Automatic Workplace Pension Enrolment

Baroness Primarolo Excerpts

Monday 25th June 2018 Lords Chamber

[Baroness Primarolo (Lab)]

My Lords, I congratulate my noble friend Lord McKenzie on initiating this debate. I echo the very positive points he made about auto-enrolment: it is a good thing and has enabled millions of people to be drawn into workplace pension systems for the first time. The government review published last year concluded that, regrettably, of the 10 million people enrolled for the first time by 2018, only 3.6 million were women. We have the opportunity now to reflect on the introduction of auto-enrolment and the changing nature of the labour market and government policy, and to find ways of ensuring that we continue to draw more workers into auto-enrolment to enable them to save for their retirement.

The government review also identified that 900,000 of the 1.6 million individuals who are under-saving and earn less than £25,000 a year are women. This is on top of the dramatic changes to the state pension for women, the changes to women’s entitlement to benefit from contributions made through national insurance by their husbands, and the fact that women often have multiple part-time jobs to fit around caring responsibilities, be that childcare or care for a relative. They then find themselves unable to be auto-enrolled because they do not have “a job” that gets them over the £10,000 trigger. It would be a very poor outcome for the introduction of a good scheme in theory if, in 10, 20 or 30 years’ time, we found that women in many sectors of our society were still totally excluded from an ability to provide for themselves in their retirement through a contribution in this way.

According to the Annual Survey of Hours and Earnings—ASHE—8.8 million employees are not currently saving into a pension scheme. This headline figure is worrying in itself but it disguises a greater inequality in the UK workforce. In some occupations, up to 85% of the lowest paid are not in a pension scheme and are missing out on the employer’s contribution that better-paid workers receive. Some industries, such as agriculture and the wholesale and retail sectors, lag far behind other areas. The TUC published an analysis based on the latest ASHE data, which shows that among highly paid professionals earning more than £600 a week, nearly nine out of 10 are saving into a pension. But at the other end of the spectrum, nearly 86% of those in, for example, sales or customer service jobs who are paid far less a week are not members of a scheme. Four in 10 employees undertaking care, leisure or other service work are not entitled to enrol in a pension scheme, including nearly three-quarters of the lowest paid.

It therefore appears that the current pension arrangements are in danger—I put it no higher at this point—of hardwiring inequality between the lowest-paid and the better-paid occupations into the auto-enrolment pension system. As my noble friend said, those who earn under £10,000 from one employment do not have an automatic right to enrol in a workplace pension. The lack of pension provision means that the pay gap is wider than at first appears, with low-paid workers missing out from the employers’ pension contribution. It also suggests that whatever the gap in pay workers experience in their working lives could be amplified into retirement.

Many under-pensioned sectors typically employ large numbers of women. Thus, the rules governing automatic enrolment at present mean that women are less likely than men to come into the workplace pension system. A series of points makes this difficult for women, and my noble friend touched on the first one: contribution rates. The structure hinders contribution, in my view, so the legal minimum contribution of 1% for each employer—rising, I know, by 2019 to a total contribution from all of 8%—means that those who come in at the lowest point will not accrue enough for their retirement to give them a basic income.

When this is compounded by applying contributions to a band of earnings rather than based on a full salary, for someone on £10,000 a year, only £4,124 is pensionable, so 8% of qualifying earnings actually means that only 3.3% of their total salary is being contributed. When we put into that complicated mix insecure work, the growth of self-employment, where employers are contracting out and wanting to employ people on a more flexible basis, we can see that the contribution rate for employers is simply not high enough at present.

Then we have the question of the trigger of £10,000. As I have already touched on, for many women in low-paid, part-time work, juggling care responsibilities and a number of jobs, that £10,000 is simply not a viable measure for them. Again, the research conducted by the TUC, published in 2016, found that 106,000 workers—70% women—held multiple jobs but could not enter the trigger at £10,000. Cutting or abolishing the earnings trigger would help low-paid women to come into workplace pension schemes.

Why do we not use the national insurance contribution level, which I think is referred to in the report’s summary of conclusions? Using that would bring about 1.5 million more people into workplace savings, of whom 73% would be women.

A case can be made that those with wages below the trigger can opt in to a workplace pension anyway, although we know that pensions are often complex. Importantly, however, individuals who are on low incomes rarely feel that they are, if you like, flush for cash and, not unreasonably, when budgets are tight, they favour the short term over the long term. We know this from experience with the married woman’s national insurance contribution rate, a much lower rate with less benefits for that woman. Many women opted for that to help the household budget, with the consequences that we now find for them with the development of policy in pensions, excluding them from a decent pension. With the trigger, as my noble friend said, linked to the tax threshold, which is now much higher than originally envisaged as a result of coalition Government action, this situation can only get worse.

The Government now need to go further and build on the success of auto-enrolment and what they say in their review. They need to ensure that employers make decent contributions to a pension scheme for all workers from the first pound earned, that women workers and low-paid workers get the same pension benefits as their colleagues. They need to cast an eye over their review and undertake a gender analysis on take-up in this area. I think that they will see that there will be vastly different work practices in different sectors, and that that directly influences the ability of those workers to enter the workplace pension provision.

Increasing employer contribution rates, reducing the trigger, looking at every pound earned counting, allowing people to use more than one job to contribute to their pension and dealing with the vastly increasing economic precariousness for the self-employed—that is a good starting point for the Government to get further accolades on building a proper pension system. But that will not be done without a timetable, and it will not be done without clear identification by the Government of what they hope and intend to do next. I hope that when the Minister replies to this debate, she will give noble Lords some comfort that the Government intend not to sit on their laurels but to energetically, urgently and with determination build on this scheme to make an even better one for women workers in this country.