Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021

Baroness Drake Excerpts

Thursday 25th February 2021 Lords Chamber

[Baroness Drake (Lab) [V]]

My Lords, I refer to my pension scheme interests as listed in the register.

I, too, thank the Minister for her presentation. Auto-enrolment has been stress tested during this pandemic and in large part has stood up well, reinforced by support from the Treasury through the various job protection measures. No doubt, the DWP has been a powerful influencer as to the strategic importance of protecting the private pension system. But, in making that acknowledgement, I want to refer to some—I cannot cover all—of the casualties that have occurred.

The key target group for public policy on auto-enrolment is low-to-moderate earners, including young people and women, but the pandemic has brought widening divisions. Young people are more likely to work in the most impacted sectors, to be made redundant or be furloughed, and to find it harder to enter a difficult labour market. In 2017, the Government commissioned a review of automatic enrolment and committed to changes by the mid-2020s to extend coverage. I am sure that if I ask the Minister for a timetable for those changes, she will repeat that it must be considered in the context of supporting businesses and getting people into work, but I want to push back on that argument, on a particular priority.

Young people will feel the consequences of the pandemic for their life chances for many years to come. The Government should give priority to automatically enrolling workers from age 18 and enrolling all young people registered as unemployed or earning below the earnings trigger into a private pension account, into which government makes a contribution. Other public service obligations are built into the design of auto-enrolment. This should be another—to increase the prospects of young people building up a decent pension pot, which has taken a kicking as a result of the pandemic. Will the Minister consider that proposal and give it priority?

The £10,000 earnings trigger has been frozen, but it still means that women will make up well under 40% of the eligible population for auto-enrolment. If more unemployed women re-enter the labour market on lower earnings, even the estimate of 8,000 more becoming eligible could well be overstated. There are other inhibitors to women building up their pension pot. Noble Lords have already raised the issue of tax relief. However, some master trusts offer both relief at source and net pay. It is not the case that all schemes offer only one option. But the main point is that we still have significant unresolved inequalities in respect of women, auto-enrolment and private pension schemes, which the Government do not seem to have the drive to address.

Another casualty is that rising unemployment will accelerate the small pension pot problem, particularly in sectors where the incidence of small pots is already high. As a DWP report suggests, it is employment ending and transitions to new jobs that drive growth of small pots, rather than active decisions to discontinue saving. There is a really pressing need to find a solution. The Government tilted at one in 2013, with pot follows member, but then kicked the can down the road. By when do the Government anticipate they will have a solution for small deferred pots that is fit for purpose?

Finally, it is now over five years since pension freedoms were introduced. There is increasing evidence that industry and policymakers are creating a retirement market based on assumptions about savers’ behaviours which are inconsistent with how they actually behave. Pension freedoms have also reframed the pension pot away from being the means, together with the state pension, to secure an income for life in retirement to being seen as an accessible pot of money to fund priorities in the near-term future. If that reframing persists, there will be a real public policy failure in 20 or 25 years’ time in terms of the money that people have as income in retirement. When will the Government commission a review of the impact of pension freedoms on desirable public policy outcomes?