Clause 3
Pensions Bill
11:15 am
Mike O'Brien (Minister of State (Pension Reform), Department for Work and Pensions; North Warwickshire, Labour)
The hon. Member for Inverness, Nairn, Badenoch and Strathspey said this was a probing amendment and I am happy to respond to it on that basis. It is true that there is concern about the point at which it pays to save. One of the areas that some of the stakeholder groups have raised is people over 50. Someone on median income of about £24,000 would be making contributions into a pension of about 8 per cent.: 4 per cent. from the employee, 3 per cent. from the employer and around 1 per cent. from tax relief. It would take someone on that income about 11 years to get a pension pot of up to £16,000. A pension pot of less than £16,000 could be taken by way of trivial commutation. The result is that people in their 50s who have been saving—providing they do not go above the £16,000—are likely to be significant beneficiaries of this sort of pension scheme. Far from them being losers, they are likely to benefit from being able to take a lump sum and will also have, in terms of their pension credit, a disregard. Many of those who are automatically enrolled would actually benefit even though they are over 50 years of age.
However, what of those who are auto-enrolled, do not realise that problems could arise and have pension pots beyond £16,000? They would be able to take 25 per cent. of the pension pot in a tax-free lump sum; they are making a 4 per cent. contribution, so about half the contribution was theirs. They would then be able to receive the remaining three quarters of their pension pot by way of income. So it is the case that even they would be in a position where they would be able to benefit to some extent from the contributions of both the employer and themselves.
Perhaps this is not the time to have the wider debate on the extent to which it pays to save, because this is a narrow amendment. But as far as people over 50 are concerned, our view is that the majority of those are likely to benefit. There may well be some who, in due course, might fail to benefit, but we are looking at a period into the 2020s before that is likely to arise to any significant extent, so the opportunities to deal with it over the longer term are evident.
I have some wider points that I wish to make in relation to the debate on whether it pays to save, but perhaps I will save those for another amendment.