Debate contribution: Pensions (Extension of Automatic Enrolment) Bill: Second Stage

Debate contribution by Mr Gordon Lyons on 3 June 2024.

MLA

Mr Gordon Lyons

Party at the time

Democratic Unionist Party

Date

3 June 2024

Type

Debate contribution (made as a minister)

Business

Executive Committee Business

Heading

Pensions (Extension of Automatic Enrolment) Bill: Second Stage

Assembly identifier

Official Report component 4493718

Read the official Assembly record

Text

I beg to move

Thank you very much, Mr Deputy Speaker. Automatic enrolment on workplace pensions was introduced in 2012 to enable more people to save for their retirement and to make saving the norm for most people in work. It requires employers to enrol eligible employees on a workplace pension scheme. Unless employees opt out, they will build up a private pension through their contributions and those of their employer. Eligible employees are those who are not already in a workplace pension scheme, are between age 22 and state pension age and earn more than the minimum earnings threshold of £10,000 per annum. In 2024-25, contributions are required to be made on earnings between the lower limit of the qualifying earnings band, which is £6,240, and the upper limit of the qualifying earnings band, which is £50,270. The minimum contribution rate is 8% of earnings. Of that 8%, employers contribute a minimum of 3% and employees 5%, part of which includes tax relief. Workers can opt out of automatic enrolment. However, every three years, an employer must re-enrol those eligible employees who exercise their opt-out of an automatic enrolment with that employer. Again, employees can opt out at that stage. Since the introduction of automatic enrolment in 2012, there has been a significant growth in membership of workplace pensions, and saving for retirement has become the norm. In 2013, the proportion of employees in Northern Ireland who belonged to a workplace pension scheme was 44%. In 2021, it had increased to 73%. A statutory review of automatic enrolment carried out in 2017 concluded that, whilst automatic enrolment was working, younger workers aged 18 to 21 missed out on the benefits of automatic enrolment because the lower age limit was 22. The review also found that, whilst workers who earned more than £10,000 a year in a job were automatically enrolled, because their contributions were calculated from £6,240, the bottom of the qualifying earnings band, they missed out on a potentially significant contribution on their earnings below that level, possibly more than once if they had more than one job. The key recommendations of the review were to lower the age for automatic enrolment from 22, in order to encourage saving for retirement from an early age, and to reduce or repeal the lower limit of the qualifying earnings bands so that the contributions were calculated on more of an individual's earnings. The recommendations were intended to support all those who are automatically enrolled, particularly those with low earnings and multiple jobs, to save more for retirement. The UK Government accepted the key recommendations of the review and the Pensions (Extension of Automatic Enrolment) Act 2023, which extends only to Great Britain, was enacted in September 2023. It provides the Secretary of State for Work and Pensions with the power to lower the age threshold and to amend the lower limit of the qualifying earnings band. Although pensions is a devolved matter, in general, pensions policy and legislation here operate in line with corresponding pension provision in Great Britain, in line with section 87 of the Northern Ireland Act 1998. Many employers that offer private pension schemes that operate in Northern Ireland are UK-wide. Therefore, it is highly desirable that the same provisions are in place in Northern Ireland to ensure parity across both jurisdictions. The measures contained in the Bill arise from the recommendations made by the 2017 review. The Pensions (Extension of Automatic Enrolment) Bill will therefore provide the Department with the powers to lower the age at which qualifying workers are automatically enrolled into a workplace pension, with the policy intent to lower it to the age of 18, and reduce or repeal the lower limit of the qualifying earnings band so that contributions are calculated on more of a person's earnings. Turning first to the proposal to reduce the lower age limit for automatic enrolment, it is clear that participation in workplace pensions is significantly lower among those employees under the lower age limit for automatic enrolment. Since the introduction of automatic enrolment in 2012, the percentage of employees in Northern Ireland aged 22 to 29 who are members of a workplace pension scheme has increased; from 25% in 2012 to 72% in 2022. However, for employees aged 17 to 21, membership of a workplace pension scheme has only increased from 1% to 17% over the same time period. The Bill would provide the power to lower the age for automatic enrolment from 22 in order to encourage saving for retirement from an early age. That would help to continue to normalise pension saving among workers, help lower earners to build resilience for retirement and, of course, simplify automatic enrolment processes for employers. Workers will, as now, be able to opt out of automatic enrolment. Turning to the lower limit of the qualifying earnings band, the Bill will provide the Department with the power to make regulations to reduce or repeal the lower limit of the qualifying earnings band. Removing the lower limit of the qualifying earnings band would mean that pension contributions would be made from the first pound earned, thereby increasing total pension saving and simplifying contribution calculations for employers and individuals. That change to how contributions are calculated would improve the incentives for those who are in multiple jobs to opt into their workplace pension scheme as they would benefit from an employer contribution for every pound that they earn in every job, up to the upper limit of the qualifying earnings band. That would proportionately affect the contributions of lower earners the most. It would mean that more workers would have access to a pension with an employer contribution and greater pension pots, supporting those with lower earnings and multiple jobs. Reducing, rather than removing, the lower limit of the qualifying earnings band would mean that contributions would start at the new lower limit. That would have the effect of increasing pension savings. The impact, however, on pension savings by lower earners and those in multiple jobs would be less than if the lower limit of the qualifying earnings band were removed altogether. An equality impact assessment (EQIA) examined the proposals in the context of the promotion of equality of opportunity and good relations, as required by section 75 of the Northern Ireland Act 1998. A public consultation exercise on the draft EQIA was carried out from 18 September until 11 December 2023. Responses were received from five respondents. No adverse impacts were identified. The EQIA final report was published on 26 April. A regulatory impact assessment (RIA) has been carried out on the Bill. The Bill will not impose any costs on businesses or employees at this time. The first year of full implementation of the policy would generate costs to businesses as set out in the RIA, although those costs would be lower if the measures were phased in over a number of years, just as the introduction of automatic enrolment was phased in over a number of years. That is an area that will be revisited as the implementation of the policy is formulated. The Bill is short, containing two clauses. Clause 1 amends the Pensions (No. 2) Act (Northern Ireland) 2008. It inserts a regulation-making power that enables the Department to decrease the age at which an employer has an obligation to enrol or re-enrol job holders automatically in a pension scheme. It also inserts into the 2008 Act a new section 13A that includes a regulation-making power to reduce or repeal the lower limit of the qualifying earnings band and to repeal section 9 for workers without qualifying earnings if the lower limit of the qualifying earnings band is abolished. Any regulations made under the new power in section 13A may also include consequential amendments to, repeals of or revocations of provisions in other Acts as appear to the Department to be required. Regulations made under any of the aforementioned powers in the Bill will be subject to the confirmatory resolution procedure. Clause 2 contains a standard power for the Department to bring clause 1 into operation by statutory rule. Regulations made under clause 1 will amend primary legislation, so I consider it appropriate for those regulations to be subject to the confirmatory resolution procedure in order to allow for Assembly scrutiny. By most standards, automatic enrolment can be considered a success. The measures in the Bill are intended to continue to normalise pension saving among workers, to help lower earners build resilience for retirement, to support individuals in multiple part-time jobs and to simplify automatic enrolment for employers. Workers will, as now, be able to opt out of automatic enrolment. I believe that automatic enrolment is something that we can all support. I therefore commend the Bill to the Assembly.

1,464 words. Text as published by the Northern Ireland Assembly.

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