My Lords, I am pleased to add my support to my noble friend Lady Altmann’s Bill. This legislation would bring into workplace pensions more younger people, women and those in part-time work, including workers not already benefiting from an employer pension contribution. My noble friend eloquently set out further detail of the Bill, its benefits and its beneficiaries.
The Government are committed to building on the success of automatic enrolment to date with a stronger, more inclusive savings culture for younger people. The noble Baroness, Lady Sherlock, was right to remind us of some of the historical context. My noble friend’s Bill would expand the automatic enrolment framework, which was one of the most radical reforms to the pensions landscape since Lloyd George enacted the first state pension nearly 120 years ago. This Bill builds on the undoubted success of workplace pensions and sits firmly within the political consensus established by the independent Turner commission, on which the noble Baroness, Lady Drake, served, as has been mentioned, and which set out the road map for these reforms in 2005. I add my name to those who have paid tribute to the noble Baroness in this respect.
I want to move straight on to the subject of small pots, which was raised by the noble Lord, Lord Davies. I hope that I can help in providing some answers because I agree—he is right to raise this issue—that the growth of deferred small pots is a huge challenge for the workplace pension market. We know that it acts as a burden on providers, reducing the value for money that pension schemes can provide and negatively impacting retirement outcomes for their members.
I assure the noble Lord and the House that the Government are taking decisive action to address this issue. We are consulting now on our ambition to deliver a framework for a default consolidator approach, which will enable a small number of authorised schemes to act as consolidators for deferred small pots in order to provide greater value for money for their members. In this way, we are working to address the current and future stock of deferred small pots. I note the comments made by the noble Lord today in this respect; we would very much welcome his contribution to the consultation if he has not already given his views, as I suspect he may well have done.
I turn to some of the points made by my noble friend Lady Altmann and the noble Baroness, Lady Sherlock. We had an interesting, brief debate on the lowering of the age limit, which we reckon is about right at 18. The Bill provides for regulation-making powers to reduce the age for AE, rather than setting a specific number. This has been done to avoid pre-empting
the statutory consultation. We do not wish to close off our ability to respond openly and thoughtfully to stakeholder proposals.
The 2017 review found 18 to be the appropriate minimum age for automatic enrolment. The current minimum of 22 has failed to keep pace with changes elsewhere, such as to the national minimum wage. The lower age also aligns with the entitlement to social security benefits, such as universal credit. Moving to 18 is seen as an effective way to embed the habit of workplace pension saving for young people as they start work for the first time. Indeed, the Government’s commitment for young people below the age of 18 in England and Wales to remain in education or receive training and employment through apprenticeships has resulted in a decrease in 16 and 17 year-olds in the labour market. Workers aged 16 and over will still be entitled to opt in to AE and receive an employer contribution if they choose to save into a workplace pension.
I also want to touch on pension tax relief. The Government recognise the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the income tax personal allowance. This picks up on some points raised by my noble friend Lady Altmann. We have announced a new system that will make top-up payments to low earners in net pay schemes, many of whom are women—I think that she made this point—to address the net pay relief at source anomaly. The Treasury has confirmed that this will be introduced for contributions from 2024-25 onwards. In 2025-26, we estimate that up to 1.2 million individuals, 75% of whom are women, could benefit from top-ups worth on average around £50 each year. The Office for Budget Responsibility assesses that the cost to the Exchequer could be between £10 million and £15 million per year.
My noble friend Lady Altmann also raised the issue of low earners, as did one or two other Peers. The AE framework has an earnings trigger that is set at a level that aims to bring those individuals for whom it pays to save into pension saving automatically. The Secretary of State must review this trigger each year to help to make sure that it remains appropriate. As my noble friend mentioned, currently the trigger is set at £10,000. However, if an eligible worker earns below this amount, they can still choose to opt in to a workplace pension if they want to save, as mentioned earlier. The Bill is the essential first step to allow the expansion of AE. The Government are clear that these measures are the best route to enabling low and medium earners to save more, with more workers benefiting from the employer contribution to help them to build their retirement savings.
I will now move on to a few general comments about pensions and, indeed, the state pension, which was alluded to by the noble Lord, Lord Davies. I hope that I am not going too far in terms of his remarks, but hopefully this will set the scene a bit. I reassure the House that we believe that the state pension remains the foundation of the UK pension system. In April 2023, the state pension saw its biggest ever cash increase,
rising by 10.1%, so that the full yearly amount of the basic state pension will be over £3,050 higher in cash terms than in 2010.
Workplace pensions sit on top of that foundation, helping to maximise individual retirement saving. This is an approach guided by the work of the independent Pensions Commission, which made clear the importance of reinvigorated private saving to help individuals to achieve their retirement aspirations. The Government continue to support the success of automatic enrolment, which has seen 10.9 million workers enrolled into a workplace pension since 2012, with an additional £33 billion saved in real terms in 2021 compared to 2012.
I move on to a more substantive point raised by the noble Lord, Lord Davies—I think that he mentioned it twice—which is what we are doing to reduce the gender pensions gap. As he will know, the pensions gap is a complex issue tied to the labour market, the pensions system and demographic differences, but one that the Government take seriously. We remain committed to implementing the 2017 review measures, which will disproportionately benefit lower earners, including people working in multiple jobs, who are predominantly women.
Going back to the basic concept of automatic enrolment, AE came along at a time when the UK was towards the very bottom of the OECD league tables on retirement saving. A radical reversal has taken place in the past decade putting us close to the top, with the UK now having the largest pension market in Europe. I pay tribute to those, some of whom are in the House today, for their efforts to make this happen.
In the private sector, workplace pension participation for eligible employees has increased from 42% in 2012 to 86% in 2021, representing a 44 percentage point increase. As my noble friend Lady Altmann said, it has been especially transformative for women, low-earners and young people. Her Bill would enable the Government to build on that success and deliver the expansion of AE.
There are a couple of other questions I want to answer—actually, about three—particularly from the noble Baroness, Lady Drake, from the noble Lord, Lord Davies, and from the noble Baroness, Lady Sherlock, on timing, which is a very fair question. The Government are committed to making progress in implementing the 2017 review measures, including lowering the age for being automatically enrolled and reducing the lower earnings limit so that pensions contributions are payable from the first pound of earnings, in the mid-2020s. We have always been clear that implementation of these measures and the timing must be done in a way and at a time which is affordable, balancing the needs of savers, employers and taxpayers, with a suitable lead-in time for implementation. I am afraid that that is as far as I can go on that, but as soon as I have any further detail I will certainly let the House know.
The noble Baronesses, Lady Drake and Lady Sherlock, are right that we need to look at any opt-out rate with great care in monitoring, and I reassure the House in that respect. The noble Baroness, Lady Drake, raised a very important point about AE enforcement. The regulator has a statutory duty to enforce compliance
with employer AE duties. Employers must provide information about AE to each eligible employee, including their right to an employer contribution. If a worker has concerns about whether their employer is complying with the law, they can report their concerns to the regulator in confidence—as I suspect noble Lords will be aware.