slightly slower to offset the costs, that's probably easier for them to do if there is some wage growth in the system.
The other observation and this is easier to hope for, I guess, is that it's probably easier to do in an environment where there's relatively strong nominal wage growth, and therefore the the forecasts in the budget from a couple of weeks ago, suggesting that at least in this decade, real in real terms, incomes not growing very fast makes it a difficult time because clearly, if employers are going to if if the mechanism is that employers are going to run wage growth slightly slower to offset the costs, that's probably easier for them to do if there is some wage growth in the system.
09:58
Peter Bedford
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Peter Bedford
We're talking about employers as kind of one holistic group of people. Actually. There are various large employers, small employers, and there are some sectors that may need additional support. What do you think could happen in this space, policy wise to ensure that maybe smaller employers, employers in particular sectors can also play their part , but also not be put out of business by these these pressures?
09:58
Speaker 1
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Speaker 1
Well, I think that's also where the giving plenty of notice and allowing gradual adjustment helps as well, because maybe the bigger employers can handle quick change more comfortably than smaller employers. They'll have the systems to do that. We also have to be very mindful that some sectors will get hit harder than others by any change, and that will exactly how you change the A system will have different consequences for different sectors. And so the other side of the.
What about low earners coin will be. What about the sectors that disproportionately employ low earners.
What about low earners coin will be. What about the sectors that disproportionately employ low earners.
09:59
Speaker 3
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Speaker 3
But it's also about that interaction of the national living wage in different sectors, because we do have a much higher minimum wage now. And although I agree with Chris, the evidence points to very high pass through into wages. That is more difficult in the in the presence of a high living wage, national minimum wage or national living wage, you know that. What does that mean? That means if you can't if employers can't pass it through, then minimum wage employees become more expensive round to employ. And that's kind of, I think what underlies Karl's kind of, I would hope, underlies his point about, you know, moderating that.
The other thing I would say on small employers is about the administrative burden of automatic enrolment. I think broadly, we have a system that was set up in part to try to minimise the burden on, on small employers who, you know, who it's harder to administer these things than large companies with, you know, very large HR departments or finance departments. And so I think that if you move away from the kind of relatively simple system that we do have in any other complex, in any other time form of complexity, I'm not saying we we shouldn't consider that, but we should consider how and small employers are going to actually implement that.
The other thing I would say on small employers is about the administrative burden of automatic enrolment. I think broadly, we have a system that was set up in part to try to minimise the burden on, on small employers who, you know, who it's harder to administer these things than large companies with, you know, very large HR departments or finance departments. And so I think that if you move away from the kind of relatively simple system that we do have in any other complex, in any other time form of complexity, I'm not saying we we shouldn't consider that, but we should consider how and small employers are going to actually implement that.
10:00
Peter Bedford
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Peter Bedford
I mean, is there any suggestions you can give about. Because I'm really concerned about the smaller businesses because, you know, as you say, large companies can often adapt because they've got huge HR departments, they've got the infrastructure, they've perhaps got reserves to do so. But if you're a small family run business, if you're running a cafe, you know, a local restaurant, then it's very difficult for you to when your margins are already very tight, to find additional contributions, perhaps for a for a pension scheme.
10:01
10:01
Speaker 2
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Speaker 2
And I think this is where it's I mean, I think we've talked about the notice, we've talked about the time, we've talked about gradual implementations. People have time to adjust. But it's also, I think a really good example of where we have to look broader than just the pension system for some of these challenges. I think the difficulties faced by small employers, in much the same way as the difficulties faced by people on low incomes at the moment, are not necessarily issues that the pension system can solve, but it's ones that the pension system needs to be acutely aware of.
And I think this is where we probably need a more. We mentioned the word holistic earlier, but holistic and joined up approach across different policy areas. I think it's also when you talk about the implementation, where you might want to think about some of the implementation being conditional in what you're looking at. And so when automatic was introduced back in started in 2012, it was originally aimed to be introduced earlier and it was delayed. And then the the introduction of the increase in contributions was pushed back because of the economic conditions at the time. It's much easier to do that when you have a timetable in place and everything set out, than it is to try and bring something forward quickly.
When you think the economic conditions are in the right place. So I think it's that communication is really important, but also thinking, if we're thinking about implementing this in ten years time, there's a lot that can happen in both the labour market, in earnings terms, in the business, in economy. And you might want to start thinking about how all these things interact together and how you work with those in order to make it to make it work when an implementation does come. Just a final point on this. One of the things that worked really well was the increases being introduced at the start of the financial year, which meant that there were other changes back in that decade.
We had things like changes in the personal allowance and changes in national insurance thresholds, and that offset, to a certain extent, some of the changes that both employers and employees were seeing when they were making that change. So think about how you can work with other parts of the system to maybe make sure that it's the burden is shifting towards pensions, but away from other aspects as well.
And I think this is where we probably need a more. We mentioned the word holistic earlier, but holistic and joined up approach across different policy areas. I think it's also when you talk about the implementation, where you might want to think about some of the implementation being conditional in what you're looking at. And so when automatic was introduced back in started in 2012, it was originally aimed to be introduced earlier and it was delayed. And then the the introduction of the increase in contributions was pushed back because of the economic conditions at the time. It's much easier to do that when you have a timetable in place and everything set out, than it is to try and bring something forward quickly.
When you think the economic conditions are in the right place. So I think it's that communication is really important, but also thinking, if we're thinking about implementing this in ten years time, there's a lot that can happen in both the labour market, in earnings terms, in the business, in economy. And you might want to start thinking about how all these things interact together and how you work with those in order to make it to make it work when an implementation does come. Just a final point on this. One of the things that worked really well was the increases being introduced at the start of the financial year, which meant that there were other changes back in that decade.
We had things like changes in the personal allowance and changes in national insurance thresholds, and that offset, to a certain extent, some of the changes that both employers and employees were seeing when they were making that change. So think about how you can work with other parts of the system to maybe make sure that it's the burden is shifting towards pensions, but away from other aspects as well.
10:02
10:02
10:02
10:03
Speaker 2
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Speaker 2
Yeah, so so a lot has changed since the 2017 review. Unfortunately not in terms of implementing the recommendations. They're still outstanding. I think a lot of the issues that we were dealing with then do still exist. And we've talked about a lot of them with the challenges for low earners and those low earners in particular, who probably could benefit from being part of automatic enrolment and having higher contributions as part of automatic enrolment. I think it's important to remember that the recommendation in 2017 was part of a package of recommendations. It wasn't stand alone. We were also recommending that contributions or automatic enrolment started from age 18 rather than 22, and also recommending that we should bring in the self-employed in some way as then unspecified, and I think are still unspecified at the moment into saving.
But it was really part of a package that was aiming to build on the introduction of automatic enrolment, to make it become a social and cultural norm, that pension saving is something which is just part of the workplace that happens. So everybody, when they go into work, or everybody, even if they work for themselves, makes a contribution. At that time, it would have been an 8% contribution that covers all of their earnings. And it becomes a very simple message and something which becomes very easy for people to get behind and to understand. The situation may be different now.
I think what's important, I would still consider it as part of a package of reforms, but it has to be part of a package of reforms, and it depends what else you're doing as to what that benefit might be in doing that. We're already seeing it being eroded slowly over time anyway. I mean, it was, I think £5,800 back in 2017. It's only 6200 now. So it's not.
But it was really part of a package that was aiming to build on the introduction of automatic enrolment, to make it become a social and cultural norm, that pension saving is something which is just part of the workplace that happens. So everybody, when they go into work, or everybody, even if they work for themselves, makes a contribution. At that time, it would have been an 8% contribution that covers all of their earnings. And it becomes a very simple message and something which becomes very easy for people to get behind and to understand. The situation may be different now.
I think what's important, I would still consider it as part of a package of reforms, but it has to be part of a package of reforms, and it depends what else you're doing as to what that benefit might be in doing that. We're already seeing it being eroded slowly over time anyway. I mean, it was, I think £5,800 back in 2017. It's only 6200 now. So it's not.
10:04
10:04
Speaker 2
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Speaker 2
Fiscal drag does help in that. But interestingly, there was also some research from pensions UK that came out earlier this year, which was talking to people about their experiences of automatic enrolment. Many of them didn't realize that the contributions weren't being paid below the lower earnings limit, and they were not very happy with the fact and thought that their employers were maybe getting away with not making the full contributions because of that. So I think there is a discussion to be had about how it how it plays with individuals, but also how it fits into a set of wider reforms.
Because as we've already talked about, there are challenges in particular around low earners. That doesn't mean you shouldn't be doing it, but it means you need to be careful about how it interacts with other things. And you need to consider whether you want specific mitigations in that in that space.
Because as we've already talked about, there are challenges in particular around low earners. That doesn't mean you shouldn't be doing it, but it means you need to be careful about how it interacts with other things. And you need to consider whether you want specific mitigations in that in that space.
10:05
10:05
10:05
Speaker 3
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Speaker 3
I mean, I've spoken already about skepticism about reducing the lower earnings limit down to zero, but can I pick up on a point on the kind of the fiscal drag idea? I mean, I do think that personally, whatever system the Pensions Commission recommends and then what the government then implements, you know, if you have these levels that are fixed in cash terms, then you're kind of at the mercy of whatever inflation happens to be about, you know, how many low earners you affect. And so I do think there's a very good case that whatever levels they choose for a lower earnings limit, if it were not zero and for the trigger, the currently £10,000 above which your automatic enrolled, that there is some form of uprating either in line with prices or earnings.
So that you know, because you know, because £10,000 now is not £10,000.10 years ago and is not £10,000 in 20 2040.
So that you know, because you know, because £10,000 now is not £10,000.10 years ago and is not £10,000 in 20 2040.
10:06
Speaker 1
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Speaker 1
I mean, back in 2014, you had to be full time on the national minimum wage to hit the earnings trigger. You now have to work about 15 hours a week because the 10,000 is the same number, and the minimum wage has gone up a lot. If you take that person earning 10,000 a year doing their 15 hours a week on the national minimum wage, if you did reduce the level to zero, you would increase their pension saving by 5% of their earnings. That's quite a big boost to their savings. I think it's important to remember that concentrating the savings on them is a little bit sits uncomfortably with the idea that it's middle earners who are the most likely to be saving for retirement.
