draft Automatic Enrolment (Earnings Trigger and qualifying earnings band) Order 2014
The Committee consisted of the following Members:
† Ainsworth, Mr Bob (Coventry North East) (Lab)
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Blunkett, Mr David (Sheffield, Brightside and Hillsborough) (Lab)
Burns, Conor (Bournemouth West) (Con)
† Burstow, Paul (Sutton and Cheam) (LD)
† Cairns, Alun (Vale of Glamorgan) (Con)
† Cox, Mr Geoffrey (Torridge and West Devon) (Con)
† Heaton-Harris, Chris (Daventry) (Con)
† McClymont, Gregg (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
McFadden, Mr Pat (Wolverhampton South East) (Lab)
† Offord, Dr Matthew (Hendon) (Con)
Paisley, Ian (North Antrim) (DUP)
† Perry, Claire (Devizes) (Con)
Robinson, Mr Geoffrey (Coventry North West) (Lab)
† Selous, Andrew (South West Bedfordshire) (Con)
† Watkinson, Dame Angela (Hornchurch and Upminster) (Con)
† Webb, Steve (Minister of State, Department for Work and Pensions)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
Nick Beech, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Thursday 6 March 2014
[Mr Joe Benton in the Chair]
Draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014
11.30 am
The Minister of State, Department for Work and Pensions (Steve Webb): I beg to move,
That the Committee has considered the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014.
Good morning, Mr Benton. It is a pleasure to serve under your chairmanship this morning. I am pleased to assure the Committee that, in my judgment, the draft statutory instrument, which was laid before the House on 15 January, is compatible with the European convention on human rights.
The Committee will be aware that this is an annual event. Each year, we set the trigger beyond which people have to be automatically enrolled, and we set the lower and upper thresholds for the band of earnings on which the statutory minimum levels of contributions apply. The lower and upper limits of the band will not detain us unduly this morning, I suspect, because they have been updated in the manner that we have chosen in the past—we have linked them to the relevant thresholds in the national insurance system.
Greater attention tends to be focused on the threshold, the trigger, beyond which people have to be auto-enrolled. The draft order continues our recent practice of lining that threshold up with the personal income tax threshold, which means that from April 2014 the threshold will increase from £9,440, which was last year’s tax threshold, to exactly £10,000, in line with the coalition agreement and our goals at the start of the Parliament.
It is tempting simply to read my speech from last year into the record, and perhaps for the shadow Minister to read his speech into the record, because many of the arguments are the same.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab): I encourage the Minister and the shadow Minister not to do that. Will the Minister confirm that the whole policy—and auto-enrolment—is one that all three major parties signed up to way back when the Adair Turner commission reported in November 2005? It therefore has some history of mutual support. I am asking this because—regrettably, given the Minister’s history and my knowledge of his expertise—he so often presents as though such measures have just been invented by the coalition.
Steve Webb: I am grateful to the right hon. Gentleman for his intervention. He is of course right that automatic enrolment has its roots in the Turner commission review. I have the highest regard for the work of that commission
in laying the foundations for a number of changes to pensions policy, including the raising of state pension ages and, as he says, automatic enrolment. The primary legislation that paved the way for automatic enrolment was indeed passed under the previous Government. My view is that the more I have looked at the legislation as we inherited it, the more flaws I have seen in it.I will not deviate too much, but I have a few examples on that specific point. The previous Government legislated for automatic enrolment with no quality standards. They therefore put a legal duty on firms to put people into workplace pensions, but had nothing to say on the quality of those schemes—nothing on charges or pretty much anything else. We have done more than simply carry on what would have happened anyway; we have substantially improved the policy.
The right hon. Gentleman is right, however, that pensions are at their best when they have all-party support. I am sure that automatic enrolment does indeed have all-party support. I am grateful to him for his intervention.
In terms of the specific threshold for automatic enrolment, we are trying to enrol the right people, but not the wrong people. In other words, every time we raise the threshold as we are doing under the draft order, we exclude some people. So it is a statement of fact that people are excluded when the threshold is raised—no one disputes that—but the question is whether they are the right people or the wrong people. We do not want to require employers to enrol workers automatically at considerable cost and inconvenience to the employer, and indeed at inconvenience to individuals if they then have to opt out, when that is probably not the right thing to do.
Let me give the Committee an example. The threshold that we inherited for automatic enrolment—in today’s money, earnings uprated—would have been a little more than £6,000 a year. Had we simply continued with the previous policy and earnings updated the band, the trigger, we would have been enrolling people who earn only a little more than £6,000.
