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‘(7C) The Secretary of State must report to both Houses of Parliament within one year of the commencement of the Universal Credit as set out in the Welfare Reform Act 2011 the trends relating to part-time work that may have emerged.’.
Amendment 31, in clause 8, page 7, line 24, at beginning insert ‘Subject to subsections (2A),’.
Amendment 32, in clause 8, page 7, line 24, at beginning insert ‘Subject to subsections (2B),’.
Amendment 33, in clause 8, page 7, line 27, at end insert—
‘(2A) An order made under subsection (2) must not increase the amount in section 3(1)(c) by more than—
(a) the general level of earnings; or
(b) in percentage terms by more than the percentage increase in the lower earnings limit for national insurance purposes.’.
Amendment 34, in clause 8, page 7, line 27, at end insert—
‘(2B) An order made under subsection (2) must be accompanied by a full impact assessment, specifying—
(a) which factors have been taken into account, why they were considered relevant and the extent to which those factors have been taken into account;
(b) where factors listed in subsection (4) were not considered relevant, and why;
(c) the impact of the number of individuals benefiting from automatic enrolment.’.
It is a pleasure to serve under your chairmanship this morning, Mr Brady.
The legislation for automatic enrolment is a proud achievement of the last Labour Government. It will ensure that 7 million more people are saving for a pension than were previously doing so. The purpose of automatic enrolment is to extend pension coverage to those on lower and middle incomes and further to reduce pensioner poverty, which was reduced by 1.1 million under the last Labour Government.
Automatic enrolment was one of the key recommendations of the report of the Turner commission, which concluded that an automatic enrolment scheme, supported by what has now become the National Employment Savings Trust, would
“overcome the barriers to rational decision-making, cost-efficiency and the declining employer provision which undermine a purely voluntary system, while leaving individuals ultimately free to make their own decisions in the light of their own preferences and circumstances.”
Automatic enrolment will make a huge difference to the retirement income of future generations. In New Zealand, there is a similar automatic enrolment programme called the KiwiSaver, which now has 1.6 million members. Some 45% of its members said that they would not have signed up if it had not been automatic, and 38% said that they would not otherwise be saving.
As the Minister has already said, when this Government came to power, they instigated the Johnson review into automatic enrolment, and this part of the Bill is based on its recommendations. I am relieved that the review and the Government’s response in the form of the Bill will not fundamentally dismantle the consensus achieved by the Pensions Commission. As the Minister has said, automatic enrolment is going ahead in line with the previous Government’s timetable. The age bands remain the same, NEST has been maintained and small businesses, as well as medium and large businesses, are included, which I welcome.
Nevertheless, we have specific concerns about the proposals being watered down, which I am not alone in fearing. In its submission to the “Making automatic enrolment work” consultation last year, the National Association of Pension Funds stated:
“the Turner Commission’s analysis and recommendations still hold true today. In fact, the evidence shows that the need for NEST and auto-enrolment is stronger than ever, and that the reforms should not be delayed or watered down.”
My amendment seeks to reverse one way in which automatic enrolment is being watered down.
Currently, anyone who earns above the bottom of the band of earnings on which contributions must be paid would be automatically enrolled. What we call the trigger is the same as the contributions threshold. The Bill proposes to raise the trigger point at which people are automatically enrolled and to make it equal to the income tax personal allowance threshold, which is £7,475 in 2011 prices. That change will impact mainly on part-time working women, of whom 600,000 will no longer be opted in because of the reforms.
There is also a serious question about where the trigger will go. If the Government continue with their plan to increase the basic personal allowance to £10,000, that will further increase the numbers excluded from automatic enrolment. Indeed, when he appeared in front of the Work and Pensions Committee, the Minister said that if the automatic enrolment threshold were raised to £10,000 in line with the PAYE threshold, 1.5 million people would drop out of automatic enrolment. Does he still stand by that number, and is it his intention to increase automatic enrolment in line with the PAYE threshold? If it is, does that not seriously undermine the intention of automatic enrolment, which was to encourage people who were not previously saving for a pension—those on more modest incomes—to start to save?
The whole point of automatic enrolment and of NEST was to nudge people into a pension scheme, including precisely those low-paid and part-time workers who would otherwise not join. That is why we want it. Amendments 31 to 34 seek to insulate the threshold from other policy imperatives of future Governments, in which thresholds can be moved for a variety of reasons. Raising the entry threshold ultimately to £10,000, which is half of average earnings for women, will mean that those most in need of saving for a pension will in effect be excluded from this and from employer contributions that come with automatic enrolment. A woman on half of average female earnings will have no pension at all, and a woman on average earnings would have only half of her earnings covered by NEST if the automatic enrolment threshold were increased to £10,000.
The National Association of Pension Funds stated:
“Increasing the threshold to £10,000 would exclude 17% of all employees. It would disproportionately exclude women, with 27% of female employees earning less than £10,000, and part-time workers, with 58% of part-time jobs earning less than £10,000. Whilst we accept that the current £5,035 threshold should not necessarily be set in stone, we have not seen any evidence that any savings from increasing the threshold would be worth the disadvantages.”
That is not the only problem. As the gap between the contribution and the enrolment threshold grows, there is a danger that a cliff-edge effect will develop. As the TUC put it, the newly auto-enrolled may opt out when they see a noticeable chunk of their earnings disappear in pension contributions, if people are not automatically enrolled until after three months.
Let us explore in more detail the arguments for raising the threshold. First, the question of whether it pays to save and whether people on low earnings benefit from saving. Throughout the debate on pension reform we have discussed whether some people will not benefit from saving, because of the interaction between small pensions and means-tested benefits. Age UK does not believe that justifies the exclusion of up to 600,000 mainly female employees, and I agree. It argues that the same applies to current pension provision and that people already feel they are penalised by having saved. Although admittedly they sometimes do not understand how the benefits system works, it nevertheless influences their current savings behaviour.
Age UK goes on to argue that saving is normally worth while. It estimates that 95% of people modelled in a recent Department for Work and Pensions report were better off in retirement from having saved, and that for more than 95% the return was greater than contributions made even after inflation had been taken into account. A large majority received more than twice as much as they put in, after inflation. This research and work by the Pensions Policy Institute highlights some people who may be at risk of not benefiting from saving, but it is not always easy to identify individuals at risk early on in life when they begin to contribute via automatic enrolment.
The argument about low earners is also based on a fundamental assumption that undermines it: the low earners will remain low earners. Age UK believes that people earning at the bottom of the threshold at present might build up only a small pot, which I will come on to shortly, but that is not to say that they will be low earners throughout their working lives. The small pot that they build up while at the bottom of the threshold may form the basis of much larger savings as they earn more in future. If automatic enrolment is to encourage saving among everyone, it cannot miss that point.
Age UK also states:
“Even when…pension saving does little to improve someone’s overall income, compared to relying on means-tested benefits, we know that in reality many do not claim their full entitlements”.
There was much talk in the other place and in the Johnson review about the replacement rates for low earners. Both of those preceded the Green Paper on the flat-rate pension, which is designed to provide the same pension for everyone. That calls into question the debate on means-tested benefits and replacement rates altogether. I understand that the flat-rate pension will be operational before the 2017 review date for automatic enrolment. Does the Minister think that the debate has moved on as a result of the Green Paper? Will he take this opportunity to clarify the Government’s thinking on pays to save, given the future of state pensions as set out in the Green Paper? If the flat-rate pension goes ahead, will the Minister reconsider the automatic enrolment threshold, as it would change arguments about for whom it pays to save and whether that money will be means-tested away from people?
Beyond “pay to save” is the question of small pots that can arise from saving at a relatively low level. People are worried that those on the lowest level of earnings might end up with only small pots of money, but that is one of the very reasons why NEST was created. It is not right to exclude people from the opportunity of automatic enrolment simply because they are below the trigger, even though they are in the band of earnings that the report acknowledges should be building pension pots. Indeed, Age UK has argued that many people who end up with very small pension pots will be able to take them as cash. People with less than a total of £18,000 in pensions can take the whole amount as cash under trivial commutation rules.
Even if that is not the case, anyone in NEST or an occupational scheme can take small amounts under £2,000 as cash. People with earnings of £7,000 a year will benefit from total contributions and tax relief of £157 a year, and people with £10,000 will benefit from £297 a year of tax relief. Unless their investment returns are very high, their contributions increase, they have saved for a long time, or they have other savings, they will probably be able to take their savings in cash, and the cash sum may well be below the capital disregard of £10,000 for means-tested benefits.
Modest amounts of pension savings might give an invaluable start to retirement by providing a cash cushion or allowing people at the beginning of their retirement to clear debts. To put it in context, the wealth and assets survey shows that median non-mortgage borrowing at age 55 to 64 is £2,200, with a mean of £6,900. Collectively, those reasons are simply not the basis for excluding 600,000 people, largely women, from the groundbreaking steps that would have seen them automatically enrolled into a pension, often for the first time.
The 600,000 figure that the hon. Lady quotes is the difference between the uprated £5,035 and the £7,475 in the Bill. She does not propose that we go back to £5,035; she proposes a lower earnings limit to the primary threshold for national insurance. To help the Committee’s assessment of the amendment, can she tell us her understanding of that figure for this year?
I am not sure whether the Minister asks what the national insurance—[ Interruption. ] It is about £5,700. That is the how the NI threshold has been increased in line with inflation; it would have gone up in line with the NI limit.
There is a wider question of how the pay-as-you-earn threshold will go up in future and whether the level at which people are automatically enrolled will go up in line with it. I believe that three ways are being considered in the Bill to increase the automatic enrolment threshold in future. That is key, because although some people have accepted the increase in the PAYE threshold to the current level, if it goes up to £10,000, and if the automatic enrolment threshold mirrors that and goes up accordingly, 1.5 million people—not 600,000—will be excluded. The amendments in the group raise two concerns. First, the increase in line with the PAYE threshold, and secondly, what will happen to the automatic enrolment threshold?
The hon. Lady is absolutely right. The threshold was £5,700 last year, but, because of the 1% national insurance increase that was due to come through this year, the Government made a substantial increase in the primary threshold for 2011-12. It is now £7,225, which is about £250 short of what we are proposing. Does that change her arguments at all?
But the PAYE threshold goes up next year as well, to more than £8,000. Both are going up. It would be simpler—many agree with this—to keep the threshold for automatic enrolment in line with the NI threshold. That was originally recommended by the Turner report. Also, there is an issue of how we go forward on this. While I do not think that there are plans substantially to increase the NI threshold, there are plans in the pipeline to increase the PAYE threshold and move it further away from the NI threshold. I want some clarification on which of the different proposals on increasing the automatic enrolment threshold the Government are minded to pursue, because it makes a huge difference. In the answers that I have received to parliamentary questions to the Department for Work and Pensions, the Government’s estimates suggest a difference of some £500,000.
