Pensions Auto-enrolment

Paul Masterton Excerpts

Wednesday 28th February 2018 Westminster Hall

[Paul Masterton (East Renfrewshire) (Con)]

Thank you, Mr Davies. I am pleased to speak in the debate, and I congratulate my hon. Friend the Member for Chippenham (Michelle Donelan) on securing it. We are here to debate one of the most successful savings policies in pensions history. As a result of auto-enrolment, more than 9 million additional people are saving for their retirement, including 5,000 in East Renfrewshire and more than 63,000 in Scotland as a whole. Four in five of today’s eligible workers are saving, and those benefiting the most are the lowest earners, those aged 20 to 29, and women. Opt-out rates still sit at under 10%.

There is wide consensus in both politics and the industry that the policy is working, and that holds true even for some groups who people feared would struggle with implementation, such as small businesses. Those businesses make up a large proportion of the 990 businesses in East Renfrewshire now complying with their auto-enrolment duties.

As others have said, the utilisation of inertia to build a savings culture with a new generation of savers is the key element of the policy. As the People’s Pension—a master trust serving just under 3 million savers in auto-enrolment—said when I met it a few months ago,

“the policy was developed following a variety of failed pension saving initiatives which lacked the necessary incentives to encourage low and moderate earners to save for retirement in practice.”

I am incredibly proud of the Government and this policy, which—I do not think this is overstating it—is a savings revolution that has become the envy of Governments across the globe.

DWP analysis shows that reforms could increase median weekly private pension income by up to £261 a week by 2070—hopefully even I will be retired then. If sustained, the reforms could significantly reduce the risk of pensioner poverty over the longer term, which in turn will reduce levels of dependency on the state.

So far, auto-enrolment has been rightly heralded as a great policy success. However, it is a fragile policy. The test of its robustness will come when savers’ and employers’ contributions begin to be raised to a meaningful level. The rates of required contributions are too low and even at the final rate of escalation they will still be too low. Such contributions are also often combined with investments in a default fund that is not regularly and properly scrutinised, leading to poor investment returns.

While Pension Wise is sensible Government policy, it is predicated on individuals becoming engaged investors as they get to their 50s, so it will not mitigate the risks for most people, who do not think about pensions until six months out from retirement age. Pension providers should be tasked to establish high-quality default products, with appropriate and aligned governance. The Financial Guidance and Claims Bill, working its way through the Commons, is a good piece of legislation that can help address that.

Like others, I was delighted by the Government’s announcement before Christmas of reforms to auto-enrolment to ensure that saving was from the first pound. The system with the lower earnings limit was basically just an administrative hassle, and in many cases it was ignored by employers. It will particularly help those with multiple jobs, and expand auto-enrolment to cover those over 18 and under 22. I agree that there seems to be no good reason not to look at 16 and 17-year-olds, particularly those who have left school and are working full-time, earning more than £10,000.

Bringing a new generation into an immediate culture of pensions saving is incredibly significant and will have long-term benefits for society as a whole. That is why the Government must not slow down the escalation timetable for contributions. Yes, workers and employers need time to adjust, and we need to strike a careful balance so we do not get a sudden increase in the opt-out rate, but the current timetable is suitable, sustainable and should be stuck to.

Key to the success of auto-enrolment is a new culture of pension saving through better and more creative financial education and engagement. Again, the Financial Guidance and Claims Bill does a good deal of work on that. Although I will save default guidance for another day, the Minister has my full support for the work he is doing on that, and particularly on the pensions dashboard —an exciting development that will be hugely useful for people however much they are earning and wherever they are working.

Moving forward, the Government need to link pension provision and the next auto-enrolment review with further consideration of the Taylor report. The definition of “worker” in auto-enrolment regulations is becoming increasingly ambiguous, with employment status uncertainty growing. That needs to be addressed to determine precisely who falls within the scope of auto-enrolment so that business and individuals have certainty. Since auto-enrolment was brought in, I spent a heck of a lot of time giving legal advice on that, and it was always an absolute nightmare. We need to do some work to tighten up who falls within and outside the scope of the auto-enrolment regime.

I will not touch on self-employment, because my hon. Friend the Member for Chippenham did a good job on that. I am interested to see what she has up her sleeve, and if she ever wants any assistance in “banging on about it”, as she said, I am more than happy to help.

In 1948, a 65-year-old could expect to spend 13.5 years in the retirement phase of life. They now can expect it to be 33.6% of their life. The UK must remain one of the best places in the world to grow old, and ensuring that people have a decent income in retirement must be at the heart of that. I commend the Government, and this Pensions Minister—who is well liked in the industry and who I hope remains in place for a long time—for their work to make that a reality for everyone.