We are introducing a single-tier state pension from April 2016, which in today’s money will be roughly £7,500—we have yet to set the exact figure. It would be a nonsense to ask firms to take money from the pay packets of people earning just over £6,000 by signing them up to a pension scheme so that they reduce their income while they are of working age to below £6,000 in order to top up their retirement income beyond £7,500. That would be absurd.
Our assumption is that saving for retirement is about income smoothing: people smooth from a time when they have money to a time when they do not. Taking money from people who have less when of working age than they will have in retirement would be a nonsense, yet that was the legislative framework that we inherited.
Worse still, had we continued with that model people would literally have put pennies into their pension schemes. There was no minimum amount: the second that someone was, say, £1 above the threshold they would have to be auto-enrolled, but someone who was £1 over the threshold over the course of the year would have a statutory minimum contribution of 1p. There would literally have been people who were enrolled to put 1p into their pension.
That was absurd, and was one of the many things we had to tidy up. We have created a buffer. There is a higher trigger, so that people are enrolled only when they earn above £10,000; the 1% then applies down to the start of the earnings band. That way, nobody is putting a penny, or tuppence, or just a few pennies into their pension. That would have discredited auto-enrolment completely and is why we need to get the trigger level up.
What, then, is the right trigger? As I said, the single-tier pension will be of the order of £7,500 a year, so should we enrol people at £8,000 a year? Once we have knocked off national insurance and so on, someone will get virtually the same take-home pay if they earn £8,000 a year as they will from the single-tier pension, so it does not make any sense to enrol those people. If such people opt out, which is probable as there is no point in saving a few pence for a pension, firms will have costs and the individuals will have the hassle of being put into a pension and having to opt out—there will be a lot of dead weight that achieves nothing.
The regulations try to strike a balance. There is administrative simplicity and clarity in linking the trigger for auto-enrolment with the personal income tax threshold. I hesitate to call it the measure of a proper job, as that is not quite the right phrase, but at that point someone has a job for which the employer is running PAYE income tax as well as national insurance, and so it has the feeling of a proper job. Therefore we feel that applying the auto-enrolment duty at the same point has something to commend it.
Dame Angela Watkinson (Hornchurch and Upminster) (Con): I understand that automatic enrolment puts a responsibility on employers to pay overall contributions of at least 8% of earnings and bonuses over time. Employers already have to make NI contributions; unless I am out of date those are currently 11%. Does that mean that employers will incur costs of nearly 20% of an employee’s earnings? Has there been any contact with small employers, in particular, about how they can cope with that responsibility?
Steve Webb: I can offer my hon. Friend a number of reassurances. The short answer to her question is that the figure is not 20%. The 8% level, which will come in when the whole programme is rolled out in around 2018, is phased. Of that 8%, 3% comes from the employer, 4% comes from the employee and the taxpayer puts in 1% gross tax relief for the employee. The employer contribution is 3%.
To refer back to the question from the right hon. Member for Sheffield, Brightside and Hillsborough, another change we have made to auto-enrolment is to reduce the costs and burdens for small employers in particular. For example, previously we would have required small firms to enrol people as soon as they earned about £5,500. Today, we are saying that they do not have to do so until people are earning £10,000. Previously, firms would have had to auto-enrol people the day that they walked through the door, more or less, but we have allowed a three-month waiting period. As a consequence, a firm that employs seasonal or casual worker might never need to auto-enrol them.
I will not go into too much detail but we are mindful of the impact of the scheme on small firms. We have changed the phasing of the programme so that firms
employing 50 people or fewer do not have to start the scheme until April next year; that way we can learn the lessons from the biggest firms and refine the model for the smaller firms. We have created the National Employment Savings Trust, which is specifically designed to be a low-cost, value-for-money provider, available to small firms, with a public service duty to accept the business of small firms. We are mindful of those considerations.I shall clarify the point about the £10,000. There is obviously the administrative attraction of lining up with the personal income tax threshold. The right hon. Member for Sheffield, Brightside and Hillsborough referred to the Pensions Commission. If we look back, we see that it reckoned that people on less than what in today’s money would be about £12,000 a year should in retirement replace about 80% of their take-home pay to maintain their standing of living. It thought that was the right sort of target replacement rate and I am pleased to say that that is what the regulations do. If we enrol someone at £10,000 a year—not below £10,000—their £7,500 single-tier pension will represent about 80% of their take-home pay. One can argue that the figures in the measure before us are in the spirit of the Turner commission. We are ensuring that someone who gets a full single-tier pension, and most will, will get about the 80% replacement rate. Beyond £10,000 a year, they get auto-enrolled, so they have to make additional savings. All of it is coherent. It makes sense.