I am sure that the Minister will also no doubt tell us that people can enrol voluntarily if their earnings are between the contribution threshold and the PAYE trigger threshold, which will ultimately be raised to £10,000. Automatic enrolment exists because voluntary self-enrolment has not worked for most people on modest and middle incomes. The whole purpose of automatic enrolment is to challenge the inertia that has undermined our pensions system for decades.
In any case, there is the question of the persistency of savings. They might be small pots to start with, but if people save persistently and build up a habit of saving—even those on low incomes—for a period of time, that builds up a pot that may not be insignificant at the time of retirement. The Personal Accounts Delivery Authority has stressed the importance of the persistence of pensions savings. Its discussion paper on investing contributions states that
“persistency in contributions has more of an influence than investment performance in ensuring that member returns are maximised at retirement.”
In that respect, a higher threshold would exacerbate, rather than alleviate, the effects of means-testing.
That brings me on to the final amendment of the grouping, which was tabled by my hon. Friend the Member for Erith and Thamesmead and raises the important issue of mini-jobs. The amendment makes an important contribution to this wider debate, particularly on the differences between the pay-to-save element and the small pots element. The Government are making substantial changes to welfare and pensions. The amendment recognises the extent of those changes and the interactions between them. Automatic enrolment is a major step forward in the delivery of the Turner Commission proposals. The universal credit is another significant change on welfare policy.
It is important, under these circumstances, that we keep the effects of policies under review. The Pensions Act 2008 legislated for a review of automatic enrolment in 2017. Taken with the other changes to the 2008 Act, including those we are debating today, hon. Members would surely agree that we need to ensure that trends are properly monitored and dealt with effectively. No doubt hon. Members will refer to the 2017 review. In other areas, however, it has been indicated that the review process will be ongoing. Indeed, the Government have started to look at the relationship between occupational and work-based pensions. The Johnson review recommended a wholesale consideration of transfers into NEST, wholly separate from the 2017 review. That is an area where automatic enrolment, if implemented properly, stands to improve in particular the pensions savings of people who work in a series of small jobs. For that reason, my hon. Friend’s amendment is an important part of this debate on how the areas of pension and welfare policy interact.
Auto-enrolment and NEST are very good things. I see that as a sea change in the way that ordinary working people view pensions. My daughter lived in Sydney for a number of years, and my granddaughter was born there. I had the good fortune of going to visit. If someone goes into any bar in Sydney and asks any ordinary plumber or person who works in a shop about their “super”, they can tell that someone about how much it is, what it is worth and how it is accessed. Those people know all those facts. If someone asked the same question to the same people, but in the UK, they would find that people do not have a “super” and would think it to be absolutely mad. They would ask, “How will we manage in old age? What will happen? How can we possibly plan for our future?” The Bill is part of changing attitudes in the UK.
Like the Government members of the Select Committee on Work and Pensions, I was lucky enough to visit NEST. I was pretty impressed by the way it was taking the matter forward. We raised many queries, and I think Government Members would confirm that it answered them comprehensively and that it was an impressive visit. However, I have some concerns. My main concern is about the attitudes of the wider pensions industry. I believe that it has a desire to see NEST restricted, because it is looking after its own industry. Some of the restrictions on NEST are unwelcome. Without pre-empting the review in 2017, once it is over, and once NEST has been bedded down and people are more used to it, does the Minister hope that there will be some relaxation of the current restrictions on NEST to widen it? I hope that NEST will be a success, and if that is the case, I would hope to see the removal of some of those restrictions and see it rolled out further.
My second concern is that employers, particularly those who do not currently offer pensions to their employees, will resist the scheme. I will come on to my specific problems about that in a moment. My third concern is that the Bill is based on existing working patterns. When the Welfare Reform Bill is passed and universal credit is introduced, people’s working patterns may change significantly.
Regarding the effect on women, historically, women have faced disadvantages in occupational pension schemes compared with men. Women are less likely to be at work and have access to occupational pension schemes. When they are in work, they often have lower rates of pay or work fewer hours, and so are less able to contribute to a pension. Women still do the majority of unpaid caring, which means that they are more likely to have a break in their career and less likely to have the necessary number of qualifying years. In order to balance their many caring responsibilities, women are more likely to work part time, which means that they are less likely to be able to afford to pay into a pension scheme. I believe that the Minister himself once said that when it came to pensions, it is as if women are an afterthought. I am hopeful that with auto-enrolment and NEST, women will be central to the new legislation.
As I said, auto-enrolment is a good thing. One of my concerns is about the earnings trigger and what constitutes earnings. I have a few questions for the Minister. First, how will we be able to monitor who is an employee and who is a worker for pensions purposes? There was some debate about a qualifying person last week, but I am still not fully clear about that. European law refers to a worker, which means that a worker can access employment rights, even though they might not be classed as an employee. I would like some clarification on that.
I also want clarification on people who are engaged long term by an employer through an agency, because if the agency has an overarching contract with the individual, am I correct in thinking that the agency will be responsible for auto-enrolment? If the person does not have an overarching contract with the agency, will there be anything in what I view as anti-avoidance legislation to stop employers ceasing an agency contract at two and a half months, having a week off and then starting it again, because that would go against the very spirit of what we are trying to do?
On what qualifying earnings should be, I am concerned about the hospitality industry, in which many people are on a zero hours contracts. Most of their income is from a tips and gratuities tronc system, which would not necessarily be earnings from the employer, even though it might make up a large proportion of their income. Has any work been done on how that industry will be affected? That industry has a lot of casualisation, short-term working and part-time hours, and those working hard and for long hours in that industry would not be able to access the provision.
There has been much talk about the plans to combine national insurance and PAYE. Will that have any effect on the threshold for NEST? We are considering the Bill as things are in the world. We have heard much about universal credit giving flexibility to people to take what has been coined a mini-job. At the moment, if people take a mini-job, they lose their jobseeker’s allowance, but in future they will be able to take one for even an hour, half a day or a day a week. We cannot possibly tell how successful that will be, but I tabled my amendment because I want the Minister to agree to hold a review once universal credit has come in to see whether working patterns have substantially changed and, if they have, whether the Bill should be amended.
Does my hon. Friend share my concern that, while there may be a growth in mini-jobs in the future, many women already have a patchwork of mini-jobs that make up their total earnings? They might have a job for 10 hours a week with one employer and for 10 hours a week with another, so they fall into the category of those for whom saving is important, from the point of view of the replacement rate, but they cannot be enrolled by either employer because they are below the threshold, and that will be even more likely with the increased threshold.
I agree. As I have said, one of my concerns is about how employers might resist. Will there be anything in the Bill or the guidance to stop an employer of a team of cleaners in schools from saying that the cleaners have a separate employment contract for each school, so that they would be under the threshold in each contract? I am interested to hear what the Minister has to say about that sort of detail.
Even if employers do not seek to avoid enrolling their employees into pension schemes, can my hon. Friend, like me, imagine someone being employed by a private contractor or even, in the future, by a voluntary organisation as a cleaner in a school and has another job at the school for another employer? For example, it is common for someone to have jobs as a cleaner and as a midday supervisor, but they might have two separate contracts and the contracts might conceivably be with separate employers, in which case their total earnings would take them over the limit, but they would not have the right to be auto-enrolled.
Yes, that is one of my concerns. As I have said, the attitude of the pension industry is restricting what we would like to do, which is a shame. The pensions industry fears that NEST will become a huge and major player, and naturally it is protecting its position. The Bill therefore does not go as far as to link separate jobs together where there is a link. Under national insurance legislation, there is an ability to link employments where there is a link between the employers. I am not sure that that is the case here.
My main concerns are the attitude of the pensions industry and that employers may resist this. I have no doubt that large employers will not resist, but there are some small employers who already feel overwhelmed with red tape and will find ways to resist this. The Government need to lead the way on this, for the sake of this generation and future generations, to ensure that people are provided for in their retirement.
One of my concerns is about how people will understand where their earnings threshold is, for example if someone has linked employment, particularly at a school. If someone works as a midday supervisor, then as a dinner lady and then at an after-school club, those may be three separate employments, but that person will feel that they work for the school. Does the Minister have a view on that? When the 2017 review comes in, will he be looking to amend any aspects of the Bill?
I welcome the opportunity to make a brief contribution to this debate on an important issue. On Second Reading, I outlined a number of concerns about auto-enrolment. I was particularly concerned that if the Bill passed without amendment, it could reduce the number of people eligible to be auto-enrolled in a pension scheme, thereby limiting the coverage of the scheme and disproportionately excluding women.
I want to focus on a couple of the points that my hon. Friends have raised this morning. No one disagrees with the principle of ensuring that people plan for their pensionable years. We should be doing everything we possibly can to save, however small those amounts might be. One of my worries, which has already been outlined on the earnings threshold, is whether we are in danger of sending mixed messages. On the one hand, we are saying to people that it is important that they put something away for their later years in a pension scheme, but at the same time we are saying that if it is too small an amount, that is not worthwhile or valuable.
I understand the issues about costs and ensuring that the public purse does not have to spend money unnecessarily. There is also a danger that it sends people a mixed message that they can expect to be in low-paid or part-time work throughout their life and that that is not as valuable. The problem with legislation is that it looks fine on paper until we try to fit people’s lives into it. We have had good examples from my hon. Friend the Member for Erith and Thamesmead on the reality of life for many people.
I have come to loathe the term “mini-job”. These are part-time jobs; they are not mini-jobs. They should not be dressed up in any other way. The reality of life for many women trying to put together a number of hours that equate to full-time employment, to give them a decent standard of living, means that the state’s responsibility should be to support them. Through that, we can ensure that when they are able to put those packages together, we make it possible for them to be involved in the pensions scheme in an appropriate way to build something for the future.
The other important issue is that the issue of pensions and other welfare benefits is inextricable. Nothing gets people more annoyed than when they have saved for their pension and their occupational pension puts them just over the limit for welfare benefits. They believe that other people who have not saved are not held to account in any way. Those things are important and are why we must ensure that as many people as possible have the opportunity to participate in these schemes.
I agree with all the points that my hon. Friend has made. Does she agree that it is not only about enabling them to participate and contribute to their pension for retirement, but that unless they are automatically enrolled they will also miss out on tax relief and employer contributions into their retirement income?
