Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2018

Lord McKenzie of Luton Excerpts

Tuesday 27th February 2018 Grand Committee

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is getting later in the afternoon and there are some important debates following this, so I will be very brief on these two orders. The Minister is quite right to declare that the auto-enrolment provisions have been successful. She is also right to say that this year there are two, if not more, big changes and reforms in the existing system as it relates to small employers and to 3% contributions for employees and employers. We wish these changes well. These orders are perfectly sensible in promoting the agenda. She is also right to say that Maintaining the Momentum is a less than appropriate name for any kind of government report at the moment, but it was a good solid document and it gave confidence that there is a real prospect of delivering this scheme and building on the progress that has been made. Speaking for myself, I wish it well. I agree that the new opportunities for women in future are a signal and ambitious plan that we hope works in the way that the Minister set out, so I am very happy with the automatic enrolment order.

I have one or two pedantic questions about the NEST order. I spend a lot of time looking at secondary legislation. Paragraph 8(1) of the Explanatory Memorandum states:

“The Department for Work and Pensions consulted on the National Employment Saving Trust (Amendment) Order from 7 November 2017 to 27 November 2017”.


According to my arithmetic, that is a 20-day consultation. The next sentence is shorter: “It received five responses”. It occurs to me that one may be a consequence of the other. I understood that government consultations had to be slightly longer than that. Of course, it is a technical matter, I understand that, and the stakeholders involved might not be that numerous, but if it received five responses it is a bit rich to claim that, “the majority of the respondents were in favour” of the consultation as set out. Is that 3:2 or 4:1? I am being slightly facetious, but it is an important issue and consultation is an important part of getting these statutory instruments correct.

Coming to the substance, I think that the noble Baroness’s four recommended changes are entirely sensible. I am particularly interested in the revisions for research, because I have been involved as a trustee of schemes in the past and it is a struggle to keep the data up to date. Will the research function assist the trustee in being able to ensure that the data is as clean as it can be? Sometimes with some of these schemes, particularly involving bulk transfers, the data gets out of date—the members change their addresses, their occupations and their other personal details.

I did not know that there was no ability to carry out research as a trustee, but I think that making it explicit is a very good idea. Contractual enrolment is absolutely sensible, and removing empty schemes and accounts makes perfect sense as well. I think that NEST is also a success, as far as it has gone, so more power to its hand. I hope that both these orders work, and I will be watching developments, as I am sure everyone will be, in this important area of auto-enrolment over the rest of 2018 as these significant events come to pass.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the noble Baroness for her introduction of these two orders. I shall start with that relating to auto-enrolment. As the noble Baroness and the noble Lord, Lord Kirkwood, said, auto-enrolment has, by any measure, been an important policy success. It was founded on the independent work of the Pensions Commission, legislated for by a Labour Government, first implemented by the coalition Government and sustained by the current Conservative Administration. The broad consensus and robust analytical underpinning has been key to its success thus far, along with a design and implementation approach that encompassed government, regulators, employers, payroll firms, intermediaries and the pensions industry. This does not mean that there has always been an identity of view across parties or that the job is complete. It is not.

The noble Baroness referred to the big year 2018, which indeed has some important matters to consider but, as the earnings triggers and qualifying bands analysis for 2018-19 sets out, as at the end of November last year more than 9 million people have been successfully auto-enrolled and more than 900,000 employers—possibly now a million—have met their auto-enrolment duties. By the time the staging process is complete, the government analysis estimates that around 10 million people will be newly saving or saving more.

However, we know that just as the staging process is being completed, we are entering the year when the first phased increase in minimum contributions is to take place, leading eventually to 8% minimum contributions. Notwithstanding this, the Automatic Enrolment Review 2017 refers us to the Pensions Commission work that estimated that 8% of relevant earnings, together with the state pension, would deliver about half the level of income needed for an adequate retirement income. That is, around 12 million individuals will still be under-saving for retirement and, of these, 87%—10.4 million—earn more than £25,000 a year, so 13% earn less. While the 2017 review sets out a package of reforms to address this, it does not propose to see these completed until the mid-2020s. This package will include lowering the age threshold from 22 to 18 for young people, removing the lower earnings limit to help those with lower earnings and multiple jobs, as well as seeking to improve the retirement outcomes of the self-employed. These are worthy ambitions, but why do we have to wait for so long? Why is the current review concluding that the lower limit of the qualified earnings band should be raised, while arguing for it to be removed? Are the Government to find time for a full debate on this 2017 review in fairly short order? The review came out in December and it is very important. We ought to have the opportunity to debate it in Parliament.