When we look at private sector employees, and I think this is really a conversation about private sector employees, and you take those in these low income families, if you take couples, about a third of them do have a higher earning partner. They're typically women. They may well have the resources to save more. It could well be a good thing if they save more. It would certainly reduce the gender pension gap. But there's about a third of them whose partner is also a low earner or is not working at all, for whom I think that they might currently be really quite struggling and potentially in poverty at the moment, and therefore increasing their saving by something like 5% of their earnings might just look excessive.
And I think that's the difficult trade off here.
When we look at private sector employees, and I think this is really a conversation about private sector employees, and you take those in these low income families, if you take couples, about a third of them do have a higher earning partner. They're typically women. They may well have the resources to save more. It could well be a good thing if they save more. It would certainly reduce the gender pension gap. But there's about a third of them whose partner is also a low earner or is not working at all, for whom I think that they might currently be really quite struggling and potentially in poverty at the moment, and therefore increasing their saving by something like 5% of their earnings might just look excessive.
And I think that's the difficult trade off here.
10:07
Speaker 3
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Speaker 3
I'll just pick up on that on, on the kind of gender point. You know, it's very clear that if you if you have things which get low earners saving more disproportionately women, and they're going to end up with higher pensions in retirement, and that would all else equal reduce the gender pensions gap. And I think there's good reasons to be concerned about those gaps. But, you know, to the extent that we're thinking about those gender inequalities and gender inequalities, including within the household, you know, women in their partners or husbands, we also, again, need to think about those gender inequalities in working age.
So if women low earners working more. Sorry, excuse me, say saving more benefit, you know, shrinks the gender pension gap, but it increases the disparity in resources for working age women compared to their partners or husbands at a point where they are not supported by the equalizing impact of the state pension. So I take no views on whether inequality on on the level of inequality, that's not my job to do so. But if you don't like inequality, what does low earners, more low women, low earners saving mean? It means gender inequality, getting better in retirement, and it means gender inequality getting worse in current resources.
So if women low earners working more. Sorry, excuse me, say saving more benefit, you know, shrinks the gender pension gap, but it increases the disparity in resources for working age women compared to their partners or husbands at a point where they are not supported by the equalizing impact of the state pension. So I take no views on whether inequality on on the level of inequality, that's not my job to do so. But if you don't like inequality, what does low earners, more low women, low earners saving mean? It means gender inequality, getting better in retirement, and it means gender inequality getting worse in current resources.
10:09
John Milne
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John Milne
Thank you for that. Another argument for removing the lower earnings limit is to improve the incentive to opt in to pension saving. For those 1.3 million low paid workers with multiple jobs under all, all under 10,000. So they never hit the hit the trigger. So do we. Have we got any idea how many actually do and what would be effective in increasing those numbers of drawing them in?
10:09
Speaker 2
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Speaker 2
Yeah, I don't have those figures to hand in terms of how many actually opt in my suspicion, but I will check is that it's relatively low unless they're put in by an employer. So if you're working for an employer who automatically enrolls everybody, irrespective of the rules, then they're generally better employers with higher contributions and do that then then they will be in there. I suspect that one of the experiences we find from automatically from, as well as it being sticky for people who are put in, is it doesn't actually affect people who are outside.
We get very few people who are opting in to, to gain what they need to, which is why I think there's been some concerted efforts to try and find alternative ways of reaching those individuals who might have multiple jobs, who actually, if you look at their earnings in total, probably have enough to pass the automatic enrolment threshold. But because they're in different earnings in different employers, not any one single employer is responsible for putting them into a pension scheme. In doing that, it's very difficult to see how you could do that administratively. And I think it's I say I will I will go back and look to see if I can find any additional evidence.
But I think there's very few who are in that situation are actually actually actively opting in to, to get that pension.
We get very few people who are opting in to, to gain what they need to, which is why I think there's been some concerted efforts to try and find alternative ways of reaching those individuals who might have multiple jobs, who actually, if you look at their earnings in total, probably have enough to pass the automatic enrolment threshold. But because they're in different earnings in different employers, not any one single employer is responsible for putting them into a pension scheme. In doing that, it's very difficult to see how you could do that administratively. And I think it's I say I will I will go back and look to see if I can find any additional evidence.
But I think there's very few who are in that situation are actually actually actively opting in to, to get that pension.
10:11
Speaker 2
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Speaker 2
Again, that's a that's a different it's a different area, but it has the same issues, I think that we've been talking about in terms of the low earners that you bring in and who you impact. So there's a it's a similar type of discussion, I think, around the lower earnings limit and the lower earnings trigger. I think in that the lower earnings limit affects a much broader group of people because that affects everybody. The lower earnings trigger actually just brings more people in to automatic enrolment in dealing with that. But some of the things we've been talking about about whether people would benefit or not, we still have that almost exactly the same issue that we've been talking about, about whether someone is a low earner who would benefit from being automatically enrolled, or someone who is a low earner, who might benefit from not pension saving or having additional pension saving at this point because of their current living standards and the cost of living challenges they're facing.
So it's it's another kind of tricky question. Again, it's not one of the things that I think you can probably look at in isolation. It's what you need to consider as part of a wider package. In doing that, I think going back to, to, to what Carl was saying earlier about fiscal drag and Jonathan as well, actually, is that in some ways it can actually be used as a as a policy lever in bringing people in over a period of time in a gradual way. So I'm not sure whether it's actually been by design that the the trigger has been left at that £10,000 in order to bring more people into automatic enrolment as much as anything else.
So again, it goes back to what your objective is and who you think should be saving and who you think doesn't need to save. And that's a that's always a difficult question.
So it's it's another kind of tricky question. Again, it's not one of the things that I think you can probably look at in isolation. It's what you need to consider as part of a wider package. In doing that, I think going back to, to, to what Carl was saying earlier about fiscal drag and Jonathan as well, actually, is that in some ways it can actually be used as a as a policy lever in bringing people in over a period of time in a gradual way. So I'm not sure whether it's actually been by design that the the trigger has been left at that £10,000 in order to bring more people into automatic enrolment as much as anything else.
So again, it goes back to what your objective is and who you think should be saving and who you think doesn't need to save. And that's a that's always a difficult question.
10:12
10:12
10:12
Patrick Hurley
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Patrick Hurley
Thank you chair. You've mentioned about the lower earnings limit previously. And there's the perspective or the possibility if it's removed, the impact on. Lower earners. So my question is if the lower earnings limit is removed, what extra support needs to be put in place to make the extra contributions affordable. Carl I'll come to you first.
10:13
10:13
Speaker 1
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Speaker 1
As a whole might be reasonably well off if they have a higher earning partner for those who are on low incomes. I think what whose household is a low income household you really want to think about, well, are they getting the universal credit to which they're entitled to? Is their Universal Credit award taking into account their pension contributions correctly, because it still means that if they put money into a pension, they'll have less to spend today. But their Universal Credit award will offset some of that when it because it will increase slightly when they put extra money into a pension.
So the price of pension saving is not so great for them in that situation. So you might worry more about the take up of universal Credit. You might worry about more about are we are we administering it ? Well. I think they're the key things I would point to.
So the price of pension saving is not so great for them in that situation. So you might worry more about the take up of universal Credit. You might worry about more about are we are we administering it ? Well. I think they're the key things I would point to.
10:14
Speaker 3
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Speaker 3
I would agree and I would particularly think about the take up of of universal Credit. You have you actually have relatively small fractions of people on, you know, 10 to £15,000 in households receiving universal Credit, something like 20% or so. Some of that's because of the higher. Earnings spouses or partners, and some of it because of lack of take up.
10:14
Speaker 2
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Speaker 2
I mean, sometimes it can be useful to look at what happens overseas in some of these examples, as well as some of these cases. And I think we do have a challenge and a struggle here in the UK as well, with a focus on long term pension saving and also having a challenge, especially for low earners of kind of short term financial resilience with what's happening on, on a day to day basis. So I was fortunate enough recently to, to be invited to go to South Africa to look at some of the policies that are being implemented over there.
One of those is that the two pot policy, where when they receive a contribution from their employer, it's split into two different pots. One is invested long term as a pension contribution, one is available as a as a short term emergency saving pot, which can be accessed once a year. So the split is one third two thirds. So if you're looking at something which you are concerned about, an increase in contributions or a removal of the lower earnings limit or removing of the earnings trigger, you might also want to consider is there a way in which you can allow that additional saving or that that challenge for the for the low income individual who's not in a high earning with a high earning partner or in a higher income household, to be able to, to kind of insulate themselves.
So one of the, one of the things you can do is opt down, which I think Jonathan mentioned earlier, but one of it might be to, to take the contribution, but allow people to, to use it almost as a form of savings, which they can use on a day to day basis to try and mitigate the reduction in their take home pay by making some of it available to, to basically top it back up again if you wanted to. I know that the center for Inclusive Money has been looking at things like this, which are similar to the two pot system, not identical, but I think they call it the pension adjacent emergency savings account, previously known as the sidecar.
So there are ideas out there which will kind of provide some kind of mitigation and allow people to protect themselves if we think we're taking too much from them, if it allows people who we think should be saving and will benefit from that saving in order to do so. So I think there's a way in which we might want to look at more creative solutions in that space as well.
One of those is that the two pot policy, where when they receive a contribution from their employer, it's split into two different pots. One is invested long term as a pension contribution, one is available as a as a short term emergency saving pot, which can be accessed once a year. So the split is one third two thirds. So if you're looking at something which you are concerned about, an increase in contributions or a removal of the lower earnings limit or removing of the earnings trigger, you might also want to consider is there a way in which you can allow that additional saving or that that challenge for the for the low income individual who's not in a high earning with a high earning partner or in a higher income household, to be able to, to kind of insulate themselves.
So one of the, one of the things you can do is opt down, which I think Jonathan mentioned earlier, but one of it might be to, to take the contribution, but allow people to, to use it almost as a form of savings, which they can use on a day to day basis to try and mitigate the reduction in their take home pay by making some of it available to, to basically top it back up again if you wanted to. I know that the center for Inclusive Money has been looking at things like this, which are similar to the two pot system, not identical, but I think they call it the pension adjacent emergency savings account, previously known as the sidecar.
So there are ideas out there which will kind of provide some kind of mitigation and allow people to protect themselves if we think we're taking too much from them, if it allows people who we think should be saving and will benefit from that saving in order to do so. So I think there's a way in which we might want to look at more creative solutions in that space as well.
