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Pensions Bill [HL]

My Lords, I rise to move Amendment 15 and speak to Amendments 16 and 19. The definition of the workforce who will be automatically enrolled into a workplace pension and benefit from the employer compulsory contribution and the tax relief or credit is a very important matter. The reforms captured in the Pensions Act 2008 were intended to achieve very wide coverage of the working population to facilitate them saving from a relatively early age, and for the private pension system to work for women. Our concern with this Bill is twofold. First, Clause 5 excludes 600,000 people from auto-enrolment into a workplace pension by raising the earnings threshold a worker would need to reach, referred to as the earnings trigger, from £5,715 to £7,475. Secondly, Clause 8 gives too great a power to the Secretary of State to raise that earnings threshold and so reduce even further, by potentially some 1.4 million, the size of the working population who will, or could, benefit from automatic enrolment into a workplace pension. Amendments 15 and 16 seek to retain the earnings trigger at £5,715. The purpose of Amendment 19 is to limit the Secretary of State’s power on the extent to which he can raise the level of earnings threshold, once set, to no more than the higher of the increase in prices or earnings. I turn to the reasoning behind our amendment. The Johnson review, commissioned by the Government on the automatic enrolment policy, concluded that the earnings trigger for a worker to be automatically enrolled into a pension should be aligned with the tax threshold, which will be £7,475 from April, and will rise to £8,105 from April next year. As we know, the aspiration of the Government is to raise it to £10,190. The Government accepted the Johnson recommendation and had committed to a figure of £7,475. The presumption of the Johnson review was that the earnings trigger would remain allied and track the tax threshold. Although the Minister has stated that the Government will not necessarily automatically chase the tax threshold when setting the earnings trigger for automatic enrolment, Clause 8 of this Bill amends Section 14 of the 2008 Act and gives the Secretary of State unfettered discretion to do just that, and increase this earnings trigger in line with the increase in the income tax threshold. Given the Government’s aspiration, if the earnings trigger chased a future income tax threshold of £10,190—in 2011-12 earnings terms—a further 800,000 workers would be excluded in any one year from automatic enrolment. Seventy-six per cent of these people would be women. Consequently, of the group targeted to benefit from workplace pension reform, 66 per cent would be men, but only 34 per cent women. So many workers should not be excluded. Excluding a further 1 million people and losing £40 million per annum of employer pension contributions does not support the overarching objective of enabling low to moderate earners to save. It would have a disproportionate impact on those working part-time, of whom 5.87 million are women and 1.94 million are men. Recent labour market figures revealed that some 27 per cent of the workforce is now part-time. These figures also show two peaks in part-time working by women, one which straddles the 30s and 40s age group and one which is post-50. Under the provisions of Clause 8, they could be excluded from the benefit of automatic enrolment for significant parts of their working lives. The Government’s impact assessment and the findings of the Johnson review confirm that such people should not be excluded from being enrolled into a workplace pension, notwithstanding that Clause 8 would allow that to happen. I shall repeat a quote that I used in Committee from the Johnson review. It states: "““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””." If the threshold for enrolling people into a pension is raised to £10,190, it is not sufficient to say that the impact could be mitigated by those earning below this being allowed voluntarily to opt in. It is not credible to expect the lower paid to have to overcome the barriers of inertia but those earning higher incomes can benefit from automatic enrolment. It defies logic. The European part-time workers directive gave many women who work part-time access to their employer’s workplace pension scheme for the first time. It would be a truly retrograde step if Clause 8 allowed the earnings threshold to rise to a level at which it introduced a barrier to so many women participating in workplace pensions. Increasingly, women approaching retirement will not be part of an ongoing relationship. They need to save in their own right. The key principle of pension reform is that it should work for women. The higher the threshold of earnings for auto-enrolment into a workplace pension, the less the reforms will work for women. Raising the earnings threshold too high, and certainly to £10,190, affects the persistency of savings for men, too. Earnings are not static and for many workers, including men, can change significantly over their lifetime. Most low earners go on to earn more, so saving would still be very