Saving for Later Life

David Linden Excerpts

Tuesday 7th February 2023 Westminster Hall

[Nigel Mills]

There are various ideas out there, and people could use that sort of scheme. They could take a loan out of their pension scheme to get their deposit, and pay it back. We could allow people to be auto-enrolled and have their employer contributions go into their help to buy ISA. There are various ways to try to achieve the aim, but we need to pick one and bring it forward. We have not made the progress that perhaps we should. To be honest, I can see no way of getting more money into young people’s savings to achieve a deposit other than allowing the use of some kind of employer support that is currently going into their pension, because in reality, young people will not have the scope to save much more for themselves. We have already tried to give them the taxpayer top-up through the help to buy ISA. Where else is new money coming from to improve this situation if not from money that is going into their retirement saving?

[David Linden (Glasgow East) (SNP)]

I am grateful to the hon. Member for giving way and to the hon. Member for Grantham and Stamford (Gareth Davies), who intervened before me and talked about the KiwiSaver scheme. I think that that is very interesting, but it strikes me, when considering this topic, that this is a discussion that we have within our little bubble on work and pensions but it is perhaps not something that has been explored in Government—for example, in the Treasury and the Department for Levelling Up, Housing and Communities. Does the hon. Member for Amber Valley (Nigel Mills) agree that there has to be a slightly wider, cross-Government approach if we are seriously to explore the issue?

[Nigel Mills]

I agree. This is a complicated area and it clearly does cross into being a Treasury responsibility; it has to, as it involves quite a lot of pensions issues. But this is a question of coming up with a consensus around a plan for how we achieve the aim. There needs to be a long-term, stable solution. The Treasury did—it must be seven or eight years ago—move to the help to buy ISA and add the taxpayer top-up to it, and that is, in effect, an equivalent to what people get in a pension scheme. There does not have to be a completely closed door, but this is a matter of bringing these things to fruition.

I welcome the announcements made by my hon. Friend the Minister last week at the Pensions and Lifetime Savings Association about the value for money of pension schemes. I have banged on about this for a few years. It is regrettable that the auto-enrolment market is generally still about saying, “We’re going to be really cheap for employers and really easy for you to comply with,” rather than, “Here’s a great pension that you can put your staff in. It will be a really powerful motivation and retention tool, and they will get a really good pension at the end of it.” Now that the market is mature, we need to try to move it away from being cheap and easy to being high quality, with decent returns and a decent service to members. If the Minister is going to make some progress on that, I will greatly welcome it, because having people in the best possible schemes with the best returns, rather than in the cheapest and easiest ones, will actually boost their retirement income.

It is also extremely welcome that the Minister is looking at how we can roll out CDC—collective defined contribution—schemes to many more people. Not having them necessarily being employer-led, and allowing them to be decumulation only, is a really powerful thing for retirement, especially now that we are in a different world. If interest rates stay where they are and people can get a much better annuity—I think the rates are now more like 6% a year rather than 4%—that dramatically changes the assumptions that we have seen for the last 15 or 20 years. Those schemes could become much more attractive and much better for people even than we thought they would be when we introduced the Royal Mail one. The landscape has changed, and the more we can make some progress on these key things, the more chance there is to make a real difference. I hope the Government will make some progress on these matters.

--- Later in debate ---

[David Linden (Glasgow East) (SNP)]

It is a great pleasure, as ever, to see you in the Chair, Mr Hosie. I absolutely agree with the hon. Member for North Norfolk (Duncan Baker) on that last point, which I will come to in my remarks. I also congratulate the Chair of the Work and Pensions Committee, the right hon. Member for East Ham (Sir Stephen Timms), on securing this important debate. We have had very good contributions from the hon. Members for Amber Valley (Nigel Mills), for Torbay (Kevin Foster) and for North Norfolk, some of which I will touch on.

I am always struck that people can talk to me comfortably about the tragedy of poverty and its numerous consequences, but when pensioner poverty comes up they start to feel uneasy, perhaps justifiably. The truth is that many of us do not want to admit that the idea of older people struggling with simple things such as paying their bills and affording their weekly food shop is a bit too far from them. For many, it is an accepted fact that what awaits them in the golden years of retirement is a life of comfort, leisure and looking after grandchildren. But for far too many pensioners in these islands, the inadequacy of the state pension, which is one of the lowest in Europe, means that they have to turn to food banks and avoid turning on their radiators in the winter. It is an uncomfortable thought—the idea of one’s 80 or 90-year-old grandmother counting the pennies and sitting, anxiously, worrying about how to pay her bills. Sadly, for far too many, including in my own constituency—and, I am sure, in Dundee East, Mr Hosie—that is the stark reality of Tory Britain.