10:17
Patrick Hurley
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Patrick Hurley
Another way of saying creative solutions is added layers of complexity. So there's a trade off here because you want people to be able to understand what's happening with their money and their pension contributions. So where do you sit on this trade off between creative solutions and actually people understanding what they're paying in and how they can get it back?
10:17
Speaker 2
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Speaker 2
Yeah. So I'm very pragmatic on this. I, I think simplicity is probably really important in terms of, as I was saying about the 2017 review, establishing a cultural norm and a social norm about pension saving. I think the simpler message that you can give people, the way that you can bring it to bear over time. And I think this is what we've seen in Australia, but we've also seen, I think, to a certain extent in the UK with low opt out rates, is you can see that kind of once pension saving becomes part of the normal part of the workplace, then actually that makes it more powerful, I think, and helps meet other objectives for pension saving as part of that as well.
I think that's easier to do if it's kept simple, but I think there is always a trade off in pensions. And there's this simplicity of a nice, easy system to administer for employers that people will understand, that people will get, but also wanting to make sure that you're not harming individuals at the same time as doing that. So if you can provide, and I think something like a dual account system or something is probably easier than lots of different thresholds and, and cut offs, it's certainly easier to get across and to, to establish that baseline norm.
But again, it's what's really important is what you put in the package together and how it all sits, rather than necessarily any one individual component.
I think that's easier to do if it's kept simple, but I think there is always a trade off in pensions. And there's this simplicity of a nice, easy system to administer for employers that people will understand, that people will get, but also wanting to make sure that you're not harming individuals at the same time as doing that. So if you can provide, and I think something like a dual account system or something is probably easier than lots of different thresholds and, and cut offs, it's certainly easier to get across and to, to establish that baseline norm.
But again, it's what's really important is what you put in the package together and how it all sits, rather than necessarily any one individual component.
10:19
Patrick Hurley
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Patrick Hurley
Jonathan, still with yourself and Karl, if you would like to come in, feel free. You've both made the case for allowing low earners to opt out while retaining the employer contribution. This will have attracted objections and challenges. So talk us through what those challenges are and where they've come from and how you've met them.
10:19
Speaker 3
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Speaker 3
Okay, maybe I can start and then Karl can come. So I so we proposed this a few years ago. It is quite a different structure to the current system where you to get an employer contribution, you have to make an employee contribution. We thought that there were good grounds to broaden pension saving, not only to the low earners who aren't included in automatic enrolment, but the there's still ten or so percent , disproportionately low earners of people who opt out of automatic in enrolment. And I think that, you know, pension policy is relatively slow moving. I think we got a better pickup than I.
I would have expected, given it was quite a major suggested change. I think the key, the two key counters we got, one was about the administration of a system to, to small employers. You know, any change to that, to the current system is going to take some time to work through. And the second is, is actually a little bit of the communication side of basically, how do you communicate system potentially where you kind of get, you know, 3% or 6% of earnings from an employer for everybody. And on top of that, you might have an employee contribution that's a more complicated function of earnings.
So I think those are the two things we got.
I would have expected, given it was quite a major suggested change. I think the key, the two key counters we got, one was about the administration of a system to, to small employers. You know, any change to that, to the current system is going to take some time to work through. And the second is, is actually a little bit of the communication side of basically, how do you communicate system potentially where you kind of get, you know, 3% or 6% of earnings from an employer for everybody. And on top of that, you might have an employee contribution that's a more complicated function of earnings.
So I think those are the two things we got.
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Speaker 1
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Speaker 1
The motivation for proposing it was that automatic enrollments got loads more people into pensions. Maybe the incentive of the employer contributions done a bit too, but it's almost certainly small relative to the big nudge, and therefore it's at least worth considering if we said that the employer contribution was, say, 3% of all earnings flat for all employees will opt you in with an employee contribution. You can opt out of that if you want. The win would be, as Jonathan says, all those people who are opting out and you could, if you started that at the first pound, you'd also include all the low earners in.
You'd be getting something into all their pots. You'd have a few more people opting out. Almost certainly. I think that's true, but that might be a trade off worth making. I'm not sure. If we introduced this from the start. We'd have described it as a more complicated system. It just looks different to what we currently have.
You'd be getting something into all their pots. You'd have a few more people opting out. Almost certainly. I think that's true, but that might be a trade off worth making. I'm not sure. If we introduced this from the start. We'd have described it as a more complicated system. It just looks different to what we currently have.
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10:24
Damien Egan
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Damien Egan
Thank you very much, chair. Right. My question to kind of wrap up is what what happens next and in what order? I think one of the messages that came through was that any changes should be made gradually so that employers have time to, to implement them. Perhaps it was it was mentioned last time learning around or the application wasn't with larger employers first. I don't know if there's any any reflections on that, but assuming the Pensions Commission recommends a range of reforms. So minimum contribution rates, lower earnings limits and the scope of auto enrolment. Do you have any thoughts or reflections on the ordering and sequencing of how that should be done?
10:26
Speaker 1
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Speaker 1
I would suggest that if the government is sure it wants to go ahead legislating early with a clear timetable and going gradually once things start to come in, is the right thing to do. I'd probably prioritise increasing from 8% up of qualifying earnings first, and I would not do that differentially by employer size. I would do that uniform across employers. I would then maybe at the same time, if I was attracted to the suggestion that Jonathan and I put forward as a possibility of having Non-contingent employer contributions, I might see if there was some big employers out there who might be willing to trial that to see what happens, because I think it is a bit of an unknown about, you know, are there any things that we've not noticed or is the would the opt outs increase to an unacceptable degree?
And maybe you could persuade some people to try it out and see what happens. So you could run that trial. At the same time, I think having got to 12% or wherever you get to, I think then you can think about whether you want to be easing the Lal down, for example. That would have to be lowered very gradually, I would suggest, because it's you don't want to drop that to zero quickly because it's a big increase in in saving and therefore could be a big drop in take home pay from one month to the next.
And maybe you could persuade some people to try it out and see what happens. So you could run that trial. At the same time, I think having got to 12% or wherever you get to, I think then you can think about whether you want to be easing the Lal down, for example. That would have to be lowered very gradually, I would suggest, because it's you don't want to drop that to zero quickly because it's a big increase in in saving and therefore could be a big drop in take home pay from one month to the next.
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10:28
Speaker 3
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Speaker 3
I agree with essentially all of that. I think the only thing is I think there is also some some value in stability here. And I think a model in which, you know, you have five, you know, 4 to 5 years of waiting plus, you know, every single year a changing level. And then, you know, and then after you've got to 12, you know, you go down the LDL each year, I think there is some value in getting towards a medium run that doesn't involve necessarily change every year.
10:29
Speaker 2
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Speaker 2
And I said, I think I would be pragmatic. I think it depends what the package is as to what works. I think if you are increasing contributions and you think you need mitigations, you need to be introducing mitigations at the same time as the increases, it's no good introducing them afterwards because you might already have done the damage. I think, by then. I think what's really important is to, to, to be really mindful of what works and what will last. I think it's really important that you don't try and go too quickly. It's really important that people have lots of notice, because what you're trying to put in place is a system that you want to last for decades.
What you don't want to do is to cause difficulty, implement it at the wrong time, try and do it too quickly and have unintended consequences. So you need to be mindful of the time it's going to take to do it. But also what else is going on around? As I said, there were changes in the implementation of automatic enrolment to begin with. I think that's really helped them land. I think the way that they were introduced gradually meant that people didn't really notice the changes as they came in.
So if you can do something similar with any further changes, then actually that makes it more powerful and more
What you don't want to do is to cause difficulty, implement it at the wrong time, try and do it too quickly and have unintended consequences. So you need to be mindful of the time it's going to take to do it. But also what else is going on around? As I said, there were changes in the implementation of automatic enrolment to begin with. I think that's really helped them land. I think the way that they were introduced gradually meant that people didn't really notice the changes as they came in.
So if you can do something similar with any further changes, then actually that makes it more powerful and more
10:31
Speaker 1
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Speaker 1
Really notice the changes as they came in. So if you can do something similar with any further changes, then actually that makes it more powerful and more likely to be. sustainable going forward. So it very much depends on what package you put in as to what measures you want as to how you might want to do it, but try and work in a way which is as least disruptive as possible, and .
10:31
Damien Egan
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Damien Egan
Potentially by other changes that you're making at the same time. Thank you. Now you've answered my next question, which was going to be, do you agree with pensions UK that the priority should be the increase in the minimum contribution rates? I feel like you've kind of would agree with that if I, if I may. I know it's out of scope out of scope of the of the commission. But I did want to get your. reflections on the tax relief on pension contributions. I was surprised there was a study by Hargreaves Lansdown last year and won by.
Pensionbee this year, which showed most people don't know about tax relief on pension contributions. Yet HMRC have found that when they do know that, they are more likely to to to pay in and contribute more money talks about there's still that small group that that opt out. In terms of the value for for savers.
Pensionbee this year, which showed most people don't know about tax relief on pension contributions. Yet HMRC have found that when they do know that, they are more likely to to to pay in and contribute more money talks about there's still that small group that that opt out. In terms of the value for for savers.
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Speaker 2
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Speaker 2
Do you feel those tax reliefs are? So a couple of things. One is we know that there are some people more likely to respond to these kind of tax reliefs than others. For example, self-employed people are more likely to change their pension saving and indeed save in a pension as a result of these tax of tax relief, for example, you know how it changes for people who have basic rate versus higher rate tax. They respond more than employees.
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10:36
Speaker 1
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Speaker 1
Speculation around it. Yeah, I think I think the evidence that I've seen suggests that tax relief has a limited impact in terms of incentives and changing savings behaviour. Unless people have advisors or understand the system. And that generally tends to be at the higher end of the earnings distribution rather than the lower end of the earnings distribution. In fact, one of the the things that was trialled and and may still be important in automatic enrolment was trying to rebadge the tax relief as a positive government. contribution towards pension saving. As part of that, with the feeling that that might resonate more with people who aren't kind of used to working in that world of tax relief.
And we certainly see we've talked about voluntary saving levels earlier, where there are high levels of voluntary saving tends to be at higher earners, where they are. maximising tax relief in what they're doing as part of that. And also, if I can go even further beyond the scope, it's starting to look at inheritance tax as well, for example, and estate planning using pensions for that has become something which is grown as people understand the value of the tax relief or the tax system in how that operates. So it's it's not necessarily something which will impact on the group that we're most interested here.