I have read the transcript of the House of Lords debate on the order. Baroness Drake and others quite properly spoke of the impact of the changes on women. I am sure that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East will do the same, so I would like to say a word or two about that issue. Our state pension reforms, the single-tier pension, are of particular benefit to women. Many women coming up to pension age who have spent time bringing up a family and whose state pension rights have been damaged as a result will get enhanced outcomes under the single-tier pension. We are absolutely mindful of the pension position of women. We do women no favours if we automatically enrol them at modest wages into a workplace pension and they then just have to opt out. We must ensure that we enrol the right people. If a woman is temporarily on a low wage and does not get auto-enrolled in a given year for example, it probably does not matter much. Most of the time, she will be on a decent wage, auto-enrolled and building up a decent pension. If she is always on a low wage—always on £9,000 or £9,500—the state pension system will give her the 80% replacement rate that the Turner commission thought appropriate. In either case, no harm is done to the woman’s eventual retirement outcome.
Arguments have been made about what happens if the personal tax allowance goes beyond £10,000. Various people have mooted various figures. An important point is that although we have hitherto linked the threshold—the trigger for auto-enrolment—to the level of the personal income tax allowance, it is not our intention to do so mechanically and automatically year in, year out. That is not the statutory duty on us. Each year, the Secretary of State has regard to things such as the tax threshold, the level of the pension and the national insurance threshold, and reaches an annual judgment. I want to place it on record for the avoidance of doubt that we will not and we do not mechanically year in, year out
link them. That is important to note because people have talked about a potentially much higher income tax threshold.I refer the Committee to the findings of our “Making Automatic Enrolment Work” review, which addressed such questions. It said that linking the tax threshold and the trigger would be good, but the question was then asked, what if the tax threshold were to rise substantially to £10,000, as it has, and what if it were to rise further to £15,000? Its judgment essentially—I summarise a detailed analysis—was: £10 k good, £15 k bad. In other words, it said that linking to the tax threshold made sense in a world where we are getting towards £10,000, but does not make sense with tax thresholds of a much higher rate, because too many people would be excluded. To quote from the review:
“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 over the course of this Parliament.”
It specifically says that linking to the tax threshold at a time when the tax threshold is rising significantly is fine to the level of £10,000, but it would not support a substantial increase beyond that.
We are mindful that there is no right answer to the threshold, but we are trying to strike a balance: to enrol the right people and not the wrong ones. The level of the single tier gives us an anchor and an indication of what people who are not auto-enrolled will get anyway. Of course, people who are not auto-enrolled are free to opt in; relatively few people will probably do it, but it is an option, so someone who strongly wants to save for a pension can opt in. The central point it to avoid auto-enrolling the wrong people. That is the purpose of the draft order, and I commend it to the Committee.
11.45 am
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): It is truly a pleasure to serve under your chairmanship, Mr Benton.
Any observer from the outside who looks at the regulations cumulatively must look at the question whether the Government are increasingly designing, or rather under-designing, a private pension system to exclude ever greater numbers of people, especially women, every time the earnings trigger is raised.
The Minister said a number of things that were worth picking up on, the first being that we will not, and do not, mechanically link criteria for auto-enrolment to increases in the personal allowance, but hitherto that is precisely what the Government have done. It has happened every year since the Government have been in office, so we only have the Minister’s word that the they do not mechanically link the two—if we look at the evidence so far, that has been the case.
Secondly, let us consider the Minister’s use of language about how we do not want to enrol the wrong people. Let us look at who the wrong people are, in the Minister’s terms. I am interested in the Minister’s view and whether he accepts Baroness Drake’s estimate of the number of people who have been excluded from auto-enrolment so far by the rising trigger threshold, which is 1.29 million, of whom 75% are women.
Steve Webb: The hon. Gentleman will know that that number is compared with a hypothetical alternative, which I think is that we were still auto-enrolling people at the equivalent of about 5,000 a year. Is he really saying that that is the threshold at which we should do that, because if he is not—I do not imagine for a minute that he is—the numbers that he is quoting are exaggerations of the impact of the discretionary changes that we are making, which are above what he thinks should happen anyway?
