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

Baroness Sherlock Excerpts

Thursday 25th February 2021 Lords Chamber

[Baroness Sherlock (Lab) [V]]

My Lords, I thank the Minister for her introduction and all noble Lords for a great debate. We do not oppose this order, of course; we all want auto-enrolment to flourish. It emerged from the work of the Pensions Commission, on which my noble friend Lady Drake served with such distinction. As my noble friend Lady Foulkes reminded us, that was legislated for by the last Labour Government—indeed, by my noble friend Lord McKenzie of Luton—and was then introduced by the coalition, so it is truly a cross-party baby. So far, it seems to have come through the threats posed by the pandemic reasonably well, as my noble friend Lady Drake said. People are still saving. Can the Minister confirm that there is no evidence of increasing opt-out rates?

I want to understand more about the effect of freezing the earnings trigger. The Government’s review says that a freeze reduces the value of the trigger as it assumes that there will still be wage growth, and its modelling estimates that the freeze will bring 8,000 more savers into scope. That last year’s review suggested a freeze would bring into scope another 80,000 savers shows what has happened to earnings growth. Can the Minister explain the projection a bit more? I have tried the methodology and failed. Does it mean only that, all other things being equal, freezing the trigger at £10,000 will draw another 8,000 people into auto-enrolment; that is, 8,000 more than would have come had it been uprated with earnings? In other words, is it just the pensions equivalent of fiscal drag? Crucially, were there any assumptions about employment levels? Is it possible that 8,000 extra people will be drawn in but that a million will lose their jobs and be kicked out, so we are 992,000 down? Was that factored into the decision by the Secretary of State?

As some people have lost hours rather than jobs, others have lost full-time jobs and will end up with one or more part-time jobs instead. If someone has one or more jobs, and none pays over the threshold, they are excluded from auto-enrolment altogether, so what assessment did the Secretary of State make of this in deciding about the earnings trigger? What are the Government doing to tackle our broken labour market and the rise in working poverty which it is driving— a point made strongly by the noble Baroness, Lady Wheatcroft?

I would be interested to hear the Government’s view on the age threshold—an issue raised by my noble friend Lady Drake, the noble Baroness, Lady Janke, and others—and what they intend to do about the gender imbalance, about the ethnic minority imbalance raised by my noble friend Lord McKenzie and the noble Baroness, Lady Janke, and about the self-employed, as mentioned by the noble Baroness, Lady Ritchie, and others. I am certainly interested to know, as are most noble Lords, what is happening to the 2017 review recommendations.

I also have some questions related to the impact of the pandemic. Are more people taking money out of their pensions early in response to short-term need in the pandemic? Are we seeing an increase in scams? With firms facing cashflow crises and then insolvency, are more employers failing to pass over auto-enrolment funds? If the furlough scheme is stopped and that leads to more insolvencies, which it probably will, what will be done to ensure that people get the money that the then-insolvent employer should have handed over? Is the DWP doing a full risk assessment for the pensions landscape in the light of the pandemic and, if so, will it publish it?

On the longer-term issues, my noble friend Lady Drake raised an important question about the shifting patterns of saving in the wake of the pension freedoms. Has the DWP looked at whether there is a shift to pension pots being viewed by people as simply another form of savings and not as a source specifically of long-term retirement income? If so, what does it intend to do about it?

A big challenge remains getting pensions saving up to the appropriate level to avoid, as my noble friend Lord Hain said, millions of people ending up in abject poverty in retirement. I would be interested to hear what the Minister has to say about that and about my noble friend’s question about when we will get the secondary legislation for the Pension Schemes Act. Noble Lords will remember quite how much pressure we were under to pass the Bill as quickly as possible, so I hope that we will not see implementation slowing down now the primary legislation is in place.

The Government are perhaps being cautious because of the pandemic, but, as my noble friend Lord Davies of Brixton said, auto-enrolment is a work in progress. Many noble Lords, including the noble Lord, Lord Bourne, the noble Baroness, Lady Bowles, and others, have pressed for the need for longer-term thinking. Can the Minister assure the House that the Government are developing a plan of action to ensure that, once the economic landscape stabilises and employers face less uncertainty, more people are automatically enrolled into pension schemes in the future? As many noble Lords have said, too many people simply are not saving enough money for retirement. We have seen during the pandemic more and more people falling into debt and potentially into poverty. People have lost so much already. We do not want those losses to be magnified further when they come to retire. I look forward to the Minister’s reply.