I think on lower earners and maybe even median earners, where the decisions are much more marginal and where people don't necessarily have aren't choosing where they want to save, which I think is where it .
And we certainly see we've talked about voluntary saving levels earlier, where there are high levels of voluntary saving tends to be at higher earners, where they are. maximising tax relief in what they're doing as part of that. And also, if I can go even further beyond the scope, it's starting to look at inheritance tax as well, for example, and estate planning using pensions for that has become something which is grown as people understand the value of the tax relief or the tax system in how that operates. So it's it's not necessarily something which will impact on the group that we're most interested here.
I think on lower earners and maybe even median earners, where the decisions are much more marginal and where people don't necessarily have aren't choosing where they want to save, which I think is where it .
10:39
Patrick Hurley
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Patrick Hurley
Has the most impact at the moment. I mean, the parts of the tax system that I would describe as being particularly favourable to. pensions are the National Insurance break, so that pension. contributions are made by an employer, escape employer and employee National insurance contributions, both on the way in and the way out of the pot. And I think that's really opaque, and I don't expect very many people at all understand that. The other big tax incentive comes from the. 25% that you can take free of income tax, which I think is very salient, actually. Certainly, as someone who's suggested, we might be able to target that better.
I've seen quite an adverse response from many people to that. So I think that probably is more clear to people actually, and does have the attractiveness of being a relatively stable part of the system, as I say, with, I think how salience, whereas I think the National Insurance tax break, which is .
I've seen quite an adverse response from many people to that. So I think that probably is more clear to people actually, and does have the attractiveness of being a relatively stable part of the system, as I say, with, I think how salience, whereas I think the National Insurance tax break, which is .
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10:47
Debbie Abrahams
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Debbie Abrahams
Who's the director of the Women's Budget Group, will Sandra Sandbrook, who's CEO for centre for Inclusive Money, and Jack Jones, pensions officer from the TUC. A warm welcome to you all. I'm going to start questions. And the first one I want to put to you is in relation to the triple lock adjustments that have been announced by the government. So I just wondered, in terms of the government's planned adjustment to this, what it means for how much low earners need to save.
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10:48
Speaker 5
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Speaker 5
With that? I'm happy to to to start off. So yeah, very pleased to be here. Thanks for inviting pensions UK to the committee. I think I'd agree with the previous panel that. really having the triple lock adjusted has made the job clearer and has put more pressure on the private system to do the job that we all know it needs to do. So what we'd like to see famously, is contributions to rise from 8 to 12%. We think that's really incredibly important and urgent. The previous panel quoted some research by London Economics for the People's Pension, which did some modelling around the.
impacts and showed that for a median earner heading for a 62 replacement rate under the adjusted triple lock, this would change to .
impacts and showed that for a median earner heading for a 62 replacement rate under the adjusted triple lock, this would change to .
10:49
10:49
10:50
Debbie Abrahams
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Debbie Abrahams
Impact, and it does just place more onus on the private saving system to do its job. Yes, I think it it's correct. In saying the first. pension commission suggested that state pension needed to be paid with with earnings of 30%. And we're at that now, aren't we? And it'll be when the adjustment is made that will tip it, that will it'll still be just above that. 30% will keep keep it at a slightly above what was anticipated 20 years ago. So but can I just think about those who are solely reliant on the state pension?
I think it's still.
I think it's still.
10:51
10:51
Speaker 6
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Speaker 6
What this might mean to them. Daniela, if I come in here because many of those 1 in 8 are actually women. So women are much more likely to be financially reliant solely on the state pension as they age. And I think it's really important because triple lock gets a lot of flak, but actually has done a really good job since. 2011 to. raise the state.
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10:52
Speaker 6
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Speaker 6
And actually to ensure that fewer people actually are reliant on things like pensions credit. When we look at the intended changes now, obviously we need to work through the detail of that. When we look at the sort of adjusted lock. Well, actually, we think that looking at our sort of modelling that.
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10:55
Speaker 6
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Speaker 6
But don't quite meet the. threshold for pensions credit. But I think thinking about those who are coming through, because obviously this isn't just about those who are in retirement now, it's those who are coming towards retirement. We really, at Women's Budget Group want to ring the alarm bells for women in their 50s. Now, that might sound old, but I do say that that is Spice Girls age.
So. So they're not actually that old. So, you know, if a woman is born in.
So. So they're not actually that old. So, you know, if a woman is born in.
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10:57
Speaker 6
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Speaker 6
They'd be losing. £3,500 a year. And that's taking into account all of the other. inequities that those women will be carrying forward into retirement. And these women would not be necessarily because of that small amount of private pensions income eligible for pensions credit. So we really think that there is a policy. imperative now to. recognise the. projected impact of those.
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10:59
Speaker 7
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Speaker 7
Into an auto enrolment. Jack, will, what do you think? Well, firstly, I'd agree with with Zoe's points on what the impact is in terms of providing a lot of clarity around what we will need from the occupational side of things. And it does mean that that state pension is going to remain probably a little bit below any kind of needs based assessment of what the minimum income is going to be. So that means that. everybody will need to build up some workplace pension. And it probably means because that state pension is going to be a bit lower than was projected.
We're in kind of in the pension commission's modelling. They're kind of low. volatility scenario, which means, you know, over half of workers are not on track for to meet their retirement target retirement rates and about 18% falling below the pensions UK minimum standards. And a lot of those, almost all of those are going to be lower median earners. So you need to make sure that you've got more people in the system, that they're building up their pension wealth a little bit faster. And also that you've got a system which does a good job of turning those quite modest kind of contributions over a working life into a retirement income.
And that's something which it doesn't do particularly well at the moment, but we're moving in the right direction with things like guided.
We're in kind of in the pension commission's modelling. They're kind of low. volatility scenario, which means, you know, over half of workers are not on track for to meet their retirement target retirement rates and about 18% falling below the pensions UK minimum standards. And a lot of those, almost all of those are going to be lower median earners. So you need to make sure that you've got more people in the system, that they're building up their pension wealth a little bit faster. And also that you've got a system which does a good job of turning those quite modest kind of contributions over a working life into a retirement income.
And that's something which it doesn't do particularly well at the moment, but we're moving in the right direction with things like guided.
11:01
11:01
Speaker 7
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Speaker 7
Things like collective DC, where you've got systems that are better set up to deliver a retirement income out of those quite fairly low levels of retirement wealth. In terms of the impact on on current pensions, obviously, it's not going to have a huge impact right now, and it's going to because the impact of the triple lock accumulates over time. But I would agree with Daniela that the I think Gen X rather than Spice Girls generation, but I might rethink that definition. Yeah. There I mean, yes, you know, there's a lot of people there that have potentially going to have a lot less defined benefit pension contribution.
Not at all. When they retire and they won't have been enrolled from the start of their career. And they definitely won't have had much time to benefit from the kind of changes that we're looking at now to increase going in. And I think the only way you're really going to tackle poverty among those groups is through social security system and things like tackling that cliff edge. That means people that are just above pension credit, A don't get pension credit, but they miss out on all those kind of passported benefits that are associated with that. I think looking at housing is something which is a little bit out of scope, but I think that's that's clearly has such a big impact on people's retirement incomes and what they need from their retirement income.
So looking at kind of more generous support for people in private rented accommodation, those kind of. measures are where you can have the greatest impact on tackling poverty for .
Not at all. When they retire and they won't have been enrolled from the start of their career. And they definitely won't have had much time to benefit from the kind of changes that we're looking at now to increase going in. And I think the only way you're really going to tackle poverty among those groups is through social security system and things like tackling that cliff edge. That means people that are just above pension credit, A don't get pension credit, but they miss out on all those kind of passported benefits that are associated with that. I think looking at housing is something which is a little bit out of scope, but I think that's that's clearly has such a big impact on people's retirement incomes and what they need from their retirement income.
So looking at kind of more generous support for people in private rented accommodation, those kind of. measures are where you can have the greatest impact on tackling poverty for .
11:04
11:04
Andrew Pakes
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Andrew Pakes
Now or retiring in the next 10 or 15 years. Well, yeah, not a great deal to I'd I'd agree with everything that was said in the previous panel and so far in particular, just just to echo that, it clearly does somewhat. increase the focus on private saving for lower earners, since that's where the gap is created. And in turn, as we'll get on to, I think, therefore increases the importance in making sure that private pension saving system is designed in a way that works for low earners .
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11:05
Speaker 6
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Speaker 6
The second Pensions Commission about this? Oh, absolutely. Avoid a new set of WASPI women coming through. So now we should really be talking about. 1970s age women. We should be putting that focus now. We can avoid it. We can kick that can down the road. But we'll be seeing is crystallised pensioner poverty in the future. So that absolutely would be a targeted focus looking both at the pension system, but all of the other aspects for that age cohort in.
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11:07
Speaker 7
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Speaker 7
Edge when they do reach state pension age. Okay. Increased contributions, particularly increased employer contributions. There's other measures that were talked about in the earlier session around low earnings limits and earnings threshold to bring in more low paid people. And also, as touched on in my previous answer, more kind of collective pensions, risk sharing , pensions that do a better job .
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Speaker 5
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Speaker 5
Life and that spread risk among members better. Thank you. Zoe. Yeah, I mean, I would just support the Spice Girls point really and say 30. It's worth quoting. I think this figure that. 35% of Gen Xers are on track to not reach the pensions UK minimum retirement living standard. And that is a really, really low base. It's just just above where we think the state pension is going to get to, and that's just not good enough. I think we have a political. moment now to increase contributions. That is the fundamental message. I've said it. I'll say it one more time at least.
And if we don't do that, you know, we had a pensions commission 20 years ago. We've got another one now. We cannot wait another generation. This is this is urgent and really, really meaningful. Having said all that, there is a load of issues that we need to think about very hard around low earners and how we balance their needs. And we'll of course, get on to that. But we have proposed in our response the Pensions. Commission looking really hard at the lower earnings limit, looking hard at the earnings trigger, thinking about how they might be.
And if we don't do that, you know, we had a pensions commission 20 years ago. We've got another one now. We cannot wait another generation. This is this is urgent and really, really meaningful. Having said all that, there is a load of issues that we need to think about very hard around low earners and how we balance their needs. And we'll of course, get on to that. But we have proposed in our response the Pensions. Commission looking really hard at the lower earnings limit, looking hard at the earnings trigger, thinking about how they might be.