My hon. Friend makes a valid point that I had intended to come on to, so I will do that now. There is a lot of talk about the responsibilities of the individual employee, which of course is important, but the state and indeed employers also have some responsibility. It would not be correct if the earnings threshold was set in such a way that people lost out—exactly as my hon. Friend suggests—on the other benefits that might be available, or if employers had a perverse incentive not to do the right thing by their employees.
There are other situations. My hon. Friend the Member for Erith and Thamesmead talked about the person who is a dinner lady or a supervisor in a school, or who has a range of jobs. That situation can be further complicated by not just a zero-hours contract, but term-time contracts. Where does that leave people? What about seasonal employment? Some people have a mixture of different types of employment, perhaps in the public sector and perhaps topping that up on a seasonal basis when they have the opportunity. Hairdressers are often cited as an example. Increasingly in the hospitality and service sector, people’s employment status can be quite uncertain. Are they an employee for the whole of the time or are they self-employed for part of the time? There is also the position of agency workers to consider and a whole range of issues around that.
I hope the Minister will be able to answer the points raised this morning, particularly on the number of people who would be affected if the threshold went up to £10,000. Are the figures that the Government have looked at robust? Have they looked at them in light of the concerns that were raised on Second Reading?
My hon. Friend talks about the 600,000 people who will miss out on automatic enrolment, or 1.5 million if the threshold goes up to £10,000. Does she agree that it is not just about the number of people, but the types of people who will be excluded? In the Turner report, the point of automatic enrolment was to bring into pensions the people who currently save least for their retirement and who most need to put something aside. The proposal would exclude not only 600,000 or potentially 1.5 million people, but the people whom automatic enrolment was originally intended to benefit.
Again, my hon. Friend makes a valid point. That is why I raised such concerns on Second Reading. The way in which the Bill was constructed had unintended consequences. The people who most needed to be involved in pension schemes and saving early for their retirement would be the ones who would potentially lose out. As I said earlier, we ought to give a message to people that from commencement of their working lives, they should be involved in planning for their retirement.
My hon. Friend the Member for Erith and Thamesmead gave us the example of Australia, where planning for retirement is almost accepted as part of the culture. From my own family and from other people who have recently entered the world of work for the first time, I know that sometimes the last thing on young people’s minds is what will happen 40 or 50 years down the line. We have to change the culture so that people see planning for retirement as their responsibility, but they should also be able to expect their employers and the state to do the right thing by them.
I am sorry to keep intervening on my hon. Friend, but everything that she says makes me think of new points. Does she think there is a risk that if people are not automatically enrolled, they will assume that enrolling themselves voluntarily will not be a good thing for them? If they are not automatically enrolled by their employer—or the Government, as they may see it—they may assume that pension saving is not something that is appropriate for them, and so will decide to remain opted-out, even though opting in could lead to a higher pension income and could also get the very important employer contribution. While automatic enrolment sends out a signal and nudges people into saving, it may also send out a signal that saving is not appropriate if someone is excluded because of the increase in the threshold, even though, in many cases, it could be the right thing to do.
I am glad to have had the chance to give my hon. Friend the opportunity to make such a point, because she has highlighted the nub of the matter. We can have the legislation on one hand and the realities of people’s lives in the other. Let us consider people who are trying to make ends meet, trying to hold down two or three part-time jobs and who have a whole range of other things going on in their life, such as child care responsibility or caring for elderly relatives. If they do not have an easy way to get their financial affairs in order and, as my hon. Friend suggested, can be nudged into doing the right thing, everything else going on in their life might take over.
People might feel that such a system is not for them and that it is too complicated. We are going through the minutiae of the Bill, and I wonder how I could explain in a couple of paragraphs to some of my constituents who will be better off and who will be worse off, and what they ought to be doing in the future. If we cannot explain such matters in ways that will make it easy for people to be involved, we have a problem with the Bill.
I appreciate that the purpose of the Committee’s examination of the Bill is to consider issues in more detail. Can the Minister say a little more about the figures and deal with the issues that have been raised not only by me but by others, about the message the Bill is sending out and the earnings thresholds, particularly for those with several part-time jobs and who are in non-traditional forms of employment?
I draw attention to those people who might be excluded if the earnings threshold increases significantly. As my hon. Friend said, there is a tendency for part-time workers to work 16 hours a week or more because they fall into the category in which they can claim working tax credits. If people were working part-time, they might be earning just below £7,475. I saw on the internet this morning details of a team assistant working for bingo, a care worker, a customer sales adviser working in the retail sector, a housing assistant working in the national health service, people working in admin, catering, domestic jobs and as porters, and people on local government scale 1, such as cleaners. If such people worked part time, their salaries would perhaps fall £1,000 below that level, and those are the type of people who will be excluded from auto-enrolment.
My hon. Friend makes a valid point. As for the people to whom she referred, particularly those in the public sector, if some of them were on a scale that paid them a living wage, it would certainly make their life somewhat easier. Indeed, they might hear so many comments that they also believe that the public sector has gold-plated pensions and that they do not have to do much more than turn up for work in order to be looked after. However, many people are involved in several part-time posts. As has been outlined, many of them will be working, for example, in the education sector.
I have been reading details in the Johnson report about the scope of individuals. In its research, it makes it clear that, for people on the lower incomes, actually saving for retirement could be counter-productive because they have a limited amount to spend and their retirement pension income will be similar to what it would be on the low income. Is the hon. Lady saying that Johnson’s premise is incorrect?
I am not suggesting what is correct or what is incorrect. I am hoping that the Minister can respond to such points. I understand the position whereby, if people are on a low income and have a limited amount of money coming in, it might seem better for them to spend the money, for example, on buying a new pair of shoes for their children rather than investing it in the pension pot. My point is that the state has some responsibility to ensure that we have a pensions scheme that allows people to save without putting them under so much pressure to meet their day-to-day expenses that they decide that saving for a pension is not for them.
Does my hon. Friend agree with me, and with Age UK’s assessment that 95% of people modelled in a recent Department for Work and Pensions report were better off in retirement from having saved, and for more than 95% the return was greater than the contributions made, even after inflation had been taken out? According to DWP numbers and Age UK work, 95% of people would be better off by saving.
Lord Turner and the Pensions Commission recommended linking the automatic enrolment threshold to the national insurance threshold. It would not make sense to be automatically enrolled at the pound-one stage, but when people start paying national insurance we can reasonably assume that they are better off. Of course, however, everyone would have the option to opt out if they thought that was the right thing to do in their circumstances.
Once again, my hon. Friend makes valid and important points. People can opt out if they choose, but it is important to provide every encouragement for them to opt in. The scheme should ensure that people are better off if they save throughout their working years, and it should support them however small their earnings and complex their working arrangements. Again, I hope that the Minister will discuss those matters in his summing up and will deal with the point that the hon. Member for Eastbourne made about those in low-paid employment.
I shall touch on a few issues that have been raised. Saving for pensions, and proper pension provision, is a long-term undertaking. Over the years, we have not always addressed pensions as consistently and thoroughly as we might, which is, perhaps, one of the regrettable effects of political life and of not having a benevolent dictatorship. As new Governments come in, they have a tendency to start fiddling with arrangements—withdrawing this, changing that. Sometimes they do that with the best of intentions, but one of the effects of such changes—the Minister spoke about this powerfully in another sitting—is variation in the pension provision that people end up with. People who still have the graduated pension, which preceded the state-earnings-related pension, which preceded what is now called the second state pension, will know that the situation has kept changing, which has made it difficult for them.
It is important to encourage people to save for as long as possible, but doing so requires at least some level of benevolent dictatorship. Hon. Members might remember that old advert for chocolate, with a young person who did not care and became progressively more anxious—[Interruption.] What it had to do with chocolate I cannot quite remember. Perhaps it was not about chocolate; perhaps it was actually about pensions. However, its point was that often when we are 22—or whenever we become eligible for enrolment—a pension is the last thing on our mind; it is the most boring thing of all. Gradually, however, we begin to think about it and then we may wish that we had contributed, even though doing so might not have built up a huge amount of money.
I thank my hon. Friend for her interesting contribution so far. Her reference to chocolate reminds us that we have missed our elevenses this morning because we have been debating pensions.
My hon. Friend rightly said that early on, people do not start contributing to a pension, but later, they recognise that they should have done so. Does she agree that that is the virtue of automatic enrolment, because even if someone does nothing else, they will start contributing to a pension? When they are in their 40s or 50s and start actively engaging in pension provision, they will find, if they were automatically enrolled and had been contributing for the past 20 or 30 years, that they have built up a big pile of money. Also, even when someone first starts in the labour market or takes time out to bring up a family, if they are persistently saving, even while on a low income, they can accumulate a pension pot that they would not have done if they were not automatically enrolled.
That is very much the point that I was trying to make. In a sense, people have to be encouraged, and more than encouraged, to make that kind of provision. In the end, it is both cheaper for them and potentially less onerous on the state in picking up the lack of provision. From that point of view, the sooner that people can be auto-enrolled, the better. Although I understand some of the arguments that are sometimes made, that we are almost being kind to people in not forcing them to be auto-enrolled, it may end up being false kindness. By saying, “You would be better off buying that pair of shoes rather than saving,” we may inculcate the wrong attitude in many ways, which people will regret it later, and we will not be doing them any favours in the long term.
The Johnson report said that women in particular would be affected if the threshold was raised from the original proposals or raised in line with income tax thresholds. It also said that if there was a disproportionate effect, which it saw, people would be concerned about that, unless they were persuaded that they would not benefit from saving. The report continued to address the question of whether that was the case and whether people would not benefit from saving.
If a long-term low earner were to remain below that level throughout their working life, they would get an extremely high replacement rate from the basic state pension and any other small state pensions they would have accrued. On that basis, they would receive a higher replacement rate, which is all right. What we are talking about are people who may have a replacement rate as high as 90% of their low earnings, but who still are on low earnings and who will be poor in retirement. Just because people have a higher replacement rate, it does not mean that we do not want to enhance their income at a time in their lives when they may incur additional costs, perhaps in the type of housing or assistance that they need.
Also, many may become single during retirement. That is a problem that many women have had over the years. In the past, women were often encouraged to rely on the support of their partner. They would go into retirement and share their partner’s pension, and therefore they would be all right and would not need to save. I presume that that is the origin of the fact that married women were able to opt out of national insurance. That was another piece of benevolence that was ultimately repealed. Some people at the time were not too pleased with it because they suddenly had to pay national insurance when they previously had not had to, or when they had only paid the very small stamp. When the change took place, some people asked why the state was telling them what to do and said that they had less income. However, even in recent years, women have reached retirement age and discovered that they did not have good pension cover because they had been on the small stamp; indeed, some were able to go on doing it until quite late because they had the option. They get to retirement and think, “Hang on. That was not quite such a big gift,” and complain about it.
