Clause 3
Pensions Bill
11:00 am
Danny Alexander (Shadow Secretary of State for Work and Pensions, Work & Pensions; Inverness, Nairn, Badenoch and Strathspey, Liberal Democrat)
I beg to move amendment No. 78, in clause 3, page 2, line 18, leave out from ‘reached’ to end of line and insert ‘the age of 50’.
I want to use this probing amendment to discuss one of the central issues of this Bill: the questions whether and for whom it does or does not pay to save in a personal account. By adding the words “the age of 50”, this amendment addresses the question, which has been raised in both oral and written evidence, of the impact of those aged over 50 at the time of automatic enrolment. I stress that the Liberal Democrats strongly support the principle of automatic enrolment.
The Bill is clearly directed at a large target, including people who work in the private sector who are currently not making any provision for their retirement. In the oral evidence, particularly that given by Adair Turner and the other members of the Pensions Commission, the size of that group—potentially some 12 million people—was made clear. The potential benefits of the Bill for a large swathe of that group are therefore abundantly clear, and I certainly do not seek to question that. However, there are some people, though it is difficult at this juncture to know how many, for whom the question whether it will pay for them to save in a personal account for their retirement is at least an open one. That question relates in particular to how, when they want to “decumulate” and take as a pension the pot of money that they have accumulated in their personal account, that pension interacts with whichever means-tested benefits they are in receipt of—pension credit, for example. We know from previous pensions legislation that by 2050 there will be somewhere in the region of 30 per cent., by the Government’s estimate, or 40 per cent., by the Pensions Policy Institute’s estimate, of people in receipt of pension credit, and the taper is even steeper for housing benefit.
A particular issue relates to people over 50. They will potentially enrol in a personal account late in their working life, and they may therefore have only 15 years, 10 years or even five years in which to accrue savings in their personal account pot. The questions that I have highlighted about how relatively small amounts interact with the means-tested benefits system are particularly acute for that group.
I draw the Committee’s attention to the written evidence submitted by the PPI regarding its assessment of the risks for various groups. The institute broke down the risk into low, medium and high risk of personal accounts being unsuitable. A medium-risk group are single people in their 40s and 50s with low earnings and full working histories. A high-risk group, although they would not be auto-enrolled, which is an important caveat, is single people in their 40s and 50s in 2012 on low-to-medium incomes who are self-employed.
There are particular potential risks for those over 50 who enrol in personal accounts in terms of whether or not they would receive enough money back to make it worth their while. Later, we will discuss other groups and how the advice and information regime that is put in place around personal accounts can help people to make decisions.
I also draw the Committee’s attention to other evidence. Help the Aged, for example, also made the point that it is important to ensure that it pays to save for all those who are auto-enrolled. Help the Aged drew our attention to those people whose state pension records are incomplete, those whose private pension fund value is low and those who are still renting their home in retirement—we will come to the final point later. Help the Aged believes that more needs to be done to protect people in those scenarios.
By tabling the amendment to lower the auto-enrolment age limit, I seek to probe the Minister’s intentions, particularly with regard to those aged over 50, in relation to measures that he might have in mind to ensure through advice, information or changes to the Bill that such people are protected or advised not to get into a situation in which they start saving in a personal account only to discover in retirement that it has not been worth while.