Conclusions and recommendations
1. Automatic enrolment (AE) has so far been a tremendous success. It has resulted in more than six million people being newly enrolled into a workplace pension scheme. Rates of opting-out have been lower than expected. AE is on schedule to have a transformative effect on private pension saving, but it is now at a crucial and risky stage of its development. It is imperative that it is not undermined by other government-sponsored forms of saving. (Paragraph 10)
2. Gaps in pension law and regulation have allowed potentially unstable master trusts onto the market. Should one of these trusts collapse, there is a very real danger that ordinary scheme members could lose retirement savings. There is also a risk that faith in auto-enrolment as a whole will be undermined. (Paragraph 23)
3. We support the Minister’s call for a Pensions Bill to introduce stronger regulation of master trusts. We recommend the Bill makes provision for The Pensions Regulator (TPR) to have power to enforce:
- minimum financial and governance standards for market entry;
- ongoing requirements for master trust schemes, which might include making compliance with the master trust assurance framework mandatory; and
- measures to protect member assets in the event of a master trust winding up. (Paragraph 23)
4. DWP and TPR have taken positive steps to engage with smaller employers. Communications campaigns have successfully raised awareness of AE. The priority now must be for small and micro businesses to understand their AE duties and the consequences of non-compliance.
(Paragraph 30)
5. We recommend that DWP and TPR adapt AE communications to focus on the financial consequences of non-compliance and emphasise that AE cannot be ignored. (Paragraph 30)
6. The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence.(Paragraph 36)
7. We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme. (Paragraph 36)
8. The decision not to develop the HMRC Basic PAYE Tools (BPT) to support AE was a mistake. The BPT are trusted by small and micro employers, many of whom will not be able or willing to use commercially available software. TPR has acknowledged that small and micro employers need automated support to cope with AE. Its solution has been to build an entirely separate Basic Assessment Tool that has limited functionality and cannot send information to pension providers. This risks undermining AE. (Paragraph 42)
9. We recommend that DWP work with HMRC to expand Basic PAYE Tools to support small businesses in meeting their automatic enrolment obligations. (Paragraph 42)
10. For some employees, notably higher earners, saving for retirement in a Lifetime ISA may complement pension saving. Those with a limited disposable income, however, will need to weigh competing priorities and many will be faced with the option to either save in a LISA or remain in their workplace pension. Whatever the attractions of the LISA, it must not be presented as a direct alternative to AE. Savings under AE carry an employer contribution, which will not be available in the LISA. Opting out of AE to save for retirement in a LISA will leave people worse off. Government messages on this issue have been mixed. While the DWP has been very clear that the LISA is not a pension product, the Treasury has proffered an alternative view. (Paragraph 59)
11. We recommend the Government develop a communications campaign that highlights the differences between the LISA and workplace pensions. It should make it clear that the LISA is not a pension and that, for employees who have been automatically enrolled, any decision to opt-out is likely to result in a worse outcome for their retirement. The Government should also conduct urgent research on any effect of the LISA on pension saving through AE. The findings of this research should be reported in time for the 2016 Autumn Statement. We will review that evidence before the introduction of the LISA. (Paragraph 59)
12. Any further changes to AE should be implemented after the critical phase, due to complete in 2018, when small and micro employers must comply with their duties. The 2017 review will be an ideal opportunity to consider the future of AE and we welcome the Minister’s invitation to engage with it. (Paragraph 62)
13. We recommend that as part of its 2017 review of AE, the Government considers:
- removing the lower qualifying earnings band for contributions and lowering the earnings trigger threshold in order to bring more low paid people, including many more women, into AE;
- mechanisms for automatically enrolling self-employed workers, including how the income tax self-assessment system might be used;
- approaches to increasing contributions beyond the statutory minimum of 8% of qualifying earnings, including mandatory increases in employee and employer contribution rates and means of encouraging greater voluntary contributions;
- steps necessary to create a single, comprehensive pensions dashboard by 2019 and the degree of Government intervention necessary to deliver on its pledge. (Paragraph 81)
© Parliamentary copyright 2015
Prepared 13 May 2016