Gregg McClymont: The honest answer to the Minister’s intervention is to take him to the Turner commission. The Minister said that it could be argued that the regulations are in the spirit of the Turner commission. On the basis that one can argue anything, that is probably true, but Baroness Drake, to whom the Minister referred and who was one of the three members of the Turner commission, is clear that the regulations are not in the spirit of that commission.
The Minister inherited a system designed by the previous Government and by Turner. Let us be clear about what the Turner commission said; it was clear that the qualifying earnings band should start at the primary threshold for national insurance purposes and should finish at the NI upper earnings limit. The previous Government, in their 2006 Pensions White Paper, broadly adopted that approach, as the Minister reasserted in his intervention.
Let us be clear: the wrong people defined by the Minister are largely low-paid women, often doing more than one job part-time. The crux of his argument, if we take away some of the less helpful language—it would be nonsense to bring X group in—completely discredits auto-enrolment. A judgment needs to be made, calmly and rationally, about the costs and benefits of excluding low-paid women in particular from the benefits of auto-enrolment. That is the fundamental basis of this argument.
Dame Angela Watkinson: I am following the hon. Gentleman’s argument. Is he suggesting that no matter how low an income people have—the regulations are not gender-specific, so it might happen to be a woman, but that is irrelevant—they should still be auto-enrolled, even if they ended up with a de minimis contribution and pension?
Gregg McClymont: The Opposition are saying that there is a genuine problem of which we should be aware. The Minister dismissing that, often in—to put it politely—colourful language, does not do anyone a service. This is a public policy issue. The answer, which is in the DWP’s own paper on the regulations, is that so many women are affected because women disproportionately work part time and so earn less than the trigger. That is the reality. The debate needs to focus on whether it is in the interests of those women to be enrolled.
The Minister did not make an overwhelmingly convincing case for excluding those women from the benefits of auto-enrolment. Although, to be fair, he did not make this point a central part of his statement, at the end he said that if such individuals wish to opt in they can do so. Let us be clear: that goes against the whole underpinning thrust of auto-enrolment, which is that inertia has to be
harnessed in the interests of saving. It is simply not good enough to say that this group should opt in but everyone else should be automatically enrolled.Steve Webb: As the hon. Gentleman knows, I did not say they should opt in, but that they may opt in. If we thought they should opt in, we would have auto-enrolled them in the first place. Our judgment is that they can get decent replacement rates without opting in, but they still have the freedom to do so.
Gregg McClymont: The Minister is right that he said that they were free to opt in, but my observation still stands—that does not come to much given that the whole thrust of the scheme has been to harness inertia via automatic enrolment.
There is a substantial issue here. I return to the Minister’s strong emphasis on the idea that the Government are not going to link the trigger for auto-enrolment mechanically to the personal allowance. It looks to the Opposition as though that is precisely what has happened so far. That comes at a cost. The underpinning of auto-enrolment, which was set by the Turner commission and accepted by all parties, is to have a mass private pension system. There is a clearly a trade-off happening: we are getting a mass private pension system but ever greater numbers of low earners are being excluded from it.
Paul Burstow (Sutton and Cheam) (LD): I have been listening to the shadow Minister carefully. I want to pick up on one point from the Minister’s remarks that the shadow Minister has not yet reflected upon. The Minister told the Committee that women are particular beneficiaries of the single-tier pension because of the way that pension reflects the circumstances of disrupted working lives—circumstances that women may well find themselves in. Women will enjoy a pension through that scheme that will be up to 80% of their original earnings. Why has the shadow Minister parked that rather welcome news in his remarks so far?
Gregg McClymont: I have not parked it. I urge the right hon. Gentleman to read Baroness Drake’s contribution to the debate on this issue in the House of Lords, which says something very different. I think everyone would agree that she is particularly expert on this matter and she would disagree strongly with that argument.
I am trying to be as fair as possible to the Government and the Minister. There are trade-offs involved, but as parliamentarians we have to ask this: if we believe in building a mass private pension scheme, in consensus with the Turner commission, what are the costs of excluding increasing numbers of individuals, especially women in low-paid jobs and the kind of mini-jobs that are increasing? That is the thrust of the Opposition’s comments today.
There is a general consensus on taking auto-enrolment forward. It began with the Turner commission, continued under the previous Government, and, subject to the disagreements we have in a number of areas, has held under this Government. Excluding increasing numbers of low-paid people, and in particular low-paid women, from what is supposed to be a mass private pension system is an issue we all have to be aware of. Presumably
that is why the Minister has made great bones today about stating that the Government have not and will not mechanically link the trigger to the threshold. But all the Opposition can do is look at what the Government have done so far, which is to link that mechanically.Dame Angela Watkinson: May I press the shadow Minister a little further on people who are on very low incomes? The product of any auto-enrolment pension for such people will be so small as to be meaningless. Does he not accept that there must be a point at which the administrative costs do not justify setting up a pension that will not benefit the recipient because it will be so small?
