Automatic Enrolment: Lower Earnings Limit

Jack Dromey Excerpts

Tuesday 12th March 2019 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Gary.

I pay tribute to the hon. Member for Paisley and Renfrewshire South (Mhairi Black) for initiating the debate. I strongly agree with her that however central Brexit is to the future of our country, we run the risk of issues of immense importance and concern to the general public not being properly addressed here. I therefore commend her for bringing forward the debate.

The Minister will forgive me if I say what I have said on previous occasions: auto-enrolment is a testament to the previous Labour Government. I played a bit part in the process by chairing the policy commission that led to the appointment of Adair Turner. It was his genius and the team he brought together that ultimately produced the proposals for auto-enrolment. That was at a time when there were great strengths in the pensions system, such as many more defined-benefit schemes than, sadly, there are now. However, it was clear then, as it is now, that millions of people were simply not covered, or not covered adequately, by the existing pensions arrangements, so auto-enrolment was an important step in the right direction.

I welcome the fact that there has been continuity of policy. There is also cross-party consensus about the importance of auto-enrolment and of building on it at the next stages. There is no question but that a better pension landscape has been created; 10 million more workers are estimated to be newly saving, or saving more as a result of auto-enrolment into master trusts. That has led to an additional £17 billion and rising of pension savings put away, mostly by lower-income workers. We welcome the Government’s direction of travel, yet to be delivered on in practice, for those who are 18 and over; but I support the representations made that however welcome the direction of travel, it has to be acted on urgently at the next stages. I, too, look forward to the Minister’s response.

Although auto-enrolment is a landmark achievement, it is not a perfect system. Over and above the issue of the age threshold, there are other issues that crucially need addressing. First, the threshold for which workers are automatically enrolled is simply too high. In previous debates we have referred to the statistics, which speak for themselves. Department for Work and Pensions statistics show that 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment.

Secondly, auto-enrolment does not cover the self-employed or workers in the gig economy. The Government are undertaking pilot projects, and we support that crucial initiative. Sadly, because of the nature of work as a whole, female workers, workers with disabilities, and black, Asian and minority ethnic workers are over-represented among low earners, the self-employed, those with multiple jobs and carers.

On the gig economy, we strongly believe in, have argued for and will continue to press for the redefinition of those employed as workers, to make them eligible for auto-enrolment. The problem is that self-employment and bogus self-employment are increasingly prominent in the modern economy. Figures released last year suggest that the number of self-employed workers in the UK rose by 23% between 2007 and 2017, from 3.8 million to 4.7 million. That represents a shift in the nature of the world of work and the way in which the British economy works. The self-employed represent about 15% of the workforce, and 91% of businesses say that they hire contractors. Of course, there are many people for whom self-employment is their employment of choice, and who welcome it, but too many are increasingly conscripted into self-employment against their will, with no alternative. That is why it is so important that we change the definition of employee.

To return to pensions, the latest figures from the Office for National Statistics show that only 19% of the self-employed are saving into a personal pension. The Government need to address that as a matter of urgency. The pilot projects are a step in the right direction, but the sooner they are completed and action is taken, the better. It is wrong to combine decreased security in the world of work with decreased security in retirement as a consequence of bogus self-employment.

The Minister mentioned that more workers have access to a pension pot; that is welcome, but the public’s awareness of and knowledge about their pensions need to increase at the same time. He made reference to the Single Financial Guidance Body, established as a consequence of the Act of Parliament passed last year. That was an important step in the right direction. The SFGB is rightly tasked with ensuring that more of the public are properly educated about their financial issues, including their pensions. Crucially, the new body needs to be adequately resourced, but it is a strong step in the right direction. The almost parallel move towards a pensions dashboard is welcome, but urgent action must be taken to bring it into being, although the steps thus far are welcome.

The hon. Members for Paisley and Renfrewshire South, for Lanark and Hamilton East (Angela Crawley) and for Airdrie and Shotts (Neil Gray) spoke about the lower earnings figure; we first raised that important issue in Parliament back in 2014. We proposed lowering the automatic enrolment earnings trigger to the same limit as the threshold for paying national insurance—£5,773 at the time. That would have brought 1.5 million more workers into saving for their retirement. Two thirds of the extra savers would have been women; that would have gone a long way to tackling the 37% of women who are not automatically enrolled into saving.

Not bringing lower earning workers into auto-enrolment risks leaving a ticking time bomb for the state to deal with when those workers retire. Scrapping or lowering the lower earnings limit for auto-enrolment and reducing the minimum age to 18 will introduce many more savers into auto-enrolment, and will welcome workers into saving for their pension as soon as they start work. The earnings trigger and the lower limit are crucial issues, and we hope that the Government will act on them. We look forward to the Minister’s response.

In conclusion, a number of issues have arisen from this debate. Auto-enrolment is a strong step in the right direction, but we always ought to see such steps as the first, and not the last, word.