Automatic Enrolment: Lower Earnings Limit

Hugh Gaffney Excerpts

Tuesday 12th March 2019 Westminster Hall

[Hugh Gaffney (Coatbridge, Chryston and Bellshill) (Lab)]

I am grateful to you for calling me to speak in this important debate, Sir Gary. I congratulate the hon. Member for Paisley and Renfrewshire South (Mhairi Black) on securing it.

Since October 2012, the Government have placed new duties on employers to ensure that their workers are automatically enrolled and contributing to a workplace pension. The duties ensure access to workplace pensions for workers who were not previously in a workplace pension scheme, who earn more than £10,000 and are above 22 years old.

The automatic enrolment into workplace pension schemes has broadly been a success. Ten million workers have now been enrolled into workplace pension schemes by more than 1.4 million employers. That means that 84% of eligible employees were participating in workplace pension schemes as of 2017—a nearly 30% increase since 2012. An estimated additional £18.4 billion a year will now go into workplace pension schemes because of automatic enrolment. I am also pleased that 79% of young workers aged 22 to 29 were participating in workplace pension schemes as of 2017, alongside 84% of women. The increase in workplace pension scheme participation among private sector workers is also welcome. There has been a nearly 40% increase between 2012 and 2017.

Despite initial concerns, opt-out rates from automatic enrolment into workplace pension schemes stood at 9% in 2017. That is significantly lower than initial Department for Work and Pensions estimates of 25% and highlights that employers and workers recognise the benefits of participating in workplace pension schemes. The initial success does not mean that more progress cannot be made. An estimated 12 million people are still thought to be under-saving for their retirement. Workers who earn more than £10,000 per year are automatically enrolled but end up losing out because their contributions are calculated from the bottom of the qualifying earnings band. Non-eligible workers who earn £10,000 or less a year in each of their jobs do not qualify for automatic enrolment, even if their combined earnings exceed £10,000.

Some eligible workers who earn at or just below the lower earnings limit in each of their jobs are not necessarily entitled to an employer contribution, even if they opt into a workplace pension scheme. Those earning less than £10,000 are missing out.

Young workers—particularly those aged 18 to 21—do not benefit from automatic enrolment because the lower age limit is set at 22. Employers are not required to automatically enrol workers whose earnings are below £10,000. There are other issues around automatic enrolment of those with multiple jobs and fluctuating earnings, and of the self-employed. I can add zero-hour contracts to that, because they often mean earnings of less than £10,000.

Those issues must be addressed if we are to encourage greater participation in workplace pension schemes and greater savings for retirement. We need to look at solutions to those issues, such as lowering the age limit from 22 to 18, as well as automatically enrolling low-income workers by calculating pension contributions from the first pound earned, rather than using the current lower earnings limit.

It is vital that we get right the system of auto-enrolment of workers into workplace pension schemes in the light of the Government’s attacks on pensions over recent years. There have been increases to the state pension age; suggestions from the Chancellor that the state pension may no longer be ring-fenced from spending cuts after 2020; threats to benefits that our pensioners enjoy, such as the free TV licences for the over-75s; and the disgraceful treatment of the WASPI women, who I fully support in their fight for justice.

The policy of automatic enrolment for workplace pension schemes began under the last Labour Government, was implemented by the coalition Government and was supported by the SNP in its 2015 manifesto. We all want to ensure that workers can save for retirement, and that they have all necessary support to do so. That is why it is important not only that we commend the success of the scheme up to now, but that we make real progress on outstanding problems with automatic enrolment. I urge the Government to tackle those issues. Let us deliver for the working people on low pay in this country. Let us give them some dignity in retirement.