Saving for later life can be a complex and unfamiliar task, and it is further complicated by an arduous system and often impenetrable jargon, as Members have touched on. From speaking anecdotally to Members of this House, I know that as soon as pensions are mentioned, eyes glaze over and people turn off. It can seem easier to focus on today’s finances, particularly with the rising cost of living and heightened inflation, but that is simply to kick the can down the road. Today’s debate is therefore a welcome opportunity to take stock of the current pensions landscape and to assess how we are helping—if indeed we are helping—people to save for later life.

Let me start, as many others have, with automatic enrolment. Although it has undoubtedly been a success so far, it can and should go further. Saving the minimum through automatic enrolment will simply not provide many with an adequate living standard. That comes as a shock to many when retirement is just around the corner, at which point it is often too late to do much about it. My position, and indeed that of the SNP, is that the eligibility criteria for auto-enrolment should be widened and the age of eligibility moved from 22 to 16. Let me explain why it should be 16 and not 18, which appears to be the wider consensus in this House.

This issue is personal for me. This is National Apprenticeship Week, and I left school at 16 and started working as an apprentice, as tens of thousands of young people do, perhaps setting off on a lifelong career in local government. For that reason, and indeed many others, I believe it would be right and proper for auto-enrolment to be rolled out to those who enter the labour market at 16. That would bring it in line with taxation policy and give people the best opportunity to save for their future. I also want auto-enrolment to be rolled out from the first pound rather than an arbitrary threshold of £10,000. I will explain later why that ties in with the gender pensions gap, which is a real problem.

I concur with the Committee’s report regarding the recommendations of the 2017 auto-enrolment review, and I hope that we soon see more progress on those. The recommendations would hugely improve the saving ability of those who are typically short-changed by the pensions system—I am thinking specifically of part-time workers, women, self-employed people and workers in the gig economy. In this morning’s debate there has been a good focus on self-employment. As the Committee’s report clarifies, a much smaller proportion of self-employed people, as opposed to employees, now contribute to a pension. That proportion has increasingly declined since the mid-1990s and now sits at just 16%, compared with 88% of workers eligible for auto-enrolment. I therefore support the report’s recommendations on that issue, including trialling ways to default self-employed people into pension saving and considering how to promote it to them. I note from the Minister’s letter, which a number of us received, that the Government are making an effort to do that, but I press the Minister ever so slightly to give us a timescale.

Let me turn to the gig economy and the future of work. As we inevitably become more reliant on the gig economy, it is vital that auto-enrolment applies to everyone and that employers do not shirk their responsibilities to staff. It is worth noting that that recommendation has been made in not one but two previous reports by the Committee. I repeat that the British Government must do more to bring forward an employment Bill as soon as possible. We have been waiting for this elusive employment Bill for what feels like an eternity. If the Government can find time for the Strikes (Minimum Service Levels) Bill, they should be able to bring forward an employment Bill that improves workers’ rights—something we were promised would be part of the post-Brexit sunlit uplands. Although an employment Bill would offer many possibilities for enshrining better terms, conditions and employment protections, it would also increase the legal protection available to people in low-paid work and the gig economy, ensuring that they have a fair opportunity to save for their pension. Surely we can all agree on a cross-party basis about that.

I turn now to the injustice of the gender pensions gap and to the need for a clear and official measure of what that gap actually is. Again, I welcome what the Minister said in her letter about trying to get to that definition. We rightly talk a lot in this place about the gender pensions gap, but we cannot work constructively towards ending the inherent gender-based discrimination that is baked so deeply into our economic structures if we do not have a definition of it.

