Pensions: Low-income and Self-employed Workers

Question

15:17:00

Asked by

To ask His Majesty’s Government what steps they are taking to encourage greater pension saving, and to improve pension adequacy, particularly for low-income and self-employed workers.

My Lords, automatic enrolment has transformed workplace pension participation, with over 22 million employees participating in 2023. However, we know that many people are still not saving enough to enjoy a financially secure retirement. For some groups, particularly those not eligible for auto-enrolment, such as the self-employed, pension participation remains low. The newly announced Pensions Commission will explore wider steps to improve pension outcomes, especially for those at the greatest risk of undersaving, including low-income and self-employed workers.

My Lords, we welcome the setting up of the commission under the chairmanship of the noble Baroness, Lady Drake. Making the case for saving for retirement is crucial, given that the DWP has highlighted that 15 million people are saving too little for retirement, which is about half the workforce. Currently, helped by extended auto-enrolment, 8% is put into pension pots, with 5% by the employee and 3% by the employer. Pensions experts think that the total, however it is split, should be at least 12%, but lower-paid workers, including the self-employed, earning between £10,000 and £20,000, if they are saving, are in effect saving on average only 5.5%. I am surprised that the commission is not reporting until 2027. Why is that? What can the Government do right now in the meantime, beyond auto-enrolment, to encourage greater savings for retirement?

It is a delight to stand here and enjoy cross-party support for a new provision, and I thank the noble Viscount. On his point about the level of employer contribution, the Government have been clear that there will be no increase in the current rate in this Parliament, but the noble Viscount makes a genuine point about how we make sure that people have enough money in retirement. That is why we have established a new Pensions Commission to look at these issues in the round. The noble Viscount states that 18 months is a long time, but the last Pensions Commission took five years. We are talking about matters that will have an impact for decades to come, and so we need to make sure we have the right steps in the right place at the right time. Auto-enrolment was an incredibly important step that has nearly doubled the number of people saving. No pressure on my noble friend Lady Drake, but she now has a significant job to do to make sure we are fit for the future, so that future generations, including my own, have the right level of pension savings.

My Lords, I too welcome the commission, chaired by my noble friend Lady Drake, and the timetable; a two-year period for something of this importance is right. It gives the possibility of legislation in the current Parliament, so perhaps I will be here to take part in it. Given the timetable and the wide terms of reference, can my noble friend give an assurance that the Government will not be making any short-term changes that might pre-empt the decisions of the commission? The triple lock is the most obvious example, but others include tax relief on member contributions.

I thank my noble friend for his support. I reassure all noble Lords that this Government and our party have zero plans to change anything about the triple lock in this Parliament, which cannot be said of all political parties, unfortunately. With the Pensions Commission, we have brought together national experts to make sure that we have a plan in place going forward, and of course we will not pre-empt the decisions it is going to make. We will have ongoing opportunities to discuss these issues when the Pension Schemes Bill is before noble Lords later in this Session.

My Lords, there are many self-employed workers in the creative industries, so is this something the new creative industries freelance champion will be looking at?

The noble Earl raises a very interesting point and I am genuinely not sure of the answer. If he will forgive me, I will write to him. With regard to the self-employed, the DWP is currently working with Nest Insight and other partners to test potential solutions to encourage contributions from the self-employed into pensions, including nudges and utilising digital systems that many self-employed people already use. I think that will have an impact on the creative sector, but I will write to the noble Earl on the detail of his question.

My Lords—

My Lords—

My Lords, we will hear from the Lib Dem Bench then we will come to the noble Lord.

My Lords, the Minister is quite right to talk about the success of automatic enrolment but, as she touched on, the pension contributions of the self-employed raise alarm. Could the Government think of ways of increasing this, perhaps using the tax return process as an opportunity to get self-employed people started in pension saving? The challenge is that, whereas employees tend to have fairly stable incomes, the self-employed can have quite lumpy incomes, so it is hard for them to commit to a regular level of pension saving. Could the Government look into ways of making pension saving easier for people running their own business and the self-employed, who may find that they can pay into a pension in sporadic chunks rather than on a regular basis?

The noble Lord is absolutely right. One of the challenges we have with the self-employed and those who have multiple jobs of a lower income is around how we can encourage them, and auto-enrolment is not the right vehicle for them. There are two things the Government are doing. First, it is part of the remit of the forthcoming Pensions Commission to see what additional support can be put in place for the self-employed. Secondly, in the interim, the DWP is working with Nest Insight on how we can actively encourage new schemes that make it easier for the self-employed to participate in pensions. We are talking about cultural issues, using AI and other tools that the self-employed might already use in their workplaces to encourage them to save. We have undertaken a scheme with Nest, and we are looking for partners to roll it out to make sure it is credible on a national scale.

My Lords, in addition to more pension saving, the Chancellor talked the other night at the Mansion House about encouraging more retail investment in the stock markets and wider share ownership generally. This is an excellent cause and one that all parties should support. Will we see more measures from the Government to reinforce that particular development?

My very good friend the Chancellor of the Exchequer will, as always, be considering these matters on an ongoing basis. Her Mansion House speech made clear our direction of travel. She will come forward with more activities in the future.

My Lords, the Local Government Pension Scheme provides pensions for local authority workers, many of whom are on low pay. Could I have a commitment from my from noble friend that she will resist any attempt, as suggested by Reform-led councils, to abolish this scheme?

My noble friend is very aware that I am a former trade union official who represented local government workers. I can give a complete commitment to the Local Government Pension Scheme. To be very clear, the terms of reference for the Pensions Commission do not touch on public sector pensions schemes. Anyone who thinks it is appropriate to target the pensions of some of our most important but poorer paid workers should be ashamed of themselves.

My Lords, the Minister will know that the latest OECD figures show that 52% of adults in England have numeracy levels below those expected of primary school leavers, which can leave them struggling to understand percentages and to convert between monthly and annual payments. Does she agree that, in these circumstances, such people may be deterred from engaging with an industry in which there are apparently complex calculations between investment and outcomes? What can be done, alongside improving numeracy, to encourage the pension industry to speak not just in plain English but in plain numbers?

The noble Baroness makes a genuinely important point about how we make sure that everybody has access to appropriate funding in their retirement. Even the language of pensions does not help us. This is deferred income and deferred salaries. We need to make sure that we are working with providers, employers and the general public, so that they understand the importance of our pension schemes and why they are so vital to their future.