Saving for Later Life

Kevin Foster Excerpts

Tuesday 7th February 2023 Westminster Hall

[Kevin Foster (Torbay) (Con)]

It is a genuine pleasure to serve under your chairmanship, Mr Hosie. I congratulate my friend—he genuinely is my friend—the right hon. Member for East Ham (Sir Stephen Timms) on securing the debate, along with the work that the Select Committee has done on this topic under his guidance.

For many people, my constituency of Torbay is the place they want to retire to, as many have already done. Its attractiveness as a tourism resort applies equally for those who want a change of lifestyle and to live amongst its natural beauty and enjoy the many activities that are on offer, which they previously had to put to one side to pursue a career. Given its attractiveness to retirees, Torbay is known for having a population mix that tends to be older than average. As I sometimes reflect on in debates about health and social care, in one of my wards, about 9% of the population is aged over 85. In an area where there is a one in 10 chance of meeting someone aged 86 or older, there are some unique challenges around the provision of public services. For example, at a local supermarket there might be a parent and child parking space, but nowhere to leave a scooter.

The focus of the debate is not those who are already retired, but how the dream of enjoying a comfortable retirement—hopefully in Torbay—can be maintained for those in their 20s, 30s and 40s; and how to ensure that they know how to save, what they need to save and what lifestyle their current level of retirement savings will allow them to enjoy. I welcome the Select Committee’s report and its focus not only on how to further develop auto-enrolment, but on some of the trickier situations around encouraging longer-term savings patterns where someone is self-employed or working in the gig economy.

Before I go too much further, it is worth noting the success of auto-enrolment in that endeavour. That one move has transformed saving for later life in the UK for millions of workers. The proportion of eligible workers saving in a pension rose from 44% in 2012 to 86% in 2020. As has been touched on, participation has remained high at 89% for 40 to 49-year-olds—my own age group—and, encouragingly, at 85% for 22 to 29-year-olds. The latter group is crucial, because small amounts that are put aside early can lead to a strong position for retirement in decades to come, not least with the additional employer contributions.

The financial impact has been significant, with an estimated additional £33 billion in real terms saved into workplace pensions in 2021, compared with 2012. It is also worth noting that with the forthcoming increase in the national living wage to £10.42, more people will go over the earnings threshold and therefore start auto-enrolment, with the savings it brings. Despite that major progress, however, it is clear that many are either still not part of a pension scheme or not saving enough to meet their eventual retirement plans.

The right hon. Member for East Ham rightly highlighted that it is worth people having a clear view of what is adequate so that they can think in their 20s and 30s about what they will need to support themselves in their late 70s and 70s. I think we all realise that there will be a difference in that figure across the UK, particularly if housing costs still need to be met. Someone living in central London will be in a different position from someone in Torbay or Glasgow who owns their property and therefore only has to account for the general lifestyle they want. Of course, if they own their property, they will still have to maintain it. The idea that housing is free when we reach retirement is often disproved when a property that has been owned for 20 or 30 years suddenly needs a new roof or a heating system upgrade. People can be capital-rich on paper because of their property, but they can find their finances quite stressed when they have to meet large repair bills.

There is a particular issue with how we encourage those who do not have a specific employer. That is relevant for many performing roles in Torbay’s tourism sector, and I was pleased that the Select Committee focused on it. The Government are right to say in their response that there is not a single solution for such a diverse part of the workforce. As was often mentioned during covid, self-employment includes everyone from those who are just starting out on their own in a small business, often on a relatively low income, to those in magic circle law firms earning significant sums. However, our focus will always be on those who may struggle in retirement, not on high-flying lawyers who are likely to be only too aware of their pension and saving options—probably their tax options as well—in planning for their retirement.

I agree that we need targeted messages that reach people when they consider their finances, or that we should proactively seek to put information about their retirement in front of them regularly. For example, how can we support self-employed people who work seasonally across the hospitality sector? When do they look at their finances? I share some of the thoughts of my hon. Friend the Member for Amber Valley (Nigel Mills), however. We do not want to have a counterproductive impact by advising people that money will be coming out of their wages each month and having them decide, “Actually, I’ll take the money instead.” In the earlier stages—the first couple of years—the entitlement they have built up will not look particularly impressive, but if it were continued, it would become a worthwhile pot. We do not want a counterproductive outcome overall, but it is certainly something that can be worked on, and we have seen the progress that has been made so far.

Although the Select Committee report was welcome overall, I have some concerns about the suggestion that national insurance payments could become a quasi-auto-enrolment position for the self-employed. There is a real difference between a person saving specifically for their own retirement, to fulfil the dreams or plans they have, and paying tax to fund public services and benefits, as they are required to do under the law. I appreciate that the state pension is linked to making national insurance contributions, but that has always been on the basis of years, rather than “You will build up x amount of contributions, and that will produce y pension.” It is not a pot that people have and that they can access. I can see the idea that when people pay NI they are arguably making contributions towards a state pension, but that is slightly different from them building up their own pension pot, which would be theirs in name as well.

[Nigel Mills]

To clarify, the idea was that because the self-employed pay a lower national insurance rate than those who are employed, we could effectively say to people, “Either you can put that into your own pension pot and top it up, or you can pay national insurance at the same level as somebody who is employed and not get any benefit from it.” It was a way of trying to replicate the auto-enrolment position, where a person puts in money themselves and gets money from somebody else and the taxpayer. It was the only real solution we could find in terms of people getting more bang for their buck.

--- Later in debate ---

[Kevin Foster]

I can certainly see where the logic came from—that someone who was self-employed would be paying similar levels of national insurance as someone who was employed. For me, though, it is a mix: when a person makes NI payments, that is based on years, and it is a fairly simple calculation, as opposed to a specific amount going into a pot that is then theirs. For me, the proposal raises that particular concern but, again, I appreciate my hon. Friend’s point: we all have the goal of ensuring that the self-employed, and predominantly the self-employed who are on lower earnings, have a reasonable pot for their retirement.

It is welcome to see the Minister in her place, and it would be interesting to hear her thoughts on a couple of points when she sums up. First, what work is being done to analyse the roles in the economy where there is most likely to be under-saving and to reach out to those people? As I have touched on, the self-employed are a very wide group: some will be all too aware of their options for retirement, but others may be on low incomes and struggling, or just facing the day-to-day pressures of running a business. They do not necessarily want to spend lots of time looking up pension rules and positions, as a large company might do. Secondly, therefore, what opportunities have been explored for working with sector groups at a more local level—such as chambers of commerce, business groups or the destination management groups that are common in the tourism industry—to see how they could be used to reach out to some of those who are unlikely to want to spend a lot of time reading through guidance on how to set up a pension?

Finally, what support would be offered for sectors to look at developing their own bespoke pension funds for self-employed workers and those in the gig economy? It was touching to hear from the right hon. Member for East Ham about things such as what Uber is doing for taxi drivers. Sometimes competitors will not necessarily rush to sign up to something that is run by another company, but what is being looked at that would give firms and organisations in particular sectors that want to do the right thing the opportunity to do so?

Many who will holiday in Torbay this summer will dream about one day retiring there, and we will sometimes see a retired couple who have been married many years sitting on the Babbacombe downs next to a young couple having their first break together, who will be part of a similar scene in decades to come. Helping people fulfil their dreams is the core of this debate, and that is what must drive us in ensuring that saving for later life becomes part of everyone’s working life.