Work and Pensions Committee
Oral evidence: Protecting pension savers – five years on from the pension freedoms: Saving for later life, HC 126
Wednesday 8 June 2022
Ordered by the House of Commons to be published on 8 June 2022.
Members present: Sir Stephen Timms (Chair); Neil Coyle; Steve McCabe; Nigel Mills; Selaine Saxby; Dr Ben Spencer; Chris Stephens; Sir Desmond Swayne.
Questions 126-187
Witnesses
I: Baroness Ros Altmann, Former Pensions Minister, 2015-16, Baroness Jeannie Drake, Former member of the Turner Pension Commission, and Sir Steve Webb, Former Pensions Minister, 2010-15.
II: Charles Counsell, Chief Executive of the Pensions Regulator, Sarah Pritchard, Executive Director of Markets, Financial Conduct Authority, and Caroline Siarkiewicz, Chief Executive, Money and Pensions Service.
Written evidence from witnesses:
– The Pensions Regulator (PSL0043)
- The Financial Conduct Authority (PSL0046)
Witnesses: Baroness Altmann, Baroness Drake, and Sir Steve Webb.
Q126 Chair: Welcome, everyone, to this Work and Pensions Committee’s evidence session in our inquiry on saving for later life. A very warm welcome to the three witnesses who have joined us this morning, all of whom have made significant personal contributions to pensions policy over the last 20 years or so. May I first ask each of you to introduce yourselves, beginning with Baroness Ros Altmann?
Baroness Altmann: Good morning, Chair. May I congratulate you formally and publicly on your very well-deserved knighthood? I am Ros Altmann, I have been working on pensions for 40-plus years. I was, briefly, Pensions Minister, but I have spent most of my career working on all different aspects of pensions, from private pensions and investments to state pensions and pensions policy.
Baroness Drake: Morning, and may I also add my congratulations? I have a long background working in pensions. I have been a trustee for over 30 years, and I am currently a trustee with a large master trust and a large occupational private pension scheme. I was a pensions commissioner, and I was on the inaugural board of the Pension Protection Fund. I chaired the Personal Accounts Delivery Authority, which was charged with setting up Nest, I was a member of the Pensions Advisory Service board and I was, once upon a time, the equal opportunities commissioner for women and pensions.
Sir Steve Webb: Good morning, Sir Stephen. I am Steve Webb. I am a partner at consultancy Lane Clark & Peacock. For five years between 2010 and 2015 I was the Pensions Minister.
Q127 Chair: Thank you all very much for joining us. Given that each of you has made quite a big personal contribution to pensions policy, the question I wanted to start with is: what do you see as the big current challenges? Do you think it is time for a new pensions commission, as some people have suggested to us? Or would you favour some other institutional innovation in this area, such as an office of pensions that is responsible for gathering the data needed for policy decisions? I would be interested to hear from each of you on those points, and let’s do that in the same order.
Baroness Altmann: I certainly think there is a huge amount of unfinished business if we want a pension system that works for all in our country and is not excluding groups, in particular women. If the political landscape does not permit enough flexibility, or perhaps long-term thinking, for those private and state pension reforms that are urgently needed, I think there could be a role for an independent review. Pensions are so important in an ageing society, and with most people unlikely to be able to rely on a defined-benefit pension in later life, which would at least guarantee them a certain amount, they need to plan on their own. It is really important that we put in place measures that level up the pensions landscape. I hope that policymakers can do that. We have some excellent officials, who I know will be looking at these issues, but it could be that we need an independent outside review.
Chair: Thank you very much. Baroness Jeannie Drake, you were a member of the original Pensions Commission. What is your view?
Baroness Drake: There are two parts to your question about what I think the pressing issues at the moment are? One would be how people take their savings. The Pensions Commission was focused on how you accumulate your savings, but there has been a lot of change in the area—when you draw down your savings, how efficient is that in terms of the outcomes? That area needs a lot of consideration, because there have been lots of individual initiatives, but we need to understand what the long consequences of them are.