Gregg McClymont: As I have said, there are undoubtedly trade-offs, but the situation is nowhere near as simple as the Minister has suggested. Many people who are in that position do not stay there throughout their lifetime. I urge the hon. Lady, who has taken a real interest in this, to look at the contribution of Baroness Drake, who has been involved in designing the system, on the potential costs for low earners. People move, and it has been suggested that they will reach the trigger, but Baroness Drake has said:
“Almost half of those in the lowest-earning group are in couples where one works part-time and the other full-time. Most very low earners are women who live in households with others on higher earnings and they are receiving working tax credits.”
That is where the interaction with working benefits comes in. Baroness Drake argues:
“These are precisely the people who should be automatically enrolled in saving, yet we have seen persistently a rising earnings trigger that excludes them. Furthermore, the value of the loss of the employer’s contribution of 3%”—
never mind future contributions of 8%—
“of qualifying earnings from raising the earnings trigger and not being auto-enrolled is greater than the tax reduction that they get from increasing the tax threshold. The combination of the two therefore means that the lowest earners could be worse off. They lose more from not being auto-enrolled than they gain from the increase in the tax thresholds.”—[Official Report, House of Lords, 10 February 2014; Vol. 752, c. GC200.]
Once we get down to the complexities involved, it becomes clear that things are going on that are not necessarily recognised in how the Minister presents it. I reiterate that there is a fundamental public policy question here. If we all believe in a mass private pension system, we must think carefully about whether continuing to exclude ever greater numbers of people, especially women, from that system is in the interests of auto-enrolment and increasing savings among all parts of the community—something on which I think we probably all agree. Surely, we believe that it is a good public policy objective to encourage low earners as well as others to accumulate retirement income and assets.
Is the Minister convinced about the change? Can he explain, given the example from Baroness Drake, the downsides of the linkage to the personal allowance? Does he understand the issues around administrative clarity? I ask him to reflect further on that and take on board Baroness Drake’s contribution—he has clearly read that contribution, as I know he always does—because there are some significant issues in the wider debate about what constitutes a mass private pension system.
11.58 am
Steve Webb: I am happy to respond to the hon. Gentleman’s comments. He referred to the Turner commission but, as my right hon. Friend the Member for Sutton and Cheam pointed out, the commission wrote its report before the single-tier pension was invented. The commission was trying to work out the right trigger for auto-enrolment in a world where a basic pension, in today’s money, was £110 a week. That is not the world that we are going into. We are going into a world where the basic pension will be £144, or whatever it ends up being. The logic that led the commission to choose the earnings trigger a decade ago cannot still apply today when the basic state pension has changed. It seems perverse to say, “Turner said this, so that must be right,” when the world has moved on.
Gregg McClymont: The Minister has already argued that the changes are in the spirit of Turner. If he accepts that the position is different from that which Turner took, even in different circumstances, it is worth putting that on the record.
Steve Webb: I do not think that it is different. I have got a chart here from the Turner report that shows that he thought that people on less than £12,000 a year in today’s money should have an 80% replacement ratio. We agree, and that is what the regulations deliver. People on £10,000 a year, who take home just over £9,500 and have a £7,500 state pension, are getting about 80%. We are delivering Turner. If the hon. Gentleman objects to the regulations, he is voting against the principles of Turner.
It is unclear what threshold the hon. Gentleman thinks should apply. In the regulations, we have the start of the national insurance band at just over £5,700. I do not think that he is saying that everyone should be enrolled at that point, although he did not make that clear. The second threshold that one could use is the national insurance primary threshold, which is £7,956. I think that is probably what he would go for, which is about £8,000 a year, but people on £8,000 a year are going to get 90-odd per cent. replacement ratios.
Enrolling people at £8,000 a year seems very odd. I assume that it is the hon. Gentleman’s policy. It should not be for us to have to try to guess what his policy is; he should tell us, but I have no idea from his speech what it is. Let us make it up for him, by supposing that he wants the threshold to be £8,000. That would auto-enrol people who will get very high replacement rates in retirement anyway. He sort of dismissed the administrative convenience, but I return to the point made by my hon. Friend the Member for Hornchurch and Upminster. If an employer’s sole employee earns £8,000 a year, in the hon. Gentleman’s world the employer has to choose a pension scheme, find something suitable, put the infrastructure in place and integrate it with his payroll systems, all so he can enrol someone on £8,000 a year who will clearly be as well off in retirement without pension saving. He could do all that, only for that person to opt out. All that, just for the hon. Gentleman to feel better about not excluding those in low-paid jobs.