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Andrew Pakes
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Andrew Pakes
Critical that we address that as well. Thank you. Yeah, I'd really I'd really very strongly echo what, what Zoe just said. I think we firstly absolutely believe there is a very strong argument for a path to higher overall contributions under automatic enrolment and clarity over what that path and timeframe looks like. And as part of that, you know, I think we would to the point that was made in the previous panel about the choices between inclusivity and exclusivity. You know, Aspirationally, I think that path should be about a move towards a system that is both more adequate and more inclusive.
And so ideally should bring as many people in as possible. And, you know, ideally would include calculating contributions from the first pound of pay. But as Zoe rightly says, from our perspective, what, what what matters in making all of that work is a clear. articulation of the extent to which that does create specific challenges for lower earners. And if it does, and which which we believe it may, then then a clear articulation of what the mitigations within that more adequate and inclusive overall .
And so ideally should bring as many people in as possible. And, you know, ideally would include calculating contributions from the first pound of pay. But as Zoe rightly says, from our perspective, what, what what matters in making all of that work is a clear. articulation of the extent to which that does create specific challenges for lower earners. And if it does, and which which we believe it may, then then a clear articulation of what the mitigations within that more adequate and inclusive overall .
11:12
John Milne
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John Milne
11:13
Speaker 5
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Speaker 5
Do you do you agree with that? So do you want to yeah. Happy to go for that. So I think that's based on some research that actually pensions UK did with PPI a little while a few years ago now 2 or 3 years ago. I mean it is important to recognise that picture. And that is true. But but actually. affordability concerns and constraints go way above £10,000.
So people earning.
So people earning.
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11:14
Speaker 5
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Speaker 5
For instance, often are in material deprivation. And that's, that's figures that centre for decent money have highlighted. So , you know, it comes back to we have some persistent low earners who are in households and can absolutely afford to contribute. And it's very, very important from my from my perspective that they do that they build meaningful savings in their own right. A lot of those people are women. A lot of those people might end up divorced and need meaningful savings to, to get them through. But there's also people who are living with another low earner. And so it is a mixed picture.
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Speaker 7
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Speaker 7
System to, to account for that. Yeah. Thank you. I do agree with most of that. There are clearly a lot of people who would benefit from from saving more into a workplace pension, whether that is because they're in a higher earning household, potentially, if they're on Universal Credit, and they wouldn't see much of the actual additional take home pay in terms of higher actual income. But there are clearly people who still would be advised, you know, should be opting out. And I think it is quite it's it's a bit of a mixed kind of picture when you look at kind of the positives of people not opting out or, you know, not ceasing to contribute through things like cost of living crises and through Covid.
And clearly there are some people who probably should have opted out. So we .
And clearly there are some people who probably should have opted out. So we .
11:17
Speaker 7
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Speaker 7
Defaults are. It's definitely difficult, but we have to go one way or the other. So yes. Yeah, yeah. I think the benefits of bringing in more people probably outweighs that, you know, and again, you need to think about those mitigations and how you can design a system which allows people to opt out without .
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11:17
Speaker 6
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Speaker 6
The benefits of being enrolled. Certainly. Thank you. I think we have to be transparent. We have to name the issue here. Seven out of ten of those. people who are earning under. £10,000 a year are women. So when we're talking about in households, what we're actually talking about is gender. differences in pensions within.
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11:17
Speaker 6
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Speaker 6
Where women will experience pensioner poverty in a household which isn't poor. Now, there may be much better. mechanisms to deal with the gendered elements that are happening. You could deal with that at the. crystallization point, for example, with things like joint annuities. Yes, we. absolutely think that women should have adequate pensions of their own. We can look at all of the sort of mitigations around relationship breakdown, for example. But I do think, you know, we're here to talk about lower earners taking money out and assuming that people who are earning as little as. £10,000 a year can afford to put more into.
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Speaker 6
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Speaker 6
Where people are. absolutely there in energy debt, they're in utility debt, they're in debt overall. And so when we're looking at the impact of coming into an auto enrolment system, we have to take a. 360 degree view of what that means for. individuals and their. circumstances as well. And as we've already said, when we're talking about reliance on state.
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Andrew Pakes
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Andrew Pakes
System as it stands today. Thank you for that. Will anything? Well, you know, I think that any any system with a default, a single default number in it is going to work better for some people and less well for other people. I think the commission has done a really good job setting out some of the reasons why the kind of, on the face of it, logic of this might be difficult for low earners, you know, is nuanced. And there are a lot of people living in on low incomes, but not in lower income, lower overall income households.
There's the mitigating effects of universal credit. The commission makes does a great job setting out all of those issues. I think from our perspective, you know, we are we would worry that there will be a residual of people who are on low incomes for whom the impact on their take home pay of a higher pension contribution. framework creates some acute trade offs in the short term, which could really be quite difficult, and that the choice of opt out .
There's the mitigating effects of universal credit. The commission makes does a great job setting out all of those issues. I think from our perspective, you know, we are we would worry that there will be a residual of people who are on low incomes for whom the impact on their take home pay of a higher pension contribution. framework creates some acute trade offs in the short term, which could really be quite difficult, and that the choice of opt out .
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Andrew Pakes
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Andrew Pakes
Give for that for the. 15% or however large that number is? So you heard about some of them in the previous panel? I think, I think the sort of the, the, the. mitigation set list. includes options like, you know, from our perspective, we've talked a lot about emergency savings. Do you allow some of the individual. contribution that someone's making to sit in an accessible account, which offsets some of the acuteness of that trade off? People earlier talked about opportunities to opt down without losing entitlement to the employer contribution, or indeed in extremist and non-contingent employer contributions.
I think these are the right this is the right menu of potential mitigations to be thinking about. But but I would say again, in order to make it possible to do the thing that I would hope we would be aspiring to do, which is to make the .
I think these are the right this is the right menu of potential mitigations to be thinking about. But but I would say again, in order to make it possible to do the thing that I would hope we would be aspiring to do, which is to make the .
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Speaker 5
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Speaker 5
Adequate whilst whilst enabling it to remain inclusive. Any other mitigations? I think it's just worth making the point that when we're talking about the overall contribution rate on its own, from the pensions UK perspective, at least we're talking about putting 1% on contribution rate for. employees and raising the employer contribution rate from 3 to 5. So it is just I mean, it's 1% is 1%, but we're not talking about a significant rise. The much more.
11:25
11:25
11:26
Speaker 1
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Speaker 1
Piece of research called Closing the Gaps earlier this year, where we looked at flexibilities in the system. By and large, when we spoke to individuals and employers, they favoured a simpler system. There was a sense from. employees that we spoke to who were from a mix of earnings levels. It's really important to that. They felt perhaps they should be contributing more. They were concerned about the complexities involved in things like opting down or pensions adjacent sidecar savings.
11:26
11:26
11:27
11:27
11:27
John Milne
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John Milne
11:27
Speaker 2
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Speaker 2
Ahead when we don't know how we're going to solve that problem? Are we talking affordability for employees? Yes. Yeah. In that case, I think the the key there is to put the emphasis on employer contributions. And that's partly why, you know, looking at employer. contributions first, before you look at things like lower earnings limit makes sense. And it's also why there's a really good case for going beyond the pensions UK kind of we want a balanced kind of six and six approach. You put all those increases on the employer. So you would I mean we're quite ambitious and would like to get to 15%.
But you know, if you got to 12% and you had that mix of. 7% from the employer, 5% from the employee, you would you would be getting back towards where we kind of were historically in terms of what a normal contribution structure looked like, where you would normally get one third from the employer employee, two thirds from employer, you'd be bringing us more into line with most of the kind of. international comparisons we look at, where we're very unusual in expecting more from the.
But you know, if you got to 12% and you had that mix of. 7% from the employer, 5% from the employee, you would you would be getting back towards where we kind of were historically in terms of what a normal contribution structure looked like, where you would normally get one third from the employer employee, two thirds from employer, you'd be bringing us more into line with most of the kind of. international comparisons we look at, where we're very unusual in expecting more from the.
11:30
11:30
Speaker 2
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Speaker 2
The employee than the employer. I think where you to do that and where you to certainly, you know, load those contributions onto employers first. So if you do end up going for a kind of 6 to 6 structure, you increase the employer contributions before you touch the employee contributions. I think that would go a long way to, to doing that. And then again, you've got the kind of mitigations to look at things like non-contingent contributions for .
11:31
Rushanara Ali
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Rushanara Ali
Agree or do we think that's unfair on employers or we certainly agree that the women's budget group that we should look at employer contributions first, but also recognising the fact that under the current sort of set up, that does mean that that's a cost to business, that's a cost to employment. And we know that that that looking at evidence from the IFS, for example, that when we looked at the impact of National Insurance contributions, and we can argue that separately, but actually what we saw was a retraction in lower paid and part time roles. So actually, it could have a perverse effect overall in terms of roles, what we suggest at the Women's Budget group, and I saw that you were speaking in the previous panel about pensions tax relief, is that pensions tax relief could be repurposed instead of incentivizing the individual to put more in terms of their pensions, that that could be repurposed to incentivise the employers.
So to mitigate the cost to employment for increased contributions. Now, there is a lot of money up for grabs in terms of pensions tax relief. So that's, you know, between 50 and £60 billion a year is lost to the Exchequer currently. And as we heard in the previous panel, that currently is mainly benefiting the higher earners. So we think that a progressive system that looks at helping employers to play a more a greater role, as the TUC have indicated, in terms of pensions contributions, but supported by a pensions tax relief system, would .
So to mitigate the cost to employment for increased contributions. Now, there is a lot of money up for grabs in terms of pensions tax relief. So that's, you know, between 50 and £60 billion a year is lost to the Exchequer currently. And as we heard in the previous panel, that currently is mainly benefiting the higher earners. So we think that a progressive system that looks at helping employers to play a more a greater role, as the TUC have indicated, in terms of pensions contributions, but supported by a pensions tax relief system, would .
11:34
11:34
11:34
11:34
11:34
Speaker 2
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Speaker 2
Can I just come back on the idea that looking at where employers are particularly kind of stretched at the moment is like is very sensible, obviously, but I think there are ways of supporting those employers that are completely separate from from the issues that you're talking about today. You know, things like business rates relief for pubs and clubs and shops and that kind of thing. And it feels like that's a much more kind of desirable way to support those employers rather than looking at some kind of pension specific way. I mean, obviously, people's needs in retirement are the same regardless of what sector they're working in and, you know, the need for a decent place.