Although eligibility to auto-enrolment doubtless contributes to the gap, so too does the motherhood penalty. To put the gender divide in context, we know that the average pension pot for a woman aged 65 is one fifth of that for a 65-year-old man, and that, on average over a 20-year period, women receive £29,000 less by way of a state pension than men. What is even more depressing is that, without urgent intervention, that deficit is predicted to continue, closing only by a meagre 3% by 2060. Therefore, extending the coverage of automatic enrolment further by reducing the earnings threshold to a lower level—ideally, as I say, to the first pound—would bring hundreds of thousands of people, and most importantly women, into pension saving. We should be proud that, in recent years, we have made enormous strides in bringing about equality, but we need to be honest that that progress is not reflected in pensions policy.

I turn now to the question of advice, which is where the hon. Member for North Norfolk finished his speech. Obviously, it is hugely important that people save enough for retirement, but it also matters greatly that people receive impartial and fair advice about their pension in good time. The Money and Pensions Service estimates that 22 million people do not know enough to plan for their retirement, which is an incredibly alarming figure. That leads me to reflect on a conversation that I had with my mother over Christmas, when she was talking about her pension. She had no idea about things such as Pension Wise, so clearly she is one of those 22 million people. That dim assessment was also reflected in new research from the Department of Work and Pensions, which was released only last week. It found:

“Attitudes to pensions were characterised by detachment, fear and complacency, which acted as barriers to engagement.”

We would all want people to feel more confident and secure about their pension savings. I certainly want to ensure that I am doing everything I can to make sure that people fully understand the decisions they make and, more importantly, that they can make them with conviction. There are good organisations out there, such as the Just Group, which are clear that the best option for achieving those aims is Pension Wise, the Government-backed and impartial guidance service delivered by MaPS.

I have spoken to the Minister over the course of the last month about the importance of Pension Wise and how disappointing it is that take-up remains relatively low, despite satisfaction with the service being so high. The hon. Member for North Norfolk spoke about how high satisfaction is with that service; it is up there at 90%, which is quite remarkable.

In Scotland, separate analysis from MaPS shows that the number of appointments that people made with it fell by 13% in a year, while the total number of pensions accessed across the UK rose by 18%. That concerns me enormously, because people are drawing down their pensions and making decisions about their pensions in a way that is not particularly well informed and that could even be financially disadvantageous to them.

The Work and Pensions Committee has recommended that there should be an auto-appointment trial for Pension Wise and I again join others in urging the Minister to consider that suggestion. In addition, I also ask what her Department is doing to increase the take-up of Pension Wise, because I am not necessarily sure that things such as the “stronger nudge” are working. If she is in a position to agree to meet me and the Just Group to discuss the issue, I would be grateful if she could confirm that during her speech.

Although Members from different parties may disagree about the adequacy of the pensions system, we must be clear that a situation in which any pensioner is experiencing poverty is unacceptable. According to the latest figures from the Joseph Rowntree Foundation, roughly 1.7 million pensioners in these islands are currently living in poverty. Age UK has said that the priority for many pensioners is dealing with the rising cost of living and surviving day to day. They are focused now on the challenges of health, money and their responsibilities, as well as how to cope with limited resources.

It cannot be right that after working for their entire lives, raising families and contributing to the society that my generation benefits from, so many pensioners are now worried and anxious about money. It is not right that the UK devotes a smaller percentage of its GDP to state pensions and pensioner benefits than most other advanced economies. It is also not right that the UK, despite being one of the wealthiest countries in the world, has one of the lowest state pensions in Europe.

From Barrowfield to Baillieston, pensioners in my constituency are clear to me on the doorstep that they feel that the British Government do not value them and that pensioners are, at best, an afterthought and a group that the Tories merely pay lip service to.

On just about every measure, this London Government have a disastrous record on supporting pensioners, whether that is the injustice shown to the 1950s women, the frozen pensions for UK citizens living abroad, the breaking of the pensions triple lock, the underpayment of state pensions, the gender pensions gap or the low uptake of pension credit. The list goes on and on.

Westminster has proven time and again that it will not deliver fairness or prosperity for pensioners in Scotland and that without radical change our senior citizens face a retirement of poverty, not prosperity. So long as Scotland is still tied to this Westminster system that we do not consent to, we will continue to get pensions policies that make our people poorer. That is why I fervently believe that the only way to ensure dignity and fairness in retirement for my constituents is with Scottish independence. For many of my elderly constituents sitting in their freezing homes this morning, perversely in an energy-rich country, that conclusion—that we need Scottish independence—is one that they are rapidly also reaching.