Does my hon. Friend share my concern that the people who will miss out most from the increase in the earnings threshold, if it rises to the PAYE threshold and goes up further in line with the Government’s intentions for the PAYE threshold, are the women she is speaking about, who already have both lower state and occupational pensions? Given that they are already under-served by pension arrangements, is she disappointed that they do not stand to gain more from automatic enrolment under the Bill?
I agree with my hon. Friend’s points. It is incumbent on us to look at which groups will be particularly affected by such proposals. If women have consistently been in low-paid employment, their need for good pension provision is greater, either because they have always been on their own and will have to provide for themselves or because there is still a differential in the life expectancy of men and women, as we have discussed. That can be seen as a benefit to women and it is sometimes said that, as women get their pension for longer, they are more fortunate, but equally, a powerful reason why many retired women are poor is that they do not have adequate pension provision of their own after the loss of their partner.
I am slightly puzzled, because I buy the narrative and the argument, and I agree with everything that the hon. Lady is saying, except that, taking out the emotion, it does not concur with Johnson, who said:
“This means that many people on very low earnings will build up very small pots indeed, potentially damaging the credibility of the reforms…This will avoid automatically enrolling those not earning enough to pay income tax, which will ensure that the very tiny levels of pension contribution possible under the current proposals are avoided”.
If we remove the emotion and deal with the facts, according to Johnson, it would be counter-productive not to increase the thresholds, but the hon. Lady obviously disagrees fundamentally with what Johnson said.
I disagree with the conclusion, but not necessarily with all the points that were made. I disagree that it is okay if someone who has been on a consistently low income ends up with a high replacement rate, because it will be a high replacement rate on a very low income, and anything that can be done to enhance that is important.
The other powerful argument about whether it is worth having small pots of money is to do with what happens about means-testing. Making a small amount of savings and having a small pension will not contribute to people’s well-being in retirement, because that will simply be cut off against some other provision. If the Minister’s proposals on the flat-rate pension are approved over the next few years—obviously, we still have to see a great deal of the detail and no doubt the consultation is being assessed, but I am sure that the Minister hopes to legislate on them in this Parliament—some concerns about means-testing might cease to have an impact.
Does my hon. Friend agree that it is unfortunate that the Government have frozen the savings element of the pension credit, which reduces people’s incentives to save? Does she, however, welcome the proposals for a flat-rate pension and, if that is introduced in this Parliament and comes into force before the review of automatic enrolment in 2017, will it make sense to look again at the earnings threshold?
Freezing the credit was the wrong decision. It affects pensioners now. Part of the problem with the proposals for a flat-rate pension is that people who are already in retirement will not benefit from it, even when the new scheme comes in. That is where a lot of the campaigning groups have severe concerns that many people will still have 10, 20 or maybe even 30 years in retirement, not benefiting from the new scheme and therefore still being affected by all the issues around means-testing. Therefore freezing the pension credit affects pensioners now and if it continues will affect pensioners into the future, who will not have the benefit of the flat-rate pension if it comes into effect.
I look forward to understanding how the flat-rate pension proposal can be introduced without additional cost. If it can be, it will indeed be a good thing. I do not think any of us could oppose reducing the quantity of means-testing. The relationship of that to the present discussion is that if there is a flat-rate pension at the level suggested of around £140 per week, having additional savings—even if they are small—will no longer be the handicap that has been suggested.
Is it not the case that the Johnson review actually concludes that it is very difficult to work out who should and should not be auto-enrolled? In fact it says that
“it is very hard to distinguish any clearly identifiable group or cut-off where one might say that those below this cut-off should not be saving and those above should be”.
It goes on to say that the world is not a simple place, and continues:
“Many or most very low earners are women, who live in households with others with higher earnings and/or receive working tax credits. These may well be exactly the people who should be automatically enrolled.”
Does the hon. Lady share my view that the preference should be to automatically enrol more people who then are free to opt out rather than having it the other way around with fewer people auto-enrolled who are less likely to take up the option of opting in?
Yes, I think that is indeed the case. We should err on the side of people being included rather than excluded. In these situations, relying on people opting in is not particularly attractive. Auto-enrolment was chosen for the very reason that, sadly, people do not always look after their best interests and they do not necessarily opt in. That was my criticism, which I voiced previously, of what happened with the state earnings-related pension scheme during the last Conservative Government. People were given freedom to opt out of SERPS and a lot of people did opt out to their detriment. Freedom is not always as desirable as it might sound on the surface.
The other reason for allowing people to build up small amounts of pension at times when they are earning is that earnings are not static. The Johnson report says clearly that the model of somebody who remains on low earnings from age 22 to retirement will be extremely unusual, and that periods of very low earnings are likely to be followed by periods when people earn more. That is the pattern, certainly of a lot of women’s working lives, and it may be of men’s working lives in the future as well. On leaving education, they enter employment, work full time—and may do so for a considerable number of years—then when children are young they may choose to work fewer hours because of the difficulty of child care or because they are making a positive choice that that is what they want to do in that period of their life. They might return to full-time work when children are older, and they might have to return to part-time work again at a later date, particularly if they end up caring for elderly relatives and can no longer sustain that with full-time work. It is an up and down earnings pattern. In those down periods, if people can continue to be covered by this kind of pension saving, then the total amount they are able to benefit from ultimately would be beneficial.
One argument that is frequently raised is that this is not worth while, because people will lose out on receiving other elements. However, organisations such as Age UK have pointed out that it could be particularly beneficial with low amounts, because it is being made easier for people to take some of their small pension savings, whether through NEST or otherwise.
Although currently, as we have already discussed, there is a means-testing element in relation to capital, if someone has below £10,000 in capital they will still receive some of the means-tested pension top-up. Therefore, it would be beneficial to them to have a cash sum of £5,000, £6,000 or £7,000. They could continue to save, or use that money to make the kind of adaptation that many constituents of mine would like to make to their houses, such as replacing the bath with a shower if they expect their mobility to decrease. That is the kind of adaptation that will make their lives better and with which they will often not get help from the state because they do not meet the required level of substantial or critical need. They are expected to find that money themselves, and people who do not have any kind of nest-egg—as it used to be called—will have considerable difficulty in doing that.
If it is possible to have small pension savings which can be commuted to cash relatively easily, and which will not necessarily interfere with receiving means-tested pension credit—even assuming that the mean-tested pension credit continues in its present form—it is a very positive benefit, not least because to be involved continuously, or for as long as possible, encourages people to see this as an important part of their life.
I was struck by what my hon. Friend the Member for Erith and Thamesmead said about the attitudes of people in Australia. My Australian sister-in-law also talks about that, and it had bypassed me that they really do consider their superannuation arrangements to be an important part of their lives. Over the years we have struggled to encourage people to save, and we need to read across all our different governmental policies. I was at a seminar yesterday for the all-party group, where various caring groups were looking at the Dilnot report. We are struggling with how we provide care for people in older age, and with the lack of savings which often makes it very difficult for people to make provision.
As my hon. Friend the Member for Erith and Thamesmead said, we must also look at the proposals that are coming forward to encourage people to do these mini-jobs, as they have been referred to. Those of us who were involved with the Welfare Reform Bill will have heard mini-jobs referred to endlessly. I share my hon. Friend’s aversion to this new concept, which seems to make low-paid work sound fun, trendy and exciting, like a mini skirt or a Mini car. The reality is that a lot of people will be doing some pretty poorly paid jobs, and I am concerned that although people will have some element of work in their lives, they will be stuck on a treadmill of low-paid jobs over a long period.
Does my hon. Friend share my concern about what might happen? The importance of saving and developing a culture of saving is vital. If people come into the workplace on a so-called mini-job, or working for a low number of hours that might be below the threshold, would there not be a temptation—as they increase their hours, their earnings go above the threshold and they are auto-enrolled—to choose not to pay into a pension? It is better that people pay into their pension from day one. As their earnings or hours increase, they would see the benefit of a higher total salary and continue to make provision for a pension.
That is a powerful point because it again illustrates the changeability in people’s working lives. We do not want to create cliff edges or anything that can almost discourage people from increasing their hours and therefore their earnings. I know that the Department is very concerned about that because of the benefits reforms that are being introduced. It is said that one advantage of universal credit is that it will take away some of the rather artificial points at which people make decisions such as, “Do I work fewer or more than 16 hours? Is it worth my working that extra hour, because it will not actually benefit me?” I do not know whether that will be the outcome, but the intent of the universal credit is to smooth things out and remove such situations. We do not want to have people saying, “If I do that, I will have to start contributing to a pension, and I do not want to do that because it will make my position worse.”
Does my hon. Friend believe that a lot of the problems come down to a lack of independent pension advice? If someone goes to a bank, it is likely to try to sell them the best product it can. If they go to an independent financial adviser, the adviser will do the same thing. They will think about the sale rather than the needs of the person in front of them. If the Government are seriously interested in improving the advice out there, they could come up with an independent vehicle or a helpline that people could ring to talk about pensions.
I thank my hon. Friend for his intervention. Obviously, good advice is important, particularly for people on low incomes. The advantage of the system that the previous legislation set up was to create a default position for people who do not have other forms of coverage through their employment. The future of this could be extremely important. I want to see NEST being built up. At the moment, there are issues about the way in which it is structured and whether people will be able to add bits of pension that they have earned elsewhere, so that they can secure their position and take transfers in and out.
Another matter related to the question of threshold is the issue of people having more than one job. The higher the threshold, the more likely there are to be people who miss out, although their total earnings and hours of work will actually be quite considerable. It is not unusual for people to have more than one part-time job. Such work has become more common because it suits the needs of employers, partly because of the nature of the work. Caring jobs often require people to do a certain number of hours, perhaps helping somebody in the morning or evening. People often do such work for different employers. Some people work for an agency as a care assistant for part of their week, but also take on work for an individual, because that is the work that is available. There will be more such work if people have personal budgets for care, so people will be working far more for an individual than for an organisation.
Shops like flexible working as well, because it allows them to take people on for the busy times and not have someone there all day. It is understandable, from a business point of view, that they might want to do that. As shop hours have increased, the amount of part-time work has increased too. It can be useful for the individual, because it allows them to fit things around their life. It is useful for the employer too, but it might mean that people will end up in a position where they are not auto-enrolled in any of their employments, or are perhaps auto-enrolled in only one of their employments. The higher the threshold, the more likely it is that that situation arises. That is why I support the amendment, which is asking for a report on part-time work.