beneficial because of the enhanced persistency of saving and continuing to contribute to their pension pot over their working life. Relatively few people have persistently low earnings over their lifetime, so it is quite arbitrary to exclude them by reasons of setting a tax threshold at a high level. In Committee, the Minister argued that the Government wish to retain the ability to raise the earnings trigger as high as their aspiration for the tax threshold, of £10,190, on the basis that £7,475 may not be right in the future and the shape of the state pension may change. If the Government proceed to accelerate the flat rating of the state second pension and integrate it with the basic state pension to bring forward a single-tier flat-rate state pension of, say, £140 in today’s terms, subject to the accrual rates and the indexing of that single-tier pension, the number of people who should definitely not be saving will become even fewer. Thus, the argument for significantly increasing the earnings trigger becomes weaker. The Minister has argued that automatic enrolment has to be sustainable and he fears scooping up people who cannot afford to take a hit on their pay packet. But in dealing with that fear the Minister is in danger of excluding millions over time who would benefit from saving; that is, some 1 million people if the trigger is raised from £5,715 to £10,190. The Department for Work and Pensions has produced evidence to show that, for the vast majority, it will pay to save. I do not wish to argue against changes to the income tax system that would benefit those on low and modest incomes, but it is not necessary for what may be considered meritorious reforms to the tax system to result in an unfairness or inefficiencies in the design of the private pension system. Raising the earnings trigger in line with a significantly increased income tax threshold puts barriers in the way of access to incentives to save for men and women. In Committee, the Minister made a commitment to provide an impact assessment for the next five years up to the 2017 review and shortly afterwards. I welcome that commitment. It is very important for the Government to show that they are not amending the proposed workplace pension system so that it ceases to work effectively for women part-time workers and arbitrarily excludes workers from the benefits of auto-enrolment at particular phases of their working lives when it would still pay to save. I have no doubt that the Minister will argue that the earnings trigger for automatic enrolment into a pension should not be set in isolation from the tax threshold. But I argue that it should because they are intended to achieve different things. What might be meritorious in a tax system does not necessarily drive what is sound in the design of a private pension system. It cannot be right that changes to the tax system intended to improve the net income position of low and moderate earners must lead to a reduction in workplace saving by 1 million or 2 million or more people because the earnings threshold for automatic enrolment to a workplace pension has been raised to a much higher level. In Committee, through the Minister, the Government argued that, in uprating the earnings trigger for automatic enrolment, they want flexibility to consider a wider range of economic measures, that pensions law has to last for the long term and that it is prudent to build in flexibility. I absolutely agree that the issue of pensions is a long-term project, which is why stability is so important. Unfortunately, all post-war Governments in the UK have a history of making what they feel, or felt, to be good incremental adjustments to the design of the pensions system for short-term considerations. Inevitably, 10, 20 or 30 years downstream there were sub-optimal outcomes in the strategic sense and a rush around to find measures to deal with that. I worry that the ease with which the earnings threshold for automatically enrolling workers into a pension scheme could be raised so high under the terms of Clause 7 that we would thereby have another example of such an error being made in the current period, which would have a major negative effect in terms of outcomes in the future. Amendments 15 and 16 seek to retain £5,715 as the earnings trigger for auto-enrolment. Amendment 19 seeks to keep broadly constant the proportion of the population covered by automatic enrolment by giving the Secretary of State the power to uprate the value of the earnings trigger by no more than the higher of the general level of prices or earnings and to remove his discretion to increase it in line with increases in the income tax threshold. If there is to be a major change in the earnings trigger, which will exclude perhaps 1 million or even 2 million people from the advantages of auto-enrolment into a workplace pension, I do not believe that that should be done by an order, even an affirmative order. It is of such significance to the outcome of the pension reform programme over time that there should be a high level of awareness of the consequences. People should understand the impact and all interest groups should be involved in that decision. I beg to move.