So it feels like we should have, you know, we should look at pensions question separate from all those other kind of issues of how do you support areas of the economy that are struggling with high energy costs or with particular issues .
So it feels like we should have, you know, we should look at pensions question separate from all those other kind of issues of how do you support areas of the economy that are struggling with high energy costs or with particular issues .
11:36
11:36
11:36
Rushanara Ali
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Rushanara Ali
Their business models? Thank you chair. Thank you Alan. I've got we're going to have to stop in a couple of minutes. But just briefly, just in terms, I need to declare an interest. I sit on the Board of Sisters Trust, which has made donations to the Women's Budget Group chair, the the Trends Around inequality, which was picked up in the previous session, as well as you've already alluded to it, mean that you've got worse outcomes for women, low paid workers, and so on. Given the longer term medium, we can already see medium and longer term labour market trends.
We're going to see certain jobs with the rise of AI and so on disappear. Can can you talk through what the implications of that means in terms of the thinking around contributions, and how much those inequalities are .
We're going to see certain jobs with the rise of AI and so on disappear. Can can you talk through what the implications of that means in terms of the thinking around contributions, and how much those inequalities are .
11:38
Speaker 1
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Speaker 1
Likely to be. exacerbated into the system? Who wants to start? It might be worth talking a little bit about self employment, because of course, we see, you know, the rise of AI and other economic trends are pushing towards many more people being self employed. We would really like to see a. systematic approach to enrolling automatically automatically enrolling self-employed people via the tax system and payroll. systems to make sure that we are bringing them into saving, because there's an enormous, as we know, self-employed savings gap.
So I think it's just worth. highlighting that. As part of the answer to your question,
So I think it's just worth. highlighting that. As part of the answer to your question,
11:39
11:39
11:46
11:46
Rushanara Ali
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Rushanara Ali
Pensions adequacy inquiry. And I'm going to hand back to Rushanara Ali. Thank you very much, Daniela, do you want to come in on that? Yeah, I find this I was thinking about my answer. I find this quite a difficult question to answer, actually, because in truth, we we have a flawed system, right? We wouldn't be here today if we didn't recognise that the current UK pension system is flawed. We know from lots of evidence from, you know, this panel, the previous panel, that people are not saving enough. If we frame it that way for retirement, we know that we are increasingly reliant on a financialized pension system.
Investment returns and employment is increasingly fragile. And we have a number of uncertainties, whether that's for women paid and unpaid work, but for workers overall. And I think if we do take learnings from the sort of 2005 2006 commission, I would say that we really need to examine the fragility of the system that we are building, but also to build in sort of checkpoints. What if so many of those assumptions don't come true? This is affecting people's lives in real time now. They're working now, but what can they expect in terms of the future? So I don't have sort of glamorous answers around self-employment or what AI will mean in terms of the impact of employment.
But what I would say is that I think that there is a real hazard in us making assumptions around the long term projections, around longevity, around employment patterns, and baking that into a system where those assumptions may well .
Investment returns and employment is increasingly fragile. And we have a number of uncertainties, whether that's for women paid and unpaid work, but for workers overall. And I think if we do take learnings from the sort of 2005 2006 commission, I would say that we really need to examine the fragility of the system that we are building, but also to build in sort of checkpoints. What if so many of those assumptions don't come true? This is affecting people's lives in real time now. They're working now, but what can they expect in terms of the future? So I don't have sort of glamorous answers around self-employment or what AI will mean in terms of the impact of employment.
But what I would say is that I think that there is a real hazard in us making assumptions around the long term projections, around longevity, around employment patterns, and baking that into a system where those assumptions may well .
11:50
Andrew Pakes
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Andrew Pakes
Not pan out. Well, yeah, I mean, I, I think the question, your question about sort of future dynamics of the labour market is a really interesting one. I guess what I would add is I think some of the things we're talking about in the here and now can potentially help with that. And so I think both, as Zoe points out, thinking about how do we expand something automatic enrolment like to the.
11:51
11:51
Andrew Pakes
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Andrew Pakes
Which I'll say a bit more about in a minute. But also when we talk about things like multiple jobs below the. £10,000 threshold, you know, the possibility that in the future, the labour market looks like more people who are doing a bit of self-employment and a bit of employment, or who have volatile incomes or sort of insecure attachment to the labour market, you know, designing a system in a way now that works for those people may help, to some degree, future proof, some of the future trends in the labour market from a pension system perspective that you're describing.
I think specifically on the self-employed, we've done a fair amount of work on this. We're actually publishing some more work next week. And broadly speaking, I would I would absolutely agree, finding a way to create an automatic enrolment like moment for the. self-employed to bring more, more of those people into the pension system is really important. I would agree, tend to agree. And we talk about this in our work, that there's a central role for the tax and. self-assessment system within that, although we would suggest that that on its own may not be enough. There are some challenges with a kind of one time.
annual contribution moment for the. self-employed that we think could could result in sort of relatively higher, higher rates of opt out, if that's the model on its own. And so we've also tried to do some thinking around how do you get the broader ecosystem for the self-employed, things like their banking services, their their. accountancy services? How do you build a role for those things in to create more of a little and often savings habit for the self-employed that can then that can then contribute to that to their pension? Because I think we, you know, we do aspire to levels of participation among the self-employed that come anywhere close to what we've seen among traditionally employed workers.
We're going to need a system which .
I think specifically on the self-employed, we've done a fair amount of work on this. We're actually publishing some more work next week. And broadly speaking, I would I would absolutely agree, finding a way to create an automatic enrolment like moment for the. self-employed to bring more, more of those people into the pension system is really important. I would agree, tend to agree. And we talk about this in our work, that there's a central role for the tax and. self-assessment system within that, although we would suggest that that on its own may not be enough. There are some challenges with a kind of one time.
annual contribution moment for the. self-employed that we think could could result in sort of relatively higher, higher rates of opt out, if that's the model on its own. And so we've also tried to do some thinking around how do you get the broader ecosystem for the self-employed, things like their banking services, their their. accountancy services? How do you build a role for those things in to create more of a little and often savings habit for the self-employed that can then that can then contribute to that to their pension? Because I think we, you know, we do aspire to levels of participation among the self-employed that come anywhere close to what we've seen among traditionally employed workers.
We're going to need a system which .
11:54
11:54
Speaker 2
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Speaker 2
Self-assessment intervention. Thank you Jack. Well, firstly, I hope we don't move to a labour market which is more unequal and insecure and fragmented. But if we do, the only kind of way of mitigating that, I think, through the pension system is probably through a greater role for the state pension, just looking at it broadly. But just coming back to the point of the self-employed, I think it's a really important one when we think about low pay, because, you know, half of half of self-employed people are on two thirds of median wage or less. A greater proportion of self-employed women, ethnic minority workers, disabled workers, you know, there's a lot of low pay.
I think it's really hard to design an auto enrolment style system that works with people on low pay in the absence of an employer.
I think it's really hard to design an auto enrolment style system that works with people on low pay in the absence of an employer.
11:56
11:56
Speaker 2
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Speaker 2
You know, if you've got low pay, and even if you can't afford to make the contributions into, you know, that you're kind of. automatically deducted from you. It doesn't result in a, I mean, yeah, the, the incentives are quite low. First of all, you know, if you're a basic rate taxpayer, certainly, particularly if if you're being asked to make that.
11:56
11:56
11:57
11:57
Speaker 2
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Speaker 2
Additional NICs as a percentage of your self-employed income, and you would get some flat rate additional state pension as a result of that. But if you're looking at other alternatives, you know, you could have a funded kind of collective DC self-employed pension scheme again, where you could have different accrual rates for different incomes. But I think there needs to be something that will make it a bit more. attractive .
11:58
Rushanara Ali
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Rushanara Ali
For the low paid self-employed and get better outcomes for those people as well. Thank you. So the there's quite a lot of consensus around removing the lower earnings threshold, but with provided there are mitigations, I was struck by the Chris Curry's comments about. I think it was Chris's comments about working age disparities. Are worse. Obviously certain groups. And that just will play out. You can you know, if you've got the trade off, either you have it during working age, the disparity and not in retirement or yet. So if we wanted to see that not happening, what are your suggestions?
What what else would you suggest the government does to make sure that by encouraging people to stay in low earners later, they're not they're not worse off. Now, how do you know what else should should be done to prevent that, especially given the pressures in right now or .
What what else would you suggest the government does to make sure that by encouraging people to stay in low earners later, they're not they're not worse off. Now, how do you know what else should should be done to prevent that, especially given the pressures in right now or .
12:00
12:00
12:00
12:01
Speaker 2
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Speaker 2
Change the outcome later, improve the outcome later? I think the additional point is thinking carefully about how you communicate it. And that is particularly for people who are on universal credit and will, you know, might feel some pressure to opt out, but actually would not get very much of that benefit because it will have an impact on their universal takeover. I think that's something that that is a little different to how kind of opt outs are handled at the moment. So I think something quite specifically targeted there, and maybe even thinking about kind of whether you would want to, to re-enroll these people more often, you know, if you're looking at things like non-contingent.
12:02
12:02
12:02
Rushanara Ali
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Rushanara Ali
Basically say that once people do opt out in case it's a short term kind of financial pressure. So examples like the South African model. Yeah. Sorry. Yeah. Any anything else anyone else wants to come in. I think Non-contingent employer contributions are really important. And that sounds like a really techy term, but you can do certain things with that. You know, you can just say, you know what, just hold it. So even if I opt out because I need that money right now, then at least I'm not losing my employer contributions. That's one form of non-contingent employer contribution.
But you can actually make that much more progressive than it is currently. So why is it that, you know, the the 3% that I earn if I'm earning £15,000 is less in cash terms than that 3% that I'm going to get from my employer if I'm earning 50,000 or above. So we could, for example, look at tapering employer contributions and making them non-contingent. So that actually in cash terms, we're giving more to those lower earners who we know are more likely to have fewer options in retirement. So they're building up bigger pots over time while actually ensuring that those who do have those options higher, higher earners, not just in terms of other investment vehicles, but actually leverage the ability to be able to negotiate or bargain with their employers in terms of their pension terms that we allow that because that was that was the thinking behind auto enrolment, right?