If this increases—we have talked so much about seeing it increase—we have to be sure that there are not groups, which may be predominantly, but not exclusively, women, that are missing out on auto-enrolment, which we have all agreed is an important improvement in pension provision in this country.
Good morning, Mr Brady. I am pleased that I am here this morning, partly because we are teasing out the issue on the importance of savings, not least for those on very low incomes, and the reality of that. I look forward to the Minister’s response. I am also pleased to be here this morning, because for the first time in 25 years I have heard the word elevenses, which the shadow Minister used. It conjured up an image, from long before the age of the Mini car and—if I may say so—the mini skirt, of “Mrs Dale’s Diary”, John Major’s warm beer, digestive biscuits and all the rest. It is a credit to how we teach social history in our primary schools that the shadow Minister has recalled that word. No elevenses for us, however, as we continue this important debate.
Forgive me for briefly sketching out the context, but here we are, arguing about how we can tackle the national deficit—we can argue about its causes, and we do not always agree—but we are also worried that many of our constituents are building up great debts through so-called credit cards and the rest. It is not unreasonable to place this discussion on how we encourage savings of different kinds, which in this case are pension savings, in that wider context. Most of us are on the side that it is reasonable to encourage those savings.
I am bound to say that one attempt to boost savings culture was the child trust funds, which unfortunately and ironically have been one of the major victims of the deficit reduction programmes. There must be an irony there that we attack a savings scheme because we are so concerned about the deficit. We can reflect on that irony at another stage.
I also draw in evidence the excellent work of our credit unions, which give many of our poorer constituents a way of borrowing far away from the loan sharks that bedevil many of our housing estates. I mention that because—although many people join credit unions because of the opportunity to borrow, not least in the run-up to Christmas—however low someone’s income, they have to save as well, even if it is only a pound or two a month. That reminds us that the credit unions are an example of the institutions that are so important at the moment, because they instil that culture of saving. Someone may be on a very low income and be hard pressed on how to buy shoes and the kiddie’s clothes, but they have to save on a regular basis. That is relevant to what we are discussing.
I recognise, however—hence my eagerness to hear the Minister’s response—that we are having a debate on both the principles, which my colleagues have set out well, and the realities. The hon. Member for Eastbourne asked my colleagues some useful questions. That is what we are trying to tease out. The Committee is in favour of auto-enrolment and NEST, and we are here, looking at some of the details of them. It is great privilege for the Minister to be able to come here today to give his own analysis of how he is going to implement those two major Labour Government policies—because they are indeed Labour Government policies. Unfortunately, because of the deficit and the way in which this Government are tackling it, he often has to become an apologist for cutting people’s pension entitlement by changing the index linking, and so on. Here, however, he has an opportunity to push forward the two great social reforms.
On auto-enrolment, I want to reflect on my experience in the Minister’s seat, when we were developing proposals for what became the Pension Protection Fund and, later, the financial assistance scheme. This was in the era—I say “era”, but this was only in the middle of the last decade—when we were confronting an issue. Companies were going bust, and people who had been building up their pension savings all their working lives were suddenly in danger of getting, not nothing—that would be an exaggeration—but only perhaps 30% or so of what they thought their pension entitlement was. It was one of the great scandals of the age. Ian McCartney—now Sir Ian McCartney; it sounds strange to say that—grasped the nettle and urged the then-Government to implement some kind of pension protection.
I met some workers in the steel industry and, if I may say so, the metal-bashing industry, who were nearing the end of their working life; hence the urgency of pension protection for them. They told me that when they joined the company and were told at 15 or 16 that they had been signed up into the company pension scheme, they took it for granted. A lot of them said to me, “If I had a choice at the time, I probably would have said no, because I would have preferred the extra quid or so to spend in more pleasant ways. But thank goodness we were signed up, almost without being asked, into the company pension scheme.” Now, facing retirement, that was a protection for them. That convinced me that some paternalism in how we sign people up to company pension schemes is important. The theme that we are discussing is placing the principle that everyone should be encouraged to save for their pension against the reality of whether that should apply to people on low incomes.
Can the Minister give us an overall analysis of how he thinks that relates to our means-tested pension credit system? I know that he is interested in that. What are his concerns? If we enable more people on low incomes to sign up to company pension schemes or NEST, how would that impact on entitlements to pension credit in the future? I know that he has grand proposals to reform the whole thing. Nevertheless, those proposals are not legislation at the moment and may not occur in reality. His reflections on the relationship between low-income people building up occupational pension rights and our current means-tested system would be helpful.
Notwithstanding the important questions asked by the hon. Member for Eastbourne, I am still on the side of saying that unless there are really good reasons why we should exclude groups, the bias should by and large be towards including groups. One of the reasons I say that is because if we are talking about people in their 20s, 30s or 40s who are on low incomes, would it not be profoundly pessimistic of us as a society and an economy to say, “Those people are always going to be in low-income jobs. There is no dynamism. Despite all the wonderful things that we say about skills, training and education and giving people second and third chances, and the need for all of us to become reskilled several times in our careers, the people on x thousand pounds a year will always be on x thousand pounds a year”? That would be a huge betrayal of everything that we have all said about the need to enable people to move further up the career ladder. For that kind of reason, I am rather in favour of people—even those on the most modest incomes—being signed up to occupational pension schemes, which give them a foundation as, we hope, with better skills and education, their careers move forward.
I understand and appreciate the right hon. Gentleman’s direction of travel, but why does he think there is such a difference between £5,500 and £7,500? I understand the morality behind his argument, but if we take it to its logical conclusion, surely at £5,500—or if the Labour Government had still been in control—many hundreds of thousands of people would still be penalised. Why, therefore, do we not go to £0, which would present a new range of issues and challenges?
That is a perfectly reasonable question. I have listened to my colleagues’ arguments, which I tend to support, and I am genuinely interested to hear what the Minister has to say about them. In principle, I have always been attracted to that idea, but administratively it might be difficult. Ideally, even the student or young person taking a summer holiday job should start to contribute, as should his employer, to a pension that can build up. We have a very flexible labour market with few jobs for life—although there are more than people say—and people have different kinds of jobs. We must therefore have pension arrangements that are sufficiently flexible and fast on their feet to enable people to build up rights.
Just as we encourage our children to save—although the Government no longer do—even if it is only a few pennies a week, so should we encourage people to get into a pension savings habit. We should introduce a proper communications system, such as that in Australia, which I witnessed myself. Such a system enables people to know how their pensions are building up. We must do much more to communicate to people how their pot is building, the options available to them and so on. If we have that system, the sooner we get people into a savings culture through pensions, the better.
I have another question for the Minister. I think we all support auto-enrolment when the individual can opt out, but how will we protect workers against unscrupulous employers? Such employers might come along and simply say on day one, or after how ever many months have passed before the Government allow them to auto-enrol, “Actually, son, you don’t really want to be in this scheme. It’s going to cost you money. You’d have more fun down the pub with that money. Sign this form so that you can opt out.” Perhaps much work has gone into protecting workers from that situation and I have missed it, so I should be grateful for the Minister’s response. There might well be unscrupulous employers who say, “You don’t want to be part of this—it’s ridiculous, it’s wasting your money. You’re only 18,” or “You’re only 22; old age is a long way away. Sign this and all this nonsense won’t affect you.” I would be interested to hear the Minister’s observation on that matter.
Generally, we have had a good discussion. I look forward to hearing the Minister’s rationale for excluding people, including those—I will not call them people in mini-jobs, because we cannot say that and I understand the reasons why—in very part-time jobs. In the Committee’s discussions last week, as part of my arguments about the importance of social class, I quoted the experience of one of my constituents. I referred to her as Jill Brown, but that is not her real name. I shall quote briefly again from her letter to me. She wrote:
“I am almost 57 years old, a single mum and earn a feeble £7,000 a year, propped up by working tax credit as I work 24 hours cleaning courtesy of three part-time jobs. I get up at 6 am, work two jobs before noon and then walk another mile to my third job from 4 pm to 6.15 pm.”
I stress that she does three part-time jobs, and it is important that people in such situations are not excluded from the very radical proposals to improve our pensions, which I of course support.
Thank you for being characteristically generous this morning, Mr Brady. In responding on the amendments, I hope to deal as well with the substance of the clause.
We have been told that the reforms are Labour ones, but also that they have many problems. For the last hour or so, we have heard that they do not work well for people with multiple jobs or if there are unscrupulous employers. We have heard a whole list of real problems with the system that were either not addressed when the Labour party designed it or that have since been addressed. It is interesting to hear one of my predecessors’ anxiety about people with multiple jobs, as the previous Government decided not to do anything about them—I wonder why; I know why, and I will come on to that.
The whole debate has been founded on one misconception and one blind spot. The blind spot was the staggering omission in almost all the speeches by Opposition Members, particularly the shadow Minister’s, of any assessment of the burden on the employer who has to administer auto-enrolment. The shadow Minister probably has the script of what she said, and if she can find a single reference to that in her whole contribution, I want her to read it out again, because there has to be a trade-off.
We are requiring more than 1 million employers, many of whom have no pension system at all, to bring people into workplace pensions. We are doing that for the good reason that we think workplace pensions are important, but that has to be proportionate. The problem with simply saying that if we raise the threshold, we exclude people—with absolutely no reference to the impact on the firms involved—is that every time we keep the threshold down, we are incurring costs on employers, particularly smaller firms that are more likely to employ people in the lower earnings bands, to introduce contributions that will sometimes be of pathetically small amounts.
The Committee should understand that we are proposing a trigger for people being auto-enrolled, which will be a figure that is lower than the start of the earnings band, so that once someone is above the threshold a worthwhile sum of money will be paid in. However, amendment 28 would realign those figures at the same number, which means that if someone earns £1 above the threshold, 8p will go in—3p from the firm, 1p from the taxpayer and 4p from the employee. We would be requiring Britain’s small businesses to choose a scheme and to put 3p into someone’s pension, which would bring the entire scheme into ridicule and disrepute.
If the nation’s small employers rose up as one and said, “We are coming out of recession and times are tough—you want us to take people on, but now you are making us choose a pension and make contributions, all for the sake of pennies,” we would be laughed out of court. People would think it was an absurdity, but that is what amendment 28 would do.
There are two aspects of what the Minister is saying. First, the onus of choosing a scheme is surely not so great since the employer can use the NEST scheme. One reason for setting that up was that it was acknowledged that many small employers would find it difficult to set up their own scheme, and such a scheme has been very much lacking in the past. Secondly, many small employers will have people who are just above the threshold, and employers will therefore still have the burden of setting up and operating a system, so why is including those other people so much greater a burden?