Coverage is one gap, which Baroness Altmann has referred to, and we need to check how we are progressing on reaching the desired outcomes over the long term in terms of pensioner income. We took a view nearly 20 years ago now; we need to be sure we are on top of the evidence and see how efficient, or inefficient, we are in getting to the long-term outcome that we were aspiring to achieve.
In terms of setting up a standing advisory body or pensions commission, of course, the Pensions Commission did recommend that, and that recommendation was rejected. We thought that that might be because pensions is a big ticket item—lots of money—and the Treasury does not like relinquishing it. I think the case is still compelling. One of the reasons the Pensions Commission was so successful is that we said, “Before you get any policy recommendation from the commission, we are going to look at what the evidence is. We are going to see what is happening and what the interrelationships are and put that out for public scrutiny, so that people are confident as to what problems were identified and what was happening.” In a sense, it is better if there is consensus on pension policy, rather than them being contested, because it has to work for 20 to 30 years. Our history shows that we make these incremental decisions that look good at the time but in the long term are not necessarily that efficient.
I still believe that some kind of standing commission or advisory body is right—not the same as the original one, which was charged with coming up with policies, but one that looks at the data and the trends and what that means for trade-offs, and that reports regularly to Parliament so that there is a high level of understanding as to where public policy should be pitched on this.
Sir Steve Webb: If I were to characterise the direction of pensions in the UK, the best analogy would be a slow-motion car crash. I say that because although I think we have got the foundations much better—the basic state pension—we are seeing what I described in a paper published last year as the “ski slope of doom”, which is the death of traditional defined-benefit pensions. We are roughly at peak DB at the moment. For people retiring this year, it is about as good as it is going to get in the private sector. Every year thereafter we think that the real value of people at retirement from DB is dropping and dropping. In 20 years, it will be vanishingly small.
The DB tide is going out; the DC cavalry is nowhere to be seen. The problem is that we have a generation of people in the middle—not my kids, who are in their 20s and who have 50 years of auto-enrolment to build up a modest pot on top of a state pension, and not people in their 60s, many of whom lived through the golden era of DB, particularly men, but the people in the middle, in their 40s. They are the people who missed out on DB in large measure and who perhaps count auto-enrolment at minimum contribution rates now. Frankly, the crisis is now.
I have the highest regard for Jeannie, Adair Turner and the late John Hills and for the superb work they did in the first Pensions Commission, but it was 15 years from the publication of that report to the completion of auto-enrolment. We do not have 15 years for this group. I want to give an example of why, although the commission worked the first time, I do not think another commission or similar is the answer, and that is the 2017 auto-enrolment review, which you have heard a lot about. That was a mini commission. It was not partisan; it was experts looking at the data—we talked about data. It was coming up with sensible, moderate and incremental changes. Those changes are not enough.
What has happened in the past 5 years? Zip. The other week at the Queen’s Speech, there were 38 pieces of legislation, but nothing on pensions. At best, this is the 39th priority of the Government. How do we get through this? Another commission where good people of good heart gather data and come back together in maybe three years with some recommendations, which are probably not dissimilar to the 2017 ones? What is the logjam? Is it that Guy Opperman does not want to do this? Of course not. He would love to do it today. What is stopping him? As Baroness Drake said, it is the Treasury. If you want to crack pensions in this country, you don’t have another commission of people of good will who are not politicians; you hold the Treasury’s feet to the fire.
If I had one recommendation, Sir Stephen, for the Committee, it is that when you have published your report, you join forces with the Treasury Committee and get the Treasury on the hook on pension tax relief. The reason they are blocking the auto-enrolment review is tax relief. You might think that the Treasury wants people to save more for their retirement, but it doesn’t, because every extra £1 in pension is £1 less in tax. A commission is great, but we don’t need more data. You have the PPI, the PLSA and the IFS; there is data all over the place. We know what the problem is: it is the Treasury and its blocking, and we need to tackle the Treasury. The politicians will not hand over decisions to a commission. The politicians have got to take the decision themselves.
Chair: Thank you. Steve McCabe.
Q128 Steve McCabe: I want to ask about this idea of pension adequacy and the two different views or approaches to this—the retirement income standards based in the basket of goods or the replacement cost basis compared to working income. I wonder if I could ask you in turn to say which approach you think is best and why, and whether we need to have some kind of consensus on what constitutes pension adequacy. Baroness Altmann?