It was supposed to be the equivalent of going on a diet. It was about willpower. But we know that lower earners, it's not about willpower, it's about affordability. So really, we should be building that into the system. And those that do .
But you can actually make that much more progressive than it is currently. So why is it that, you know, the the 3% that I earn if I'm earning £15,000 is less in cash terms than that 3% that I'm going to get from my employer if I'm earning 50,000 or above. So we could, for example, look at tapering employer contributions and making them non-contingent. So that actually in cash terms, we're giving more to those lower earners who we know are more likely to have fewer options in retirement. So they're building up bigger pots over time while actually ensuring that those who do have those options higher, higher earners, not just in terms of other investment vehicles, but actually leverage the ability to be able to negotiate or bargain with their employers in terms of their pension terms that we allow that because that was that was the thinking behind auto enrolment, right?
It was supposed to be the equivalent of going on a diet. It was about willpower. But we know that lower earners, it's not about willpower, it's about affordability. So really, we should be building that into the system. And those that do .
12:05
Andrew Pakes
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Andrew Pakes
Have choice and agency, we can enable them to exercise that. Thank you. I would I would just step back a bit and say, look, if you if you start with the pensions UK. structure of a 12% overall contribution rate from the first pound of pay for lower earners, a. significantly increased amount of money is going into their pension, just from the 6% that comes from the employer, because it's calculated from the first pound and it's higher. So actually, you know, for a lower earner on the current regime, they have a significantly lower than 8% overall contribution because of the effect of those thresholds, right.
So so that creates, I think, some. opportunity to then think about well within the bit that's directly affecting take home pay within the 6% individual contribution. What else can you do given this higher overall baseline of pension saving, to try to target and. mitigate some of the things that have been discussed today and that people are worried about? And, and to an extent, all of the menu of things that people are describing be that allowing lower earners to opt out of their individual contribution, but retain the employer contribution or to opt down from six and retain the employer contribution.
These are all kind of variants on. What do you do with the six of the individual contributing, contributing? The reason we've made the argument around pacer or Sidecar savings, because we actually think it does the job of all of those other things with some added advantages. So if the if if a portion of the. individual's contribution is going to an emergency savings account, it mitigates some of the risks of locking that money away because they can access it if they need it. Today, in that sense, is sort of partially. non-contingent because you're not requiring a full pension contribution to get the employer contribution, but you're still requiring some.
behavioral connection between the two things. And then there are a broader set of benefits from from helping people to be more financially resilient in the short term, both for their capacity to be good long term pension savers, but also just in the round today in all sorts, including higher productivity at work, lower use of the health care system. And so I think but I'll just go back to if we can get to that 12% for everybody base case, it creates a lot more flexibility for a little bit. And I know there are questions about kind of complexity, and I'm sure we'll come on to those for a little bit more targeting within the individual contribution to try to make sure that higher pension.
saving is predominantly focused on middle and higher earners, where the adequacy challenges are.
So so that creates, I think, some. opportunity to then think about well within the bit that's directly affecting take home pay within the 6% individual contribution. What else can you do given this higher overall baseline of pension saving, to try to target and. mitigate some of the things that have been discussed today and that people are worried about? And, and to an extent, all of the menu of things that people are describing be that allowing lower earners to opt out of their individual contribution, but retain the employer contribution or to opt down from six and retain the employer contribution.
These are all kind of variants on. What do you do with the six of the individual contributing, contributing? The reason we've made the argument around pacer or Sidecar savings, because we actually think it does the job of all of those other things with some added advantages. So if the if if a portion of the. individual's contribution is going to an emergency savings account, it mitigates some of the risks of locking that money away because they can access it if they need it. Today, in that sense, is sort of partially. non-contingent because you're not requiring a full pension contribution to get the employer contribution, but you're still requiring some.
behavioral connection between the two things. And then there are a broader set of benefits from from helping people to be more financially resilient in the short term, both for their capacity to be good long term pension savers, but also just in the round today in all sorts, including higher productivity at work, lower use of the health care system. And so I think but I'll just go back to if we can get to that 12% for everybody base case, it creates a lot more flexibility for a little bit. And I know there are questions about kind of complexity, and I'm sure we'll come on to those for a little bit more targeting within the individual contribution to try to make sure that higher pension.
saving is predominantly focused on middle and higher earners, where the adequacy challenges are.
12:10
12:10
12:10
12:10
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12:11
12:11
12:11
Speaker 1
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Speaker 1
Mitigate some of those additional. costs to those people? I'm happy to go first. If you look at the Pensions Commission's work and there's lots of evidence to suggest that large employers, by and large, are more likely to be contributing at these sorts of levels already, if not more than that. Right. So we are really talking about small to medium employers. We did a survey recently with them asking them about contribution rates going up. And actually I was quite surprised by the level of. understanding of and. anticipation that rates might rise. So we found. 71% of.
employers with. between 10 and 250 employees said that if they were given at least two years notice and contributions were phased, they would support a rise in contributions. That surprised me, actually, and I think that's a really positive finding from from our.
employers with. between 10 and 250 employees said that if they were given at least two years notice and contributions were phased, they would support a rise in contributions. That surprised me, actually, and I think that's a really positive finding from from our.
12:13
12:13
Speaker 1
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Speaker 1
I think when you look at kind of ameliorations for small employers, I think I go back to what I think Chris said in the previous panel, which was we can't solve everything via the pension system. And, you know, the more you kind of build complexity into the automatic enrolment system, there's all the trade offs that we've talked about. So I would look at other things like business rates and the kind of overall picture for employers. And, and one of the things that I haven't spoken much about, but I think is worth reinforcing is we do think it's really, really important that we have we've proposed a national council retirement adequacy, but an.
equivalent body which is sitting outside and making semi-regular contributions, sorry. recommendations to government about the package in the hole and how it stacks up against the prevailing economic.
equivalent body which is sitting outside and making semi-regular contributions, sorry. recommendations to government about the package in the hole and how it stacks up against the prevailing economic.
12:14
12:14
Speaker 1
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Speaker 1
And how, therefore, you might adjust the lower earnings limit or the earnings trigger, because we have these actually really quite big gaps in policy making around pensions that are looking at the whole system. And we have Treasury looking at it from one very fiscal perspective, and DWP looking from a social policy.
12:15
12:15
12:15
Speaker 2
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Speaker 2
Potentially broader than pensions policy as well, would be really, really valuable. I think there's two slightly different questions there. One is, where are. employers or sectors that are going to be particularly impacted by the changes because they've got lots of people within adequate pensions at the moment. So they're going to see the biggest kind of uplift for for workers there and the biggest cost on those businesses. And I'm interested if did some modelling around what those sectors are and what the kind of costs are.
And I was quite pleasantly surprised that in sectors like.
And I was quite pleasantly surprised that in sectors like.
12:16
12:16
Speaker 2
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Speaker 2
The likely to be the worst affected, the actual increase in costs seemed relatively modest under 2% for all those kind of industries. And that kind of suggests that with the notice that you're looking at, actually that's a cost which can be absorbed over that time period. And again, that kind of looking at sectors that will struggle with any additional costs or types of employers because of the environment they're operating in. Again, as Zoe said, as I said before, I think that the ways .
12:17
12:17
Rushanara Ali
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Rushanara Ali
Nothing really to add. Unsurprisingly, I would talk about care and the care sector, and I actually agree actually with the TUC, you know, a lot of these things are actually about the dysfunctional structures of those sectors anyway. But women are much more likely to work within where the costs to employees. So wages and salaries are driven down over time. I think it's also worth saying, you know, everyone's sort of like 12% and it's going to be great and it's going to take everything up. We know that actually that's not going to do anything to impact the gender pensions gap.
Actually, the gap remains the same. I mean, in overall, more is going into people's pots and those real risks around part time workers really remain. So thinking about those sectors which do tend to be sort of overpopulated by women who tend to work part time for lots of other reasons, very often because they've got sort of unpaid care that they're delivering. At the same time, I think it is worth thinking about the impact of employers, helping them to ensure that there isn't this sort of perfect storm of changes or even improvements, but that those part time .
Actually, the gap remains the same. I mean, in overall, more is going into people's pots and those real risks around part time workers really remain. So thinking about those sectors which do tend to be sort of overpopulated by women who tend to work part time for lots of other reasons, very often because they've got sort of unpaid care that they're delivering. At the same time, I think it is worth thinking about the impact of employers, helping them to ensure that there isn't this sort of perfect storm of changes or even improvements, but that those part time .
12:17
12:17
12:17
Rushanara Ali
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Rushanara Ali
Abolishing it completely as a recommendation or like a flat a flat rate. Well, look, I mean, you know, all I would say is, you know, 60 billion is a lot that would fund a National care service in a heartbeat. It would fund a lot of buses. It would fund a lot of schools. That is money that is being lost to the Treasury today, right now. So every time you go and you've got to have those political debates about where are we going to find the money from? All I would say is, is that pensions tax relief, that is money foregone today.
And actually, I think that there is a moral case around that, that we know that it is massively regressive, it is benefiting high earners, and it is not benefiting low earners. And I think that that is a political question, not one. For me. What we've suggested in terms of women's budget group is, you know, you could bring that into an overall sort of pot of wealth taxes that we could use to fund other things is that even if you repurpose that, if you still kept pensions tax relief to towards pensions, but you supported precisely those types of employers that we're talking about, then, you know, for some employers, they only pay low paid workers.
They only employ low paid workers. So for them, actually, this is a cost to business. It will be if the majority of your workers are low paid part time workers, then then under proposals to lower the trigger, to lower the lower earnings threshold, then actually they will be paying more in terms of their employees. If you gave them some form of relief in relation to that, then we know we would be safeguarding pensions, that that relief would be doing what it's supposed to do. We heard from Chris Curry before that. It was designed for increasing people's individual contributions.
Well, actually auto enrolment has done that. So this is a redundant mechanism which is taking money away from the Treasury. I personally think that is a huge political scandal, and I think that it could be used better. And I think that there should be .
And actually, I think that there is a moral case around that, that we know that it is massively regressive, it is benefiting high earners, and it is not benefiting low earners. And I think that that is a political question, not one. For me. What we've suggested in terms of women's budget group is, you know, you could bring that into an overall sort of pot of wealth taxes that we could use to fund other things is that even if you repurpose that, if you still kept pensions tax relief to towards pensions, but you supported precisely those types of employers that we're talking about, then, you know, for some employers, they only pay low paid workers.