On the first point, NEST is available, and we will flag it when we communicate with employers. They will still have to make a decision and the Forum of Private Business, for example, is anxious about that choice. We are trying our best to make that decision as easy as possible, but some employers are worried that they might be sued if they make the wrong choice. If we are putting a duty on firms and trying to make that duty proportionate, we cannot expect them to enrol people for contributions of pennies. I find it incredible that the legislation we have inherited includes no concept of a minimum amount, but that is the case.
The hon. Member for Leeds West also said that when people earn above the threshold, the process will have to be in place. However, as the Bill stands, if the one employee of a one-employee firm is earning £6,000 a year, auto-enrolment will not be necessary. I will now come on to the figure, because I intervened on the hon. Lady to give her a gentle steer that her amendment was based on a misconception. She quite rightly said that last year the primary threshold, which is what amendment 28 proposes to insert in the Bill, was £5,715. However, since then it has gone up dramatically—not only by normal indexation but by £1,500. If we took amendment 28 at face value, therefore, we would be substituting £7,225 for the £7,475 in the Bill; so we have been having an hour-long debate about 250 quid. That is the difference between what the hon. Lady is proposing and what we are proposing in the Bill—although I accept the point that over time the amounts might diverge. The hon. Member for Nottingham South then intervened and read out some jobs which, if done part-time, might fall below our £7,475 threshold. However, if they were £1,000 or so below—the figure she quoted—they would all be below her threshold as well, because the primary threshold is much higher than she thinks. So the whole of the past hour has been based on a false premise.
When the legislation was introduced, the uprated version of that old £5,000 was well below the tax threshold, but something dramatic changed this year, which means that a lot of the figures quoted by the hon. Lady—her 1.5 million, her 800,000—are wrong because, compared with what is presumably the default position of the policy under amendment 28, far fewer people are excluded by the Bill than she suggested.
Will the Minister therefore update us on the differences between the new national insurance threshold and the PAYE threshold, including what proportion of those affected are women, and between the new NI threshold and the £10,000 that is the Government objective for the PAYE threshold, again including the proportion of women?
I thought the hon. Lady might ask me that. The system includes many different thresholds. The old £5,035 which is in the Act—the primary threshold—is now £7,225. The Bill uses the income tax threshold, which is £7,475. Going from the £5,035 to £7,475, we get the 600,000 number that she has been quoting. However, out of that 600,000, more than 500,000 are taken out by her amendment, so the difference between her number and our number is about 70,000 this year. I accept that that will grow as the threshold goes up. If the tax threshold were to go up to £8,105 next year, we are talking about getting on for another 100,000. If we go up to £10,000—remember that that is nominal—the Johnson review said 1.4 million, but we have just knocked out about 500,000 because she wants to go to £7,225, so we are down to 0.9 million. However, that is based on £10,000 today, not on £10,000 by the end of the Parliament, which is the coalition agreement commitment, so those are all overstatements of the impact.
The hon. Lady is absolutely right that there are more women than men in those bands—that is clearly true—so the measure will have more impact on women than men. I do not dispute that for a second, but the proportions of women and men are pretty much the same—the extra thousands do not radically change the proportion. If we look at the move from £5,035 to the tax threshold, 78% of the people excluded are women; if we move up to the new tax threshold next year, it is 76%; and if we move up to £10,000, it is 77%. So the principle—the fact—that there are more women low-paid workers is given, so the policy has greater effect on women than men.
Intriguingly however, if we take the Labour party approach, less money would be required from many lowish-paid workers under auto-enrolment than we will require, because Labour wants to apply contributions only above the £7,225 number, whereas we want to apply them back down to something like the lower earnings limit—a number of about £5,000 that has not yet been determined. In other words, once people are above the trigger, they will pay on the band of earnings down to the floor, whereas the Labour party position is that once people are above the trigger they pay on the marginal penny. So people who are above the trigger—on, say, £8,000 in 2011-12—will put more money into their pensions under our proposals than under the amendment. We have heard so much about how important it is for low-paid workers to save, but £8,000 or £9,000 is not well paid, and many of them would put less in under her proposal than under ours. That is the fundamental problem with the amendment.
There was a suggestion that with our proposal there will be a cliff edge, but it will be relatively modest. If an earnings band starts at, say, £5,000 and the trigger is £8,000, the band would be applied to the £3,000, and 8%, when it is all fully in, is £240, or £5 a week. That is split between the employee and the employer, so it is a couple of pounds a week. That is a step, and we think it should be a step to get people in, but it is not the massive cliff edge that has been suggested.
Let us suppose that auto-enrolment starts in 2012, and we use the income tax threshold of 2012-13, which the Chancellor announced will be £8,105. A decision has not been made, but if we used the earnings band down to the lower earnings limit of £5,500, the band would apply on around £2,600. As the right hon. Gentleman knows, 8% of that is about £200. That is the sort of combined amount that would be going in. In pension terms, £200 is small, but worth having, as we have heard, but that is not the penny or 2p that would follow from amendment 28. It is certainly a small amount, because a large amount would create a cliff edge, so there is a trade-off.
One point about the Johnson review, which has been widely talked about, is that it looks at all the pieces of the jigsaw, and suggests a trade-off on earnings, on waiting periods, and on size of firms. The review tries to achieve a balance, and to take all the measures together instead of taking one out and changing it. For example, I said that I was worried about the burden on firms, but we have not excluded micro-employers, which we were pressed to do. Some people said that we should exclude them, but we said no, we must have everyone in because we do not want to exclude another 1 million people just because they do not work with someone else. However, we recognise the burden on small firms, so we raised the threshold and introduced the waiting period. It is important to see all the different elements as part of a whole, instead of picking apart individual bits and unbalancing them. The impact on employers is significant, and the change helps with that.
The Johnson review considered that, but so did the Turner report before it. In fact, Lord Turner was head of the CBI at the time. Those different perspectives—the trade union perspective and the employer’s perspective—were considered in the review, which recommended that automatic enrolment should start at the national insurance limit, not at the PAYE limit. Does the Minister think that Lord Turner got that wrong?
In addition, people may enrol at a lower earnings level, even if they are not automatically enrolled. Will that make a mockery of the system?
The hon. Lady raises a series of points. Clearly, Lord Turner was making judgments in a very different economic world. It was pre-crash, and since then we have acquired new evidence on longevity, as we have discussed. The situation on annuity rates is very different, and the coverage of private pensions has changed. One reason for setting up the review last summer was that the world has moved on. We are post-crash, and coverage of workplace defined-benefit schemes has declined. The situation is different, and the point that I made at the start about the primary threshold being much closer to the tax threshold was not the case when Turner wrote his report. If it had been, he might have come up with different answers.
The hon. Lady says that people may opt in, but there is a world of difference. The fact that they may opt in is crucial. For example, people who have had higher-paid jobs in the past but now have a lower-paid job may be excluded by the threshold. However, because they have connections to pensions and are aware of them—they may have a NEST, for example—they are more likely to think about that issue. Such people are not excluded by our Bill; they can opt in. There is a world of difference between an engaged employee opting in and a reluctant employer being forced to enrol people for trivial amounts of money. It is good that people can opt in, and it will provide a measure of reassurance for those in whose interest it is to be auto-enrolled, even if they happen to be below the threshold.
The Minister says that things have changed since the Turner report. As he knows, three people sat on the Pensions Commission: Lord Turner, John Hills and Baroness Drake. Has the Minister consulted any of those people about the changes in the Bill? Do they think that it is the right way forward and have any reservations been expressed?
Since the election, I have discussed pension reform—including some of these measures—with Baroness Drake and John Hills, although not with Lord Turner who, as the hon. Lady will understand, has one or two other things on his plate. The hon. Lady will know the views of Baroness Drake, who is a Member of the other House and speaks on behalf of the Labour party in another place. I have the greatest respect for Baroness Drake and her expertise in these matters, but unsurprisingly her emphasis—perhaps reflecting a trade union background, I do not know—falls more on the side of the individual consumer and I understand that.
These issues need balance, but we did not hear anything about the other side of the balance from the hon. Lady, and there was nothing about the burden on the firm that has to administer these matters. The Government have introduced a three-year moratorium on regulation for all small firms because of the crucial importance of those small firms to recovery from the recession. To design an amendment that, if it did what she intended it to do, would put a lot of burden on small firms, seems to miss an important part of the debate.
The previous Government tried to recognise the impact on small firms by phasing auto-enrolment and starting it earlier for large companies while allowing it to take place much later for small companies, particularly in view of the economic circumstances. By the time that many small businesses become eligible to participate in the scheme, hopefully we will have seen some sort of recovery.
I hope the hon. Lady is right and that in a few years, by the time smaller firms are phased in, we will be in a much better place. But a burden is a burden is a burden. There will still be a cost for the smallest firms and some sectors will still struggle. We should not put costs on those firms for no obvious benefit. Many employers will recognise the value of workplace saving, even if they have not got around to organising it for their employees, and they will take part in auto-enrolment with good grace. However, we will lose the good will that is a crucial part of the system if people are seen to be doing something futile by putting pennies into pensions. I have not heard during any intervention a sensible response to the fact that if the Bill is amended in the way suggested, people will be putting pennies into pensions. That will create a great deal of hostility to the reforms.
The context of the reforms and where people get their information from is important, and the point about “Is it worth my while saving?” is crucial. If we do not reform the state pension in the way we have discussed, there is a danger that people will perceive that their savings are simply replacing the means-tested benefits that they would otherwise have received—that returns to the point raised by the right hon. Member for Croydon North.
We have heard the detailed and thorough statistical work carried out by the Department, which suggested that 95% of people would get back more than they put in although not necessarily more than what they and their employer put in. If at the time of auto-enrolment, stories in the press say, “Don’t touch this thing with a bargepole if you are on a low wage; you will lose your means-tested benefits,” the people whom we most want to benefit from the policy and about whom Labour Members are most concerned, will not save. That will fatally undermine the whole project.
We have been asked how this policy interacts with our Green Paper reforms, and that is why our state pension reforms are so important. The hon. Member for Leeds West asked how that proposition might affect this conversation, and it does so profoundly. It would greatly reward saving which, as we have heard, we want to do. The other thing that it does is to greatly increase replacement rates for low earners. Replacement rates matter a lot because, if we are to go to the trouble of auto-enrolling people on a low wage, there must be a point to it. If we are auto-enrolling people on £7,000 a year, and paying them a pension of £7,000 a year, why are we going through all that to take a bit off their £7,000 now to add a bit on to their £7,000 so that they have more money in retirement than they have in work? That seems a strange thing to do. Therefore, the single-tier proposition that we ought to enrol from a slightly higher threshold, not a lower one, is complementary and reinforces the Bill.
