Automatic Pension Enrolment

Gareth Davies Excerpts

Wednesday 26th January 2022 Westminster Hall

[Peter Dowd (in the Chair)]

Before we begin, I remind hon. Members that they are expected to wear face coverings when they are not speaking in the debate. This is in line with the current Government guidance and that of the House of Commons Commission. I also remind Members that they are asked by the House to have a lateral flow test before coming on to the parliamentary estate. Please give one another and members of staff space when seated and when entering and leaving the room.

[Gareth Davies (Grantham and Stamford) (Con)]

I beg to move,

That this House has considered the matter of automatic pension enrolment.

It is a pleasure to serve under your chairmanship, Mr Dowd. We are considering the matter of automatic pension enrolment, but let us not speak too loudly about it. For the past decade, this has been one of the most remarkable success stories, yet also somehow one of our best-kept secrets. It all began in 2005 with the pensions commission looking out on a bleak private pension market. It knew that we had to act to boost the number of savers and savings in the UK to give people greater security in their retirement. The commission formally proposed, as part of its work, that those over a certain age and income be automatically enrolled in a pension. The Labour party, the Conservative party and the Liberal Democrats all agreed, and after the Pensions Act 2008 was passed the coalition Government carried this through.

The results have been remarkable, transforming the UK pension landscape. For example, whereas the rate of workplace pension participation fell to 55% between 2009 and 2012, that rate is now a remarkable 88%. Today, more than 19 million eligible employees participate in a workplace pension and, together, save more than £100 billion in a single year. More than 10 million people are now saving or saving more, increasing pension savings by an incredible £17 billion. Two million fewer people are under-saving for their retirement than would otherwise have been the case. There has been a 50% increase in participation among the young, between the ages of 20 and 29. The greatest increases in pension participation by earnings have come from low to moderate earners. Let me put it simply. Savers are up. Savings are up. Men and women are participating equally. And the lowest earners have benefited the most.

That is perhaps a sign of what we can do when we work together but other, indirect benefits have been seen. For example, studies have shown that auto-enrolment has eliminated the mental health participation gap. Our fight against climate change has been bolstered: with savings volumes increased, UK pension funds now have more assets to invest in high-growth technology that is green or in renewable energy.

[Paul Howell (Sedgefield) (Con)]

Does my hon. Friend agree that the opportunity to invest that money exists and could be pushed further, into local communities—particularly ones such as Sedgefield?

[Gareth Davies]

My hon. Friend is a great champion of Sedgefield. I am grateful for that intervention, and he is absolutely right. I have spoken before about the many ways in which we can use and mobilise private capital to pay for green technology and renewable energy, but decisions about where those infrastructure sites are have to be taken by local authorities wherever possible.

Today, though, the top point that I want to make in terms of all these benefits is that auto-enrolment has helped to bring about a cultural change in our society. When our economy does well, our savers do well. Automatic enrolment helps to democratise capital. It creates millions of new investors, millions of new capitalists. It is part of what, over many decades, people have called the property-owning democracy, ensuring that most of those who can vote have a stake in our economy. When they put an x in a box on a ballot paper, they have that in mind—they have skin in the game.

However, when a policy has such an impact and is so successful, it is right that we debate and discuss how we can build on that success. Many in this place have put forward suggestions—I pay great tribute to my hon. Friend the Member for North West Durham (Mr Holden) for his excellent private Member’s Bill—the Pensions (Extension of Automatic Enrolment) Bill—and to the work that Onward, in particular, has done—so let me add my name to those calls. Of all the options the Minister has in front of him, expanding automatic enrolment to those aged 18 to 21 will have the most material impact for our country. Automatic enrolment should be extended as a priority to young workers, because for them the potential compound interest is greatest, the pressures of demographic change are most acute, the challenges of mental health and climate change are especially relevant and the need for greater financial inclusion is most pressing.

The challenge for this age group is stark. Only 18% of eligible 18 to 21-year-olds are currently enrolled in a workplace pension.

[Paul Howell]

Does my hon. Friend agree that we need to ensure access to pensions for not just young people but those in multiple jobs who do not reach the £10,000 threshold in a particular occupation? In Sedgefield and the surrounding villages, there are many people in low-paid work who do multiple jobs to try to reach a certain earnings level.

[Gareth Davies]

My hon. Friend makes an important point. For the purposes of my remarks I want to focus on young people because, as I said, that will have the most material impact, but I know that others will speak about the points he raises.

Today, over four out of five 18 to 21-year-olds are missing out on the benefit of compound interest, despite belonging to the very group for whom the potential for exponentially increasing savings is the greatest.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I agree with the principle of extending automatic enrolment to young people, and I realise that the 2017 review of automatic enrolment recommended extending it to 18-year-olds. What does the hon. Gentleman think about the merits of extending it further, to 16-year-olds, who might well have left school and be in full-time work? If we are talking about the benefits of compound interest, an extra two years could make a huge difference.

[Gareth Davies]

The hon. Gentleman makes a good point: the earlier one starts saving, the greater the impact of compound interest. However, for me, balancing all the factors—particularly the impact on businesses—I think we should start where we can, with 18 to 21-year-olds. But it is not the case that we should not discuss his point at a later stage.

Is it any wonder that we find ourselves in this situation, given the general lack of savings culture in this United Kingdom? We have a culture, developed over decades, of relying on quick cash, quick results and tangible output. Although many talk about the aspiration to own a home, few talk about securing their retirement through a pension. Auto-enrolment will help with this, but we must also look at other ways to ensure that the option of saving for the future is more apparent.

Preparing for today, I was shocked to find a study by the National Association of Pension Funds that found that just 12% of job adverts mention the employment pension scheme that is offered. That compares to 71% of ads that mention the salary—even though the pension contributions can amount to about a third of total take-home pay. We need to look at this more broadly.

There is so much potential for our pension system to effect change, whether addressing the need for long-term savings, as I have discussed today, the need to tackle the fact that 10 million people have less than £100 in short-term savings or the fact that so many young people today never even get close to building a deposit for their first home. I believe that our pension fund market could provide the answers to those challenges. As such, given that it is now nearly 17 years since the Turner commission, I would like us all to agree cross-party that whoever is in government in 2024, we will look to launch a new pension commission, looking specifically at the long-term challenges I have discussed and the opportunities the UK pension fund market can provide to citizens across this country.

--- Later in debate ---

[Gareth Davies]

I pay tribute to the Minister, who is one of the longest-serving Pensions Ministers we have had in this country. As somebody who came from the fund management industry to this place, he is respected not just in this House but in the industry, too. I also thank all hon. Friends and hon. Members for their contributions. We heard from the hon. Member for Strangford (Jim Shannon) about the importance of getting in early and financial literacy. We heard informed speeches from my hon. Friends the Members for Darlington (Peter Gibson) and for North Norfolk (Duncan Baker), giving the perspective from business. We also heard from my hon. Friend the Member for Clwyd South (Simon Baynes) about the benefits of increasing the size of the pensions pot for social and environmental investment.

Of course, let me congratulate once again my hon. Friend the Member for North West Durham (Mr Holden) on his excellent private Member’s Bill. He is enjoying a tremendous amount of support today. I maintain that we should focus on 18 to 21-year-olds. If nothing else, we should take away from today the fact that our pensions system has a great deal of power in what it can bring to our communities. Let it be said that this should not be a hidden secret any more. The power of compounding and savings benefits everybody, and people should start as early as possible.

Question put and agreed to.

Resolved,

That this House has considered the matter of automatic pension enrolment.