They only employ low paid workers. So for them, actually, this is a cost to business. It will be if the majority of your workers are low paid part time workers, then then under proposals to lower the trigger, to lower the lower earnings threshold, then actually they will be paying more in terms of their employees. If you gave them some form of relief in relation to that, then we know we would be safeguarding pensions, that that relief would be doing what it's supposed to do. We heard from Chris Curry before that. It was designed for increasing people's individual contributions.
Well, actually auto enrolment has done that. So this is a redundant mechanism which is taking money away from the Treasury. I personally think that is a huge political scandal, and I think that it could be used better. And I think that there should be .
12:17
Damien Egan
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Damien Egan
Political. mobilisation around changing that system as it sits today. You're not worry that longer term, it will mean that more. people would then opt not to put money into their pensions. If I say if you're a imagine a single parent in my Bristol. constituency on. 60,000 a year would be taking home . Say they want to put £500 into their pension, assuming their. employer is going to match that.
So that's what they would kind of want to be getting onto. They take home.
So that's what they would kind of want to be getting onto. They take home.
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Rushanara Ali
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Rushanara Ali
That that that £200 loss is too big a hit. As a single parent who lives in Bristol, I would say we won't talk about my salary, but what I would say is that there are very few people right now who are wondering what to do with their money, right? The the economic reality for particularly single parents is that they are absolutely against it in relation to all of the various cost of living. We know that the majority of single parents, 85% are women, for example. We know that there are gendered spending patterns. We know that when you talk about housing 57% of earnings, women's average earnings goes in terms of in terms of housing.
So the idea that I'm wondering what to do as a single parent in Bristol or wherever else with £500 really, I think doesn't speak to the reality of where people are at. And we can see over time, pensions tax relief has been in place for a long time now. We can see that it hasn't increased those measures, but auto enrolment has. So are we going to continue to not use that, you know, to to effectively reward higher earners? Or can we be politically brave and think, how can we use that .
So the idea that I'm wondering what to do as a single parent in Bristol or wherever else with £500 really, I think doesn't speak to the reality of where people are at. And we can see over time, pensions tax relief has been in place for a long time now. We can see that it hasn't increased those measures, but auto enrolment has. So are we going to continue to not use that, you know, to to effectively reward higher earners? Or can we be politically brave and think, how can we use that .
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Speaker 1
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Speaker 1
And it's critical to getting people to the levels they're at today, which are nowhere near where they need to be at, which is why we're all here and Debates, and it's critical to getting people to the levels they're at today, which are nowhere near where they need to be at, which is why we're all here and talking about what do we do about low earners in the context of pushing contributions up? It is relief on earnings. It's not a pot of money available to Treasury. I mean, it is in theory, but I think it's really harmful actually to talk about it in that in that .
I think I think in the in the context of your question earlier, and I think what you're getting at here is are people making decisions based on that tax relief? No, they're not, because they don't engage with pensions, which is why we need automatic enrolment. Right. I do think actually kind of at the margins, there's more that providers could do, like pensions be and other big, you know, big providers in the market to make tax relief more salient. You know, wouldn't it be great if I got a text every month to say that, you know, the government had given me X, Y, Z amount of money towards my pension?
I think that would be really, really helpful. I absolutely do not think we should be rowing back on something that is. already making up a really, really important people proportion of people's retirement income and will continue to do so. And we mustn't forget median earners. You know who we're not talking about today. We're not focused on, but are .
I think I think in the in the context of your question earlier, and I think what you're getting at here is are people making decisions based on that tax relief? No, they're not, because they don't engage with pensions, which is why we need automatic enrolment. Right. I do think actually kind of at the margins, there's more that providers could do, like pensions be and other big, you know, big providers in the market to make tax relief more salient. You know, wouldn't it be great if I got a text every month to say that, you know, the government had given me X, Y, Z amount of money towards my pension?
I think that would be really, really helpful. I absolutely do not think we should be rowing back on something that is. already making up a really, really important people proportion of people's retirement income and will continue to do so. And we mustn't forget median earners. You know who we're not talking about today. We're not focused on, but are .
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Speaker 1
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Speaker 1
Today so far? Staring at me. I'm not sure if I'm happy to have a bit of go go go. Yeah. So so I mean, I go back to the closing the gaps research that we did earlier in the year, which showed that, you know, when we spoke to consumers, they were saying, this is a bit. complicated for us. You know, how would we kind of trade off those. choices if we'd rather you told us what we should be contributing and just automate it, which is what we all know, you know, kind of leads to better.
Outcomes for people. I think there was also a really important point made by Chris, which we share and came through the consumer research about this idea of kind of shared endeavour and people feeling, you know, it's right that they put some money in their employer, put some money in. And that's the model that's kind of mental model that people have. I do think there are real risks to be looked into. I'm not discounting the idea of Non-contingent employer contributions. I think if you could do it without negative behavioral impacts on the system, it might be a really good thing to achieve.
But you know what? If I'm a median earner and I'm having to contribute, and then someone next to me is, is getting for free. So I think there's a lot of a lot of kind of behavioral and. systemic impacts we need to think through before we put something like that in, which is why I think it should follow the .
Outcomes for people. I think there was also a really important point made by Chris, which we share and came through the consumer research about this idea of kind of shared endeavour and people feeling, you know, it's right that they put some money in their employer, put some money in. And that's the model that's kind of mental model that people have. I do think there are real risks to be looked into. I'm not discounting the idea of Non-contingent employer contributions. I think if you could do it without negative behavioral impacts on the system, it might be a really good thing to achieve.
But you know what? If I'm a median earner and I'm having to contribute, and then someone next to me is, is getting for free. So I think there's a lot of a lot of kind of behavioral and. systemic impacts we need to think through before we put something like that in, which is why I think it should follow the .
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Speaker 2
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Speaker 2
Legislation to increase. contributions overall. Well, yeah, I mean, so I would I would echo and add, I think it's there would be some important questions about for whom and is it forever or is it a temporary payment holiday type of non-contingent contributions to work through and to figure out that it was well targeted. So I think that's the first the first set of questions. I think the bigger the bigger question for me is, you know, I'm sure we've all at various points uttered the phrase, well, one of the greatest strengths of the first Pensions Commission was the consensus that they managed to build around the reform agenda that they proposed.
Right. It is well, well versed as a strength of the original set of recommendations. I think the question for me is, to what extent does the employer community. So Zoe talked about speaking to employers who will acknowledge to some degree there might be a need for for contributions to rise in the future. To what extent will the employer community remain in a. consensus in a world where there is a perception that they are being asked to contribute more, and some workers, some of the time are not being asked to.
Right. It is well, well versed as a strength of the original set of recommendations. I think the question for me is, to what extent does the employer community. So Zoe talked about speaking to employers who will acknowledge to some degree there might be a need for for contributions to rise in the future. To what extent will the employer community remain in a. consensus in a world where there is a perception that they are being asked to contribute more, and some workers, some of the time are not being asked to.
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Speaker 3
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Speaker 3
The behavioural questions that Zoe raises. I mean, I think there are employers that do this already, aren't there? There are, you know, and you can look at and from I've only spoken to 1 or 2, but they report very, very low levels of opt outs from people who are even where there's a bit more of an incentive that, you know, you can you can take some of that cash home as well as just, you know, benefiting from the non-contingent contribution. So I think we could possibly look a bit .
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Speaker 3
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Speaker 3
Six on an equal basis by 2035. I agree with all of that. Apart from obviously, we'd like it to keep going a little bit further beyond that. But yes, it's really important to to get the urgency of actually kind of increasing. contributions as soon as possible within the timeframe the government set out of saying nothing, this Parliament .
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Rushanara Ali
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Rushanara Ali
And giving a bit of notice to employers. I think it's very easy for us, you know, as sort of the techies. And we think about, you know, the, you know, the machinery of government and what we should do and order of operation. I think we really should start with the users. And I think that none of us should forget that this is affecting people's financial futures in real time now. And I think we need to go back to that. And whatever priority changes we bring in place, we should absolutely look at what will make the most material difference to individuals, to lower earners, for example, where the behavioural factors may be different from other groups, for example.
So I think that when we look I've talked about a 360 degree view. So not just thinking about the pension system, thinking about universal credit, thinking about housing, thinking about all of the other cost of living measures as well. I think that we should have a timetable that absolutely focuses, first and foremost on securing the financial futures of the population, but particularly.
So I think that when we look I've talked about a 360 degree view. So not just thinking about the pension system, thinking about universal credit, thinking about housing, thinking about all of the other cost of living measures as well. I think that we should have a timetable that absolutely focuses, first and foremost on securing the financial futures of the population, but particularly.
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Speaker 2
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Speaker 2
Low earners and. prioritising whatever works for them most. Well, I think the most important, very similar to what Daniela said, I think the most important thing is that the destination we're describing hangs together and makes sense. So we need to be clear that we are moving towards a system which in total works well for as many people as possible on all the dimensions that we've already talked about. I think the second thing is probably what kind of Zoe described as first, which is stating very, very clearly and very early on what the. timetable to get there is going to look like .
Because for all the reasons we've rehearsed, clarity and certainty, particularly for employers, is really important. And I think in terms of sequencing, you know, where we've talked about the potential need for kind of mitigations around impacts on lower earners, you just need to try to make sure that you're sequencing in a way that the mitigations come with the risks, you know, and so that you're trying to make sure that you're able to implement those in a way that means that you don't kind of run ahead with, with a set of things before you're able to kind of catch up.
But I do, I would just really echo, I think. The need to move to a higher overall.
Because for all the reasons we've rehearsed, clarity and certainty, particularly for employers, is really important. And I think in terms of sequencing, you know, where we've talked about the potential need for kind of mitigations around impacts on lower earners, you just need to try to make sure that you're sequencing in a way that the mitigations come with the risks, you know, and so that you're trying to make sure that you're able to implement those in a way that means that you don't kind of run ahead with, with a set of things before you're able to kind of catch up.
But I do, I would just really echo, I think. The need to move to a higher overall.
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Speaker 2
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Speaker 2
And the need for clarity that that is where we are going and the timetable over which we are getting there are really, really important. And I do think there's scope, if we're all so clear about the need to think through the lower earners issues, there is scope to figure out the exact detail of how to do .
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