UK Parliament / Open data

Pensions (Extension of Automatic Enrolment) (No. 2) Bill

My Lords, I congratulate the noble Baroness, Lady Altmann, on sponsoring this Bill. It is in very capable hands. We have heard from her a powerful assembly of the arguments in support of the Bill, which I think people would struggle to second-guess in any way, so I congratulate her.

I welcome the powers that the Bill gives to the Secretary of State to extend the coverage of auto-enrolment to younger people and to remove the lower-earnings limit from the qualifying earnings band. The Secretary of State retains the discretion as to when and to what extent to reduce the lower age limit and the extent to which and over what time period it will reduce or repeal the lower earnings level threshold.

The Government have indicated that they are supportive of this Bill. Can I therefore push the Minister a little to give an indication of when they will implement changes? Presumably it is not intended that the powers given to the Secretary of State will sit and gather dust. It is, after all, six years since the review of automatic enrolment and we are only 18 months away from the mid-2020s—the date by which the Government committed to introducing changes, including the changes provided for in this Bill.

The Bill provides for the Secretary of State to carry out a consultation. I therefore take the opportunity to highlight a few issues relating to younger people and extending auto-enrolment to people below the age of 22. The regulator has been very active and effective in identifying and addressing negligent employers who seek to avoid their employer duties. However, in lowering the age for auto-enrolment, the regulator will have to monitor that the change is working to the benefit of most young people. Many young workers aged 18 to 21 may, because of training, higher or further education commitments, or the types of work available to them, be working irregular hours, part-time or earning more flexible incomes. There is a significant rise in students working out of economic necessity, and younger people from lower socioeconomic groups may be in less secure employment; we saw their vulnerability in this regard during the pandemic

Employers have up to three months from commencement of employment to enrol a qualifying worker. Even then, for those who work irregular hours or earn flexible incomes they need not be auto-enrolled until the first time that they earn over the earnings

trigger, which is currently £192 a week or £833 per month. It will be important to monitor for any emerging labour market behaviours that could undermine the intent of this Bill to benefit young people, such as restricting the earnings or hours of younger workers so they do not qualify for auto-enrolment; not paying younger workers through payroll; or pressuring them to opt out.

There is also a need to be sensitive to how the national minimum wage aligns with the £10,000 earnings trigger. Currently, an 18 to 20 year-old on the national minimum wage of £10.18 an hour and working 18 hours net would not qualify for auto-enrolment. That may therefore exclude a very significant number of young workers being targeted by this Bill. A 20 year-old young mum on the national minimum wage and working 18 hours a week would not qualify for auto-enrolment if it were operating today. With the removal of the lower earnings limit from the band of earnings and access to tax relief, it means that she would lose £900 going into her pension scheme in that year. So there is therefore a sensitivity around that link between hours on national minimum wage and the auto-enrolment of younger people.

The Chancellor’s estimates for improved returns over the working life of pension savers, from greater investment in illiquids and private equity, were predicated on the assumption of saving from 18. That is four years more of saving than is currently provided for under auto-enrolment. There need to be reforms made by this Government before the Chancellor can rely on estimates based on such an early age as 18.

Eligible workers, contrary to everybody’s expectations, have a lower opt-out rate than older workers, so it will be important to monitor the opt-out rates for 18 to 21 year-olds to ensure that that positive trend we are currently seeing is not undermined—that trend being the high number of 22 year-olds remaining in when they are auto-enrolled.

Finally, ONS recent figures reveal that just over 15% of young workers change jobs, compared with 5.1% of employees aged between 35 and 49, so the Government need to push ahead with their small pots solution, because for young people that solution will be very important to the efficiency of managing their savings and for it to benefit them over their working lifetime. I hope the Government will push ahead with the better deal for young people that the Bill—again, I congratulate the noble Baroness, Lady Altmann—will provide.

12.40 pm

About this proceeding contribution

Reference

831 cc2016-7 

Session

2022-23

Chamber / Committee

House of Lords chamber
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