Saving for Later Life

Debate between Stephen Timms and Gregory Campbell

Tuesday 7th February 2023 Westminster Hall

[Sir Stephen Timms (East Ham) (Lab)]

I beg to move,

That this House has considered the matter of saving for later life.

It is a great pleasure to serve under your chairmanship, Mr Hosie. The debate arises from the recent report by the Work and Pensions Committee and the responses from the Government, the Financial Conduct Authority and the Money and Pensions Service. I am grateful to the Backbench Business Committee for allowing us to have this debate.

Auto-enrolment has been a big success, reversing the decline in workplace pension saving. By the end of last November, over 10.8 million workers had been automatically enrolled and over 2.1 million employers had met their obligations. Our report highlights two big challenges: first, people are not saving enough for an adequate income in retirement; and, secondly, there are people outside the scope of auto-enrolment, due to low pay or self-employment, who would nevertheless benefit from saving in a pension. I will set out those two problems.

The first is retirement income adequacy. Auto-enrolment requires employers to enrol eligible workers aged between 22 and state pension age and earning above £10,000 a year into a workplace pension, and, unless they opt out, to make minimum contributions on a band of qualifying earnings. Employees have to contribute at least 5% of qualifying earnings, including 1% in tax relief, and employers must contribute 3%, so the statutory minimum contribution is 8%. Thanks to auto-enrolment, 86% of eligible workers were saving in a pension in 2020—about twice as much as the proportion was in 2012. The problem is that some who used to have no pension savings now have inadequate pension savings, and they do not know that that is the case.

The Pensions Policy Institute claims that only 39% of households are on track for an adequate pension, according to the Pensions Commission definition. The Pensions and Lifetime Savings Association says that nearly 20% of households at the moment are heading for poverty in retirement. The problem is worse for people in their 40s or and above who have no defined benefit pensions and have not had time to build up an auto-enrolment pension either. The crisis of under-saving will crystallise when they retire, when it will be too late to do anything about it. One of the Minister’s predecessors, Sir Steve Webb, describes it as a “slow-motion car crash” that requires action now.

In our report we asked the Government to consult on a plan to deal with the issue and report back to us by March this year. In their response, the Government recognised the problem:

“Current statutory contributions of 8% on a band of earnings are unlikely to give all individuals the retirement to which they aspire”.

However, they said that now was not the “right time to consult” and that instead they would provide “further information and guidance”. Many witnesses, including the then Pensions Minister, the hon. Member for Hexham (Guy Opperman), told us that that would not work. He told us that

“the lessons of automatic enrolment are that default is the only way to get big interventions”,

and he was absolutely right.

The Government now need to make the case for higher contributions. As things stand, people do not know that they are not saving enough. We need a plan to raise minimum contributions, perhaps with mechanisms such as Save More Tomorrow, where people commit in advance to contributing more as their pay rises in future. The Association of British Insurers argues that contributions should go up from 8% today to 12% by the early 2030s, as in the successful Australian system.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I commend the right hon. Member on this timely debate. He talked about timing. Does he agree that while successive Governments commendably maintained the triple lock on state pension contributions and entitlements, it will come under increasing pressure in the coming years? The timeliness of the debate in resolving that is, or should be, apparent to everyone.

[Sir Stephen Timms]

The hon. Gentleman is right. The Government have usually—not always—applied the triple lock correctly, but it is absolutely vital that people build their own pension savings on top of that. Otherwise, a lot of people will get a very nasty shock when they reach retirement, and at that point it will be too late to do anything about it.