Baroness Ros Altmann: This is a really important, basic and fundamental question. As a policy expert, if you like, I have never quite understood the extreme value placed on replacement rates, particularly for private pensions. It strikes me that, actually, those who earned more while they were working should have the ability much more easily to provide more for themselves in retirement, whereas those who earned less, who on a replacement rate basis would end up living on much less later too, would lose out. For me, the concept of a basic minimum that brings people above poverty, where you make private savings safe and do not penalise people in a means test later on, makes the most sense from the point of view of the state. If you look at the rest of Europe, much of their policy is based on replacement rates, which has proved enormously expensive and not necessarily socially cohesive.
Baroness Jeannie Drake: It is a good question. If you don’t know what you are targeting, you don’t know if you have got there. The Pensions Commission took the view that there should be a minimum baseload, which we defined as 45% gross of average earnings. That does not mean we are right over time or that the contribution rate we set shouldn’t go up, but that is what we worked to. We asked the question: how far does the state go in compelling or semi-compelling saving? You can top it up, as we currently do, with the voluntary system. The key issue you have is not only what the desirable baseload of replacement is that you are targeting, but how far the state intrudes—it is compulsory for the employer and semi-compulsory for the employee. We took a view that the state should go so far with the compulsory system, and after that it should be a voluntary system.
I want to come back to something Steve said about DBs collapsing and those problems. DB has collapsed. We are managing through the legacy, but that absolutely brings centre stage the criticality of the state pension. You cannot look at employee and employer contribution without looking at the state pension. It is the firm foundation. If you let the state pension fall, then the value of your pension savings falls, because you are just paying to cover the fall in the state pension. Steve is right: the Treasury has to buy into the long-term settlement. It has to hold that flat-rate state pension at a firm level and accept the GDP consequences that go with it. You can’t let it drift down. It is the firm foundation. The No. 1 point is that, whatever is targeted, the state pension is such a major part of that target for most people. It will be the majority, or a substantial part, of their retirement income going forward. That is the first point.
I still hold that we should go for a kind of minimum baseload that is defined. You might want to revise it above 40% to 45% of the median earner, but I think there are all sorts of considerations. You are trying to cover the whole population. You are trying to give cover from the micro-employer through to the major employer. You have to decide how far the state goes in intruding on that. The issue of tax relief has consistently been a problem. It was a problem at the birth of auto-enrolment. It was an issue in the phasing and staging. And it is an issue again now. It is an issue, and that is why the Treasury is critical on it. I favour a baseload. I am not saying that it necessarily has to stay at 40% to 45% of median earnings, but I think that’s right and I think we still have quite a long way to go to get enough people on that baseload. It may require an increase in contributions. And I think there should be a limit to where the state intrudes. The state really shouldn’t intrude to the point of compelling at the very highest income level; that really should be left to voluntarism.
Q129 Steve McCabe: Sir Steve, where do you stand on the two approaches and the idea that we need some sort of consensus?
Sir Steve Webb: Having been a tiny bit downbeat in my first answer, I am quite positive on this one. We—I say “we”; it is the Pensions and Lifetime Savings Association, the PLSA—have made real progress with the, to say it crudely, £10,000, £20,000 and £30,000 idea. What they have done is popularised it, so millions and millions of people now get defined-benefit pension statements from previous jobs, which benchmark them against those numbers. We, as a firm, go to companies, take their pension data and do charts and graphs on how they are doing, and how their members are going to retire, against those benchmarks. I think it is a tremendous achievement to get to that. If we get to this happy place where people are targeting £10,000, £20,000 or £30,000 and we are all on track, fine; let’s worry about people on £80,000 a year, for whom £30,000 would be a slump—that is the replacement rate argument. But I think it is about honing in on one, which has been widely accepted. The other thing is that I notice that journalists who write about pensions very often want something to cling to, want a benchmark, and they refer to these PLSA standards. Amazingly, we have something close to a widely understood consensus in pensions, so let’s grasp it. I think it is really good.
