Pensions Auto-enrolment

Stephen Crabb Excerpts

Wednesday 28th February 2018 Westminster Hall

[Stephen Crabb (Preseli Pembrokeshire) (Con)]

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Chippenham (Michelle Donelan) on securing this debate and commend her for the brilliant way she outlined some of the issues we need to think about. I commend in particular her dissection of the challenges of self-employment and the options we have for creatively addressing the lack of provision by the self-employed for their retirement incomes.

It is not often in this place that we get to debate policies we can genuinely describe as having been well executed and successful, and it is even rarer that we do so about a policy that both the Labour party and the Conservative party can claim credit for, having initiated and overseen it—the policy has been around since at least 2008, when it was first implemented. I would go further and describe auto-enrolment as transformational. It has profoundly positive effects for our society, and it was achieved with remarkably little opposition from employers or employees. We have seen a collaborative approach involving Government agencies, business, the Pensions Regulator and others. The strong sense that auto-enrolment is the responsible and right thing to do in the face of the overarching challenge of declining employer-provided pensions is one of the great strengths underpinning its success.

Auto-enrolment’s success has received remarkably little attention in the mainstream press compared with the coverage of the various strikes and protests in recent years in response to the changes we have tried to introduce to make public sector pensions more sustainable. The successes of auto-enrolment have, by and large, passed under the radars of those not immediately affected by it, but as I said, it ultimately benefits the whole of society. I will highlight a couple of points that I would like the Minister to touch on. My hon. Friend the Member for Chippenham covered the self-employed far better than I would, so I will not cover it.

Behind the success of auto-enrolment is a great recognition of people’s central behavioural trait of spending far too little time thinking about their retirement income and even less time taking positive decisions to make provision for it. By coming up with a system that automatically enrols people and puts the onus on the employee actively to opt out, we successfully increased the number of people benefiting from pensions. The system relies on inertia—passive decision making by millions of people. However, we have introduced other pension changes that will require those very same people, when they reach retirement age, to take a close interest in a complex menu of retirement options, and the last thing that we need them to be at that point in their lives is passive decision makers. That is a concern. We do not want people to take decisions that ruin the retirement income they spent decades building up.

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

My right hon. Friend makes a crystal clear point about the tipping point that we will all reach at a certain stage of our lives. Does he agree that a pensions dashboard that provides greater transparency and access, and a mid-life MOT whenever we judge our mid-life is—between our 45th birthday and our 50th birthday is the optimum time for that reassessment to take place—will address the point he rightly makes?

[Stephen Crabb]

I agree with everything my hon. Friend says. Pension freedoms are great, but we want people to be well informed and educated about the consequences of the choices that will be available to them, particularly when it comes to drawing down large cash lump sums from their retirement pots.

Low opt-out rates are part of the success story of auto-enrolment, but let us not be complacent about them. So far, contribution rates have been very low. Those rates will go up this April and again in April 2019. Despite all the positive effects of increasing the minimum wage and raising the personal allowance threshold for income tax, there will be people on lower incomes who feel a financial pinch in their take-home pay, and opt-out rates may increase as a result. I encourage the Minister to monitor what goes on in response to the increase in contribution rates and to be ready to reinforce the strong positive messaging about the importance of employers and employees sticking with their pension arrangements so that they do not see that increase as a reason to get energised and look at actively opting out of the system.

My hon. Friend the Member for Chippenham mentioned young people. I strongly welcome the Government’s indication that they will look to lower the minimum age threshold to 18, but why 18? If 16 and 17-year-olds are working and earning £10,000 or more, why should they not also be captured by auto-enrolment and benefit from it? No 16, 17 or 18-year-old should leave school without basic education in what auto-enrolment is all about and without being equipped to make good decisions.

[Mike Amesbury (Weaver Vale) (Lab)]

As an ex-careers adviser, I certainly share those concerns. Education is vital. The right hon. Gentleman talks about a tipping point. If education were given at an earlier stage, people would make more effective and informed decisions at that tipping point, which is a key transition. Too many people see a pension as an unaffordable luxury. Education would help.

[Stephen Crabb]

The hon. Gentleman makes an extremely important point very well.

Let me make one further point before I conclude and allow other hon. Members to speak. My hon. Friend the Member for Chippenham appeared to indicate that she supports rates increasing above those that have been set out for April 2019. I absolutely agree: both employees and employers will need to make even greater contributions. It is easy to talk about that in this place, but it is much more difficult to get it across to the businesses and individuals affected, so I would be interested to hear what the Minister has to say about that. He is a brilliant Pensions Minister. I heard him speak in another part of the Palace earlier, and he has an incredibly strong grasp of the detail, which is exactly what we need from Ministers as we get to grips with the challenges of auto-enrolment.