The hon. Member for Erith and Thamesmead cited the Australian example. She is right. I recently met Senator Sherry. He told me that he comes over each year and meets a different Minister each time, which I was not wholly reassured by. As the hon. Lady says, he is in charge of the “super”, and it has been a great success. She will be well aware that it is more than auto-enrolment in Australia. It is compulsory pension saving, but it illustrates the difference that can be made from such a system and, indeed, the popularity of pension saving when it is done well. We have gone for soft compulsion, recognising that, for some people, pension saving is not the right decision. We have mentioned that today. There may be a set of people for whom it is not the right decision, and that is why we have left them the freedom to opt out.
The hon. Lady asked about the 2017 review, which will be conducted by my successor but five, I suspect. I do not want to pre-empt that, but she has tabled new clause 7 about NESTs and transfers, so I shall not deviate too far down that track. Clearly, the Johnson review considered that those limits should go in 2017, and we might revert to that issue when we discuss the new clause. The hon. Lady asked several practical questions about agency workers and so on, and the crucial matter is the employment relationship: whether they are employed by the agency or the people whom they are to work with. It is the employer who has the auto-enrolment duty.
There was some pressure on us to exclude agency workers, but we said, “No, those are classic people. They might do lots of different jobs, but never get a pension.” It is important to include them, but clearly there will be enforcement issues. The right hon. Member for Croydon North asked about unscrupulous employers, and I just want to say, as it will be relevant to all our debates, that the Pensions Regulator will issue a contract to pay for enforcement. The enforcement and compliance regime is designed to be fundamentally carrot, supportive, encouraging and to make it easy for firms, but it will have powers to penalise and fine if things go wrong.
I had a meeting with the Pensions Regulator yesterday when we discussed the contract for the compliance regime. It is something that we take seriously, and we want to make it as easy as possible for firms to do the right thing, but we know that there will be a minority that do not. We therefore have the powers to act and to fine, and to take other steps. In response to the right hon. Gentleman’s specific question about the firm that says to the employees, “Sign this, and we don’t have to bother about it,” he will know that that is not how it works. The auto-enrolment relationship is between the individual and the pension provider, and the opt-out has to go from the individual to the pension provider, not the firm that provides a measure of insulation. We cannot prevent such conversations from happening, although it is an offence to induce people on the opt-out issue. Firms are not meant to put undue pressure on individuals, but we will have a compliance regime.
I understand that, and I agree that insulation is helpful. Nevertheless, such a conversation could still take place between the unscrupulous employer and people joining the company. Will the Minister explain how the Pensions Regulator, which has many other responsibilities, will police the matter, for example, if it were shown statistically that 80% of new entrants were not joining the scheme? Would the Pensions Regulator have that data? Would it be able to intervene?
The regulator will be monitoring compliance. That will be a huge task, because many such firms will be micro-employers and do not have employees in workplace pensions. There will be the ability for the aggrieved individual to contact the regulator and the agencies in respect of the enforcement, and to say, “Hang on a minute, I’ve just been lent on”. The individual can report it. The auto-enrolment process has to happen. That is the duty and the regulator will know if that has not happened because they will be logging the auto-enrolment. If someone opts out, that might be genuine. The regulator will not be able to tell between genuine opting out and leant-on opting out. That is where, inevitably, an individual who feels aggrieved will be able to report it. If they do report it, it will be taken seriously and there are statutory penalties where improper processes have gone on.
I am sorry to push this, but this is a good policy that I do not want to fall foul of unscrupulous employers. Will the regulator or NEST or someone be required to publish regular data to show what proportion of the employees of the firms involved have auto-enrolled, so that we can monitor this?
The way it works is that employers have to register with the regulator. The regulator can compare the data that it is getting on auto-enrolment with PAYE data. That is the cross-check that is available. Inevitably, a risk-based regulator, which was what the previous Government created, will focus its resources on cases where opt-out rates look suspiciously high. That will not cover the one-person firm. In that case, it will inevitably rely on the individual complaining. If there are firms of a reasonable size who show up as having disproportionate numbers of opt-outs—for example, for their industry or for their size—the regulator and the contractor to the regulator, who will deal with some of this, will be able to take action on a risk-based basis.
We do not want to create massive burdens of reporting, but we will certainly be reporting back to the House on the progress of auto-enrolment. I can write with further details of exactly what we will report and how much the regulator will report. We will keep people informed as to how auto-enrolment is working. I am sure that there will be a lot of interest in that.
A number of hon. Members raised the issue of multiple jobs. It is an important point, which, as has been said, may become more important. Amendment 37, which was tabled by the hon. Member for Erith and Thamesmead, would require the Secretary of State to report to Parliament on trends related to part-time work within one year of the commencement of the universal credit, but universal credit is being rolled out. After the first year it will apply to only a limited number of people. Even the most optimistic of us think that it is too soon to report on a major shift in part-time work from the partial roll-out of universal credit. She raises an important issue, however, on the place of part-time work.
It is worth not overstating the issue of multiple jobs. I asked for some figures on how many people have multiple jobs and would have a problem with not being auto-enrolled as a result, if we use the £7,475 threshold, which is a tough test. At first glance, it looks like a big number. Some 540,000 people have more than one job and fall within the age bands for auto-enrolment, but of those 350,000 are above the £7,475 threshold in one of the jobs. They will be auto-enrolled—not on all their earnings in all their jobs, but within that multiple employment there will be one substantive employment, so they will be getting into pension saving and will be aware of it. There are 80,000 for whom both their jobs are over the £7,475 threshold. Perhaps that includes the constituent of the right hon. Member for Croydon North. There are another 60,000 who, even if their two wages were added together, would not get over the threshold. I hesitate to call them mini-jobs, but hon. Members know the territory we are in. They are very small jobs.
Taking out those categories that are less of an issue, because they are either auto-enrolled anyway or earn too little, there are 60,000. Those 60,000 people clearly matter, but if we set up a complex system to deal with those people who, if we could add their two jobs together would be auto-enrolled, but when they are taken separately are not auto-enrolled, that would be quite a challenge. For example, if someone does cleaning for two people, and the two jobs together would get them over the threshold, whereas separately they would not, what would we say? Would we say that the two employers have to each nominate a scheme to auto-enrol into, which would have to be the same one? Would the contributions be split? The overall amount would be tiny because it would be half of the threshold. As soon as we start thinking about how we might do it, we start to realise why the previous Government did not do anything about it.
I recognise that the issue is not a simple one to fix, and I am not proposing that there is an easy way to deal with it. As well as the people whom the Minister just said would miss out, does he recognise that if a person had two jobs that paid £8,000 each, the person would automatically be enrolled, but only on the band of earnings between just over £5,000 and £8,000? However, if that person was in one job earning £16,000, they would be auto-enrolled into a much larger band of earnings. I know that there is no easy fix, but is the Minister concerned that with the growth of part-time work, and as more people work in such ways, the issue is likely to become bigger in the future? Will his Department look at that to try to ensure that those people are not missing out on the pension contributions that they would be entitled to if they were in just one job?
The hon. Lady is right. The problem would be bigger if we chose the threshold in amendment 28, which is £7,000-odd. The situation would be even more acute. However, she is right. If we have a band of earnings and a floor and we split it across multiple jobs, that would be a band that does not get pension contributions. For reasons that we have discussed, we are interested in part-time work and lower-paid jobs. Partly in response to her request for a report, regular annual statistics on part-time work are published. We will certainly continue to monitor those trends and look at the interaction with universal credit, which we have discussed. We will certainly be mindful of the points that she raised. However, returning to my previous point, working out how we might combine the two is quite a challenge. It is not obvious that the administrative structure that has to be in place to make that happen is proportionate to the scale of the problem.
A few other issues were raised in the debate. The hon. Member for Kilmarnock and Loudoun said that we should always encourage people to save, no matter how small the amounts. I am not sure that I agree entirely with her. I greatly value savings and I take her point, and I agree entirely with her point about retirees thinking, “What was the point of saving?” That is part of the point of the pension reforms that we are looking at. However, there is a set of people for whom saving is not the right decision, which is why we have stopped short of full compulsion. We must leave people with the freedom to opt out. Earlier on, it was said that the danger with auto-enrolment would be that if we raised the threshold, we might send a signal that we do not think people should save. However, the converse is true. If we auto-enrol, we are sending out a signal that on balance, it is right to save. The danger is that if we do that for people on very low incomes, who will get a big replacement rate anyway, they may stay in through inertia or through the wrong choices, when it is not in their best interests to do so.
I understand what the Minister is saying. I have heard him say a couple of times that it would not be the right decision for some. Will he encapsulate in just a couple of sentences an example that I could give to my constituents of who those people might be?
If we follow the Bill, we are talking about auto-enrolling at about £7,500 in this year’s prices. Let us suppose that we introduce the £140 pension, which is £7,000 a year. Just to deviate slightly, we have discussed how small pots can turn into capital for a home extension, and that is clearly true. However, the amount of money that people would be putting in at such income levels would be tiny. The question is whether it would be in the interests of a hard-pressed, low-waged mum, for example, to add a couple of pounds a week of private pension to her £140 pension, or whether she needs the money now. Clearly, that would be her choice. An opt-out means that it would be her choice. However, we are enrolling her.
I have turned slightly to arguing about amendment 28, but clause 5 will take us from £5,000 to £7,500 in rough terms, and that is the major point. The argument between £7,200 and £7,400 is neither here nor there. With a threshold of £5,000, we might say to a mum who is on £5,000 a year, “We are putting you into a pension because it’s really important that you save. You are on £100 a week; when you retire you will be on £140 a week, but we think it is important that you should be on £99 a week now so that you can be on £141 when you retire.” I am not convinced that that arithmetic works.
I made this point earlier: the Minister is presenting a static and gloomy view of society, is he not? Basically, he is saying that the single mum who is earning tuppence-ha’penny is always going to be poor and on a low income, and that she is on a dismal escalator towards getting means-tested top-ups in old age. Yet his own Government at least pay lip service to the idea of training and skills enhancement—to the role of the jobcentre in getting people into better work. Surely he should be more optimistic about the capacity even of people on low incomes to progress, or has he totally abandoned the idea of social mobility?
As I mentioned, I think I have done my bit for social mobility with the Wicks family already. Socially mobile people who move up the income scale will be auto-enrolled—the second they go over the threshold, they are in. All we are doing in the measure is taking out of auto-enrolment people who would be putting in tiny amounts of money. If someone has a brief spell on a low wage before training, universal credit, the Work programme and all the rest of it get them on to a damned good job, most of their lives they will putting good sums in and will get a good pension. The fact that they did not put a few pence into a pension when we excluded them for a year will make practically no difference to their living standard in retirement.