The hon. Gentleman says that there is a trade-off, and there is one, but the Opposition never talk about the cost to employers. The record might show that I am
wrong on this, but I am pretty sure that he made virtually no mention of the cost to employers, which we think is worth paying to enrol the right people. However, as my hon. Friend the Member for Hornchurch and Upminster said, to bring in people gratuitously who get virtually no benefit seems perverse.Gregg McClymont: The Minister cannot have it both ways in responding to my comments. He said that I dismissed the issue of administrative costs, and in the same breath he said that I recognise that there are trade-offs. What else can recognising trade-offs mean than actually agreeing that there are administrative complexities? He went on to talk about “gratuitously” placing people into auto-enrolment, and that language does not help. There are trade-offs, but we need to have a calm reflection on them, rather than throwing about such colourful terms.
Steve Webb: I apologise for bringing colour into a debate on pensions. I will try not to do that again. The hon. Gentleman talked about our threshold excluding women from mass membership of workplace pensions. In a later remark, he said that we know that people often do not stay on those wages and they move about. As soon as they earn enough to be in the tax band—in this case, that means more than £10,000 a year—they get brought into auto-enrolment and are then members of a pension scheme. In the years when they do not earn much and do not have much spare cash, we do not take money out of their pay packet, and in the good years, when they have a better job, we do. These women overwhelmingly will end up members of a workplace pension scheme; they just will not put in money in the years they do not have much money and the years when it does not make sense for them to contribute. That is what we are trying to do.
Gregg McClymont: I thank the Minister for that, but it raises a question. He argues that a significant number of those currently excluded will move into the system, but in pensions the fundamental issue in increasing the pot is compound interest. It is about having people in the system for longer, saving with persistency. He knows that the Turner report paid much attention to that. If the Minister believes that large numbers of those excluded will move into the system, that is an argument for ensuring that they are in it from the beginning, so their pot is bigger over time. Then they can all celebrate having a bigger retirement income.
Steve Webb: I think the issue is that if someone has average earnings for most of their life, it is those years that will determine how much pension they get, not whether they put in a few pounds when they earn a few pounds above the single-tier rate, or whichever threshold the hon. Gentleman proposes. I am all in favour of persistency of pension saving in years when people have the money and are building up a replacement rate that makes sense. The hon. Gentleman’s model, however, would require far more firms to set up nugatory pension arrangements, essentially. Perhaps nugatory is a colourful word—
Gregg McClymont: No, it is not.
Steve Webb: That is a relief. Firms would have to set up pension arrangements for which there is no point or value, but plenty of cost. We are trying to strike a balance between the two. I hope that I have demonstrated that to the Committee, and that a number of my colleagues agree. I accept the hon. Gentleman’s point, but in the interest of the members themselves, we are trying to strike a balance by not auto-enrolling them at points where that will not be to their benefit, but absolutely doing so when it is.
I want to clarify the point about mechanically automatically linking. We have conducted annual reviews, before at least two of which I think I am right in saying that we did hold consultations. We did not consult on the most recent review, because it concerns the smallest increase that we have made to the threshold. I want it to be clear for the record that the £10,000 figure was in the review, “Making Automatic Enrolment Work”. We asked some independent experts—including Paul Johnson, the director of the Institute for Fiscal Studies, employers’ representatives and representatives of the pensions industry—to think carefully about the relevant issues. They concluded that in a world of a single-tier pension—or with a state pension of £7,500, as we now know it is
going to be—a £10,000 threshold would be entirely appropriate. They did not conclude that going substantially beyond that was necessarily the right thing to do.I want to flag it up and make it absolutely clear that, in the event of further significant increases in the income tax threshold, we will not just mechanically automatically peg our threshold to that number. We will continue to do what is required by statute, reflect carefully each year on a range of factors set out therein, and come to a measured judgment. I can assure the Committee that we will not simply say, “That is the tax threshold, so this is the trigger for auto-enrolment.”
We have had a good airing of the issues, and although I have not dwelt on it—that is for another day—it is clear that auto-enrolment has already been a hugely successful policy. The draft order will help to ensure that it continues to be so, so I commend it to the Committee.
That the Committee has considered the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014.