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Select committee inquiry

Pensions automatic enrolment inquiry

Closed

Work and Pensions Committee · Opened 10 December 2015 · Closed 27 April 2017

6 recommendations · 7 conclusions
Inquiry on parliament.uk ↗

What the inquiry looked at

“Committee report Automatic enrolment Automatic enrolment (PDF 679KB) Government response Automatic enrolment: Government Response to the Committee’s Eleventh Report of Session 2015–16 Automatic enrolment: Government Response to the Committee’s Eleventh Report of Session 2015–16 (PDF 148KB) The Committee invites written evidence addressing the following points: To what extent is the Lifetime ISA compatible with auto enrolment and the Government’s wider pension strategy? What impact could the introduction of the LISA have on opt-out rates? To what extent will the LISA fill gaps in retirement saving among the self-employed? Are there more appropriate alternatives? Which groups would be better/worse-off saving into the Lifetime ISA than they would be under auto enrolment? What kind of guidance should be made available to help young people choose where to save their money? What impact will the option of using LISA savings to purchase a home (or potentially "other specific life events") have on pension savings? Terms of reference: Pensions automatic enrolment”

The committee's words, from the inquiry page on parliament.uk ↗.

What it found

In the committee's words, from the summary of 11th Report - Automatic enrolment ↗

Pensions automatic enrolment (AE) has so far been a tremendous success. An additional 6.1 million people are enrolled in a workplace pension and saving for their retirement, with many more to follow. Employer compliance rates are high and employee opt-out rates are low. It is essential that this success is not undermined.

Gaps in pension 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 would lose their retirement savings. There is also a risk that wider faith in auto-enrolment will be undermined. The Pensions Minister told us that she wants a Pensions Bill for stronger regulation of master trusts. We support this.

The introduction of the Lifetime ISA, potentially seen as a competitor product, could jeopardise the success of AE. The Treasury and the Department for Work and Pensions appear to have different views over whether it is a pension product or not. Some young people may opt-out of AE in order to save in a LISA, leaving themselves worse off in retirement. Furthermore, the LISA is due to be introduced at a time when the majority of small businesses will still be to move on to AE and statutory contribution rates will be yet to rise. The Government should make it clear that the LISA is not a pension. It should also conduct urgent research on any effect of the LISA on AE and report on this before the 2016 Autumn Statement.

The period of moving 1.8 million small and micro-employers on to AE will be the most challenging phase of the programme. The DWP and The Pensions Regulator have taken positive steps to support these businesses, including a targeted communications campaign. This campaign should now focus on the financial consequences of non-compliance, emphasising that AE cannot be ignored. DWP should provide reassurance to small and micro-employers about where liability will fall if their chosen pension scheme performs badly or fails. It should also work with HMRC to expand Basic PAYE Tools to support small businesses in meeting their AE obligations. It must be as easy as possible for small businesses to participate without additional cost.

Once implementation is completed, approximately 9 million people will be newly saving, or saving more, in a pension due to AE. The 2017 review of AE would be an ideal opportunity for the Department to consider how to build on this success. The review should consider how to increase contributions beyond the statutory minimum of 8% and how to bring more low-paid and self-employed people into AE.

What the government said

The government responded on 22 July 2016.

Summary written by Accountability Index from the government's response.

The government welcomes the report and accepts that stronger master trust regulation is needed, but it declines to expand the HMRC Basic PAYE Tool, does not intend to commission new research on the Lifetime ISA's effect, and says the Dashboard should remain industry-led.

  • On master trusts, the government says a Pensions Bill in the next session will address the "current gap in the regulatory landscape" and "envisages protections in respect of minimum financial and governance standards", plus extended powers for TPR.
  • On communications, the Department "will also develop and test messaging about the consequences of non-compliance, including the financial penalties that may be incurred", while keeping a strategy focused on educating and enabling compliance.
  • The government "does not plan to develop or expand the Basic PAYE Tool" to include automatic enrolment, citing HMRC's development of Application Programme Interfaces, but says the tool "will be maintained until there is a free alternative available".
  • On the Lifetime ISA, the government "notes" the recommendation and says it "does not currently intend to commission new research", though it will undertake an Impact Assessment in the autumn and monitor participation and opt-out rates.

Read the government's response ↗ Read the report ↗ Report an error

How the inquiry ran

Each dot is a dated item listed on this page, from the inquiry's opening on 10 December 2015 to its close on 27 April 2017.

  1. Oral evidence 4 sessions
  2. Report 15 May 2016
  3. Government response 22 Jul 2016
  4. Correspondence 8 Feb 2017

What it recommended 6 recommendations · 7 conclusions

1Automatic enrolment (AE) has so far been a tremendous success.
Concluded (the committee's words)
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.
2Gaps in pension law and regulation have allowed potentially unstable master trusts onto the market.
Concluded (the committee's words)
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.
3We support the Minister’s call for a Pensions Bill to introduce stronger regulation of master...
Recommended (the committee's words)
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.
4DWP and TPR have taken positive steps to engage with smaller employers.
Concluded (the committee's words)
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.
5We recommend that DWP and TPR adapt AE communications to focus on the financial consequences...
Recommended (the committee's words)
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.
6The Department have stated unambiguously that employers are not liable for their choice of AE...
Concluded (the committee's words)
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.
7We recommend DWP use their response to this report to make a clear and comprehensive...
Recommended (the committee's words)
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.
8The decision not to develop the HMRC Basic PAYE Tools (BPT) to support AE was...
Concluded (the committee's words)
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 Automatic enrolment 29 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.
9We recommend that DWP work with HMRC to expand Basic PAYE Tools to support small...
Recommended (the committee's words)
We recommend that DWP work with HMRC to expand Basic PAYE Tools to support small businesses in meeting their automatic enrolment obligations.
10For some employees, notably higher earners, saving for retirement in a Lifetime ISA may complement...
Concluded (the committee's words)
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.
11We recommend the Government develop a communications campaign that highlights the differences between the LISA...
Recommended (the committee's words)
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.
12Any further changes to AE should be implemented after the critical phase, due to complete...
Concluded (the committee's words)
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.
13We recommend that as part of its 2017 review of AE, the Government considers: •...
Recommended (the committee's words)
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.

Evidence

Oral evidence sessions 4

Correspondence 1 letter