In the depressing scenario that people are persistently on a low income throughout their lives, the replacement rate is very high without auto-enrolment. If they generally have a decent wage but have a spell of low wages, that low-wage period will make very little difference to their final pension outcome. In fact, the situation is much more positive than the right hon. Gentleman suggests.
The hon. Member for Leeds West asked about the £10,000 and so on. The Johnson review weighed up the issues. On page 155 it recommended that, as in the Bill, the annual earnings threshold be aligned with the threshold for paying tax. I reiterate that it would be an awful lot simpler for employers and firms to combine the threshold for auto-enrolment with the threshold for running PAYE, but although it is attractive to do so, the Bill does not provide for that. We choose the number, but we leave ourselves the flexibility, which the hon. Lady’s amendment does not have, to decide each year what the right number will be.
It might be that £10,000 is an option. Interestingly, Johnson et al said:
“In particular, we consider aligning the threshold at which a jobholder is automatically enrolled with the income tax threshold to be consistent with the Government’s stated aspiration to increase the tax thresholds to £10,000 in nominal terms”.
In other words, although Johnson knew that we were considering £10,000 in nominal terms at the end of the Parliament, he did not think that the arguments for the thresholds that he was choosing and the arguments for not going too far were undermined by our plan; he thought that those matters were consistent. However, we have not taken a decision on the figure. We have said that we will have flexibility, as is apparent in subsequent clauses, to look each year at things such as part-time work, the national insurance thresholds and the tax thresholds and make a judgment. There is a strong argument for using the tax threshold, but we will consider the evidence and the impact before doing so.
The whole point of the clause is that enrolling at £5,000 uprated is too low. It would bring in people who probably should not be saving and people who would be putting in tiny amounts of money. At least for now, alignment with the tax threshold gives employers simplicity and removes some very heavy burdens on firms who employ low-paid people. It does not have a major effect on most people’s long-term pension incomes, because people who earn more later in life will be auto-enrolled anyway. We believe that it strikes the right balance, so I urge the hon. Member for Leeds West not to press the amendment to a vote.
I have enjoyed this morning’s debate and the contributions that hon. Members have brought to it. The key point about automatic enrolment has been emphasised by many hon. Members this morning: it nudges people into saving for their retirement and they do not get such a nudge under the current system. However, as my hon. Friend the Member for Kilmarnock and Loudoun and other hon. Members said, the measure also sends a message to those who are not automatically enrolled. The nudge to them is that pensions are not right or suitable for them, so many of them will choose not to opt in, even if it might be in their interests to do so in the long run.
The Minister has talked about the burden on businesses, and small businesses in particular. I believe that Lord Turner and his commissioners looked at those issues as well. In their range of measures—the increases in the state pension age, the earnings link for pensions, and automatic enrolment—they found a balance between burdening businesses, which no one wants to do, and ensuring that people get the pension income in retirement that they need in order to make choices on how to achieve a decent standard of living. The UK is not the only country to embark on automatic enrolment; as I mentioned earlier, in New Zealand there is the KiwiSaver, and although they go further than us in Australia, their superannuation scheme brings people into the pension system on a much wider range of earnings. We also have examples in this country where people are already automatically enrolled into pensions. The Tesco scheme, for example, automatically enrols workers.
As hon. Members have mentioned this morning, we in the Opposition want to achieve the maximum benefit from automatic enrolment. We believe that the maximum benefit will come from automatic enrolment at the national insurance threshold. We also believe that starting automatic enrolment at a lower level of earnings instils in people a habit of saving and leads to the persistence of savings. The Minister did not mention the habit of saving in his speech, but evidence from the KiwiSaver shows the importance of that. My hon. Friend the Member for Erith and Thamesmead talked about the habit in the Australian system, and my right hon. Friend the Member for Croydon North talked about the savings culture that is so important.
Members also spoke about the importance of the persistence of savings. My hon. Friend the Member for Edinburgh East talked about the nudge into saving, even before people fully engage with pensions, and how that persistence can pay back in later years. My hon. Friend the Member for Kilmarnock and Loudoun talked about the importance of saving over a number of years, and how those small pots of money can all add up in the end to a substantial retirement income which can make a huge difference to people who do not currently have those savings to rely on. My right hon. Friend the Member for Croydon North talked about the importance of credit unions in building up a culture of saving, and the importance of the persistence of saving, even if it is just £1 or £2 a month. It may not seem like much, but £1 or £2, or even a few pennies a month, over the period of a working life from say, 18 to 66, can turn into a chunk of money that gives people real options in retirement that they would not have had if they had not saved small amounts, month in, month out.
My hon. Friend the Member for Edinburgh East also talked about the importance of tax relief and employer contribution that people would miss out on if they were not automatically enrolled. Not only would people not be contributing themselves, but they would miss out on that 4% of income that would have been saved towards retirement through tax relief and employer contribution. Again, this can make a big difference to pension savings. It is not just that the individual is not putting something aside, but by not automatically enrolling this group of people into workplace pensions, they are also being excluded from the benefits of tax relief and employer contributions.
My right hon. Friend the Member for Croydon North sums it up well when he says that the bias should be towards including, not excluding. He made a point about the dynamism of the labour market, whereby people move from lower-paid jobs and part-time work to higher-paid and full-time work. He also talked about some of the radical reforms in the state pension, which would make the bias towards inclusion even stronger, if a flat-rate pension were to be introduced at some point in the future.
I wrote in my notes that I would talk next about mini-jobs, but in order not to offend my hon. Friend the Member for Kilmarnock and Loudoun, I will rephrase it as part-time jobs. There was much talk about that this morning; my hon. Friend the Member for Nottingham South spoke about the number of people doing part-time jobs today, and gave some examples that she found just this morning of people who would miss out on automatic enrolment because of the increase in the threshold.
There is clearly a difference between our threshold and—[ Interruption. ] Well, there is clearly a difference. In amendments 31 to 34, there is a much bigger difference of £2,000 or more as the threshold rises to £10,000. Does the Minister not agree that if the threshold rises to £10,000, the difference would exceed £2,000? He says from a sedentary position that he does not, but if the Government’s proposals to raise the PAYE threshold to £10,000 proceed, the difference between the national insurance threshold and the PAYE threshold will rise to more than £2,000. The Minister said that about 900,000 people would be affected, 78% of whom are women. That is a huge difference in the number of people who would benefit from automatic enrolment. Under Labour’s plans, about 7 million would benefit; under the Government’s plans, about 1 million fewer will benefit if the threshold rises to £10,000, as the Bill provides for.
My hon. Friend the Member for Erith and Thamesmead discussed how the problem is likely to grow over time as more people work in part-time jobs. Although that might benefit their incomes, more people will lose out on the benefits of automatic enrolment. If the Government’s ambitions in the Welfare Reform Bill for more people to do part-time work materialise, even more people will miss out who would benefit from automatic enrolment in a pension scheme. My right hon. Friend the Member for Croydon North discussed his constituent, “Jill Brown”, who did several different jobs during the course of a day. People such as Jill Brown will not benefit from automatic enrolment.
Although I recognise, as my earlier question to the Minister stressed, that there is no easy fix on some of the issues, I hope that he will go away and consider them in conjunction with the Welfare Reform Bill to ensure that the people who could benefit from saving for a pension do so, even if the solutions are not always straightforward or easy. If we do not find solutions, more people who have earned average or slightly below-average incomes throughout their lives will find that they were not automatically enrolled because they did more than one job, and will miss out on a decent pension in retirement. That is an important and growing issue.
Other hon. Friends mentioned temporary and agency workers and asked who is responsible for them. I welcomed the Minister’s comments on the role of the Pensions Regulator in compliance. As my right hon. Friend the Member for Croydon North said, there are unscrupulous employers, and it is important that people are not hoodwinked into thinking that opting out of automatic enrolment is the right thing to do, even if they are tempted in the short run and their employer encourages them to do so. It will be interesting to see over time what statistics and reports the Minister’s Department publishes on the success of automatic enrolment. It would also be useful to see levels of automatic enrolment by income band and size of firm, so that we can establish whether there are issues that we need to face.
Other hon. Members mentioned the flat-rate pension. It was good to hear a lone voice from the Government Benches; the hon. Member for Eastbourne spoke about paying to save. Although I might not agree with him on everything—I believe that for the vast majority of people, it does pay to save—I welcome the fact that he is engaging in the debate and is willing to consider the issues.
As hon. Members, including my right hon. Friend the Member for Croydon North have said, the interactions between the flat-rate pension that the Minister is keen to pursue and automatic enrolment are important because the issues of paying to save are likely to be much less important if the flat-rate pension is introduced. If that flat-rate pension is introduced before the 2017 review into automatic enrolment and NEST, I hope that the Minister will at least look at the issue of the earnings threshold before then. Some hon. Members have made the point about savings being taken away in terms of being means-tested away. Those issues will disappear with a flat-rate pension.
To conclude, the Turner review delivered a consensus around the national insurance threshold. I am disappointed that the Government are watering down some of the provisions of automatic enrolment because, as my right hon. Friend the Member for Croydon North said, I believe that the bias should be towards including not excluding people and opting people into pensions to help them build up the pensions they need to secure a decent standard of living in retirement.
I am reassured by some of what the Minister has said. One of things that concern me is that he talks about the burden on employers. I would say that employers are part of society and that there is a difference between a burden and a responsibility. Employers have a responsibility towards the people they employ because it is by employing people that they make their profits and further their business. I differ with the Minister on that because I see the matter as a responsibility rather than a burden. I asked a specific question, which was a little bit niche, about the hospitality industry and whether there will be special guidance for that, because much of people’s earnings in that sector is made up of tips and gratuities, rather than earnings from their salaries. I would be grateful if the Minister could consider that. If he cannot respond now, perhaps he will write to me on that issue.
I am somewhat reassured and I take the point that it would not be possible to ask for a report within a year because of the roll-out. That is something I obviously had not considered. However, there is a principle involved in looking at part-time earnings again because they will change. Although I also do not like the term mini-job, it is used a lot. How people currently work will fundamentally change under the universal credit and we need to bear that in mind. I have been somewhat reassured, so I am happy not to press my amendment to the vote.
Amendment made: 6, in clause 5, page 4, line 39, leave out from beginning to end of line 14 on page 5 and insert—
(1) This section applies to a jobholder—
(a) who is aged at least 22,
(b) who has not reached pensionable age, and
(c) to whom earnings of more than £7,475 are payable by the employer in the relevant pay reference period (see section 15).”’.—(Steve Webb.)