Q130 Steve McCabe: You talked earlier about the “ski slope of doom”.
Sir Steve Webb: It sounds better when you say it, I have to say.
Steve McCabe: Yes, I’ve had lots of practice. Who are the people you are most worried about? You talked about people in their 40s. Is it men in their 40s now who are most at risk of falling into some kind of pension poverty?
Sir Steve Webb: It is certainly people in their 40s. The irony of the ski slope of doom is that it was largely affecting men because it was only men who had these pensions in the first place, broadly, outside the public sector. The public sector is obviously different: there are 6 million-odd people building up DB pensions still. But in the private sector, overwhelmingly the ski slope is of male decline, because many women in the private sector just didn’t have decent, DB pensions. So it is a generational thing—40s, loosely. We will come on to the self-employed, obviously, but I will just mention now that self-employment pension saving is not only pathetically low—it is falling. It is quite an achievement to get it down from the pathetically low levels it was at five years ago—it is unbelievable.
One of the lessons for me of auto-enrolment is that TV advertising campaigns, earnest pension statement seasons and all these gimmicky things might give you a little bit of a push, but in terms of mass-action defaults, for the self-employed, we just need to use the tax return process. I think it’s in the order of 2 million self-employed who fill in a tax return every year. It would not be hard to use that process to default them into a pension, and they could opt out. Some of them would opt out, and that’s fine; that’s their choice. But we know from auto-enrolment that if you take the hassle away, if you switch the default around, a lot of people will stay in and will say, “Do you know what? I kind of knew I needed a pension. You have just done it for me.”
In terms of who is missing out, I am sure Ros and Jeannie will add more on the position of women under-saving. The good news, if I can share one bit of good news with you, is that on the state pension side, the gender pension gap has almost gone. We are within a fiver now, and it’s falling with each quarter of new people who retire. The gender pension gap was one of the big things I wanted to try to reduce through the state pension reform, and we have more or less got there. We may go backwards, for reasons I will explain later. It is always important to focus on women—on average, they will earn less and work in paid work for less time—as a group, but we have to think generationally; that’s the urgency for me. You cannot wait 15 years if you’re already 45.
Q131 Steve McCabe: Baroness Altmann, who are you most worried about as you look ahead and think about how the pensions landscape is going to develop?
Baroness Altmann: For me, the biggest worry is the lowest earners, particularly women, who still tend to lose out in the state pension—although, of course, the differential is lower. Just thinking more broadly on the topic, it seems to me that part of the obligation needs to fall on the pensions industry itself. So far, we have not seen enough of that. Private pensions are a brilliant product; it is just that most people either do not understand them because of the horrendously complicated jargon, and all the terms and complex rules. If you were to promote them properly and make them user-friendly—which you could do, especially if you have this captive audience currently in auto-enrolment—that could make an enormous difference.
A radical thought that I would love to put to the Committee is the consideration of making the minimum auto-enrolment contributions compulsory for everybody, which would remove the need for the Treasury to put tax relief in that first bit. The tax relief could then be concentrated on encouraging people to do more, and the pensions industry would have a further vested interest in rising to the challenge of devising attractive messaging and products, of reaching out directly to consumers and of helping them to take advantage of the extremely generous reliefs that there could still be for those who build on top of that.
I think you would have to offer basic rate tax relief, at least, to the self-employed, even up to the minimum, or they do not get an employer contribution, but the employer contribution in auto-enrolment massively dwarfs tax relief in most cases anyway. There is an argument for saying that if the Treasury is worried about the cost, for example, of going from £0 and auto-enrolling everybody, you could make it compulsory just like national insurance, and then there would an argument for saying that the tax relief could be concentrated on helping and incentivising people who do not have huge sums to build them up a bit more. That is in combination with a pensions industry that actually promotes its products and designs products that consumers might want to buy more of.
Steve McCabe: Baroness Drake, can I put the same point to you? Which group bothers you the most?
Baroness Drake: I would target four areas, really. There are 10.1 million workers who are not covered by auto-enrolment, so we need to go back and look at that. That is partly because of the earnings trigger, which is too high. We need to go back and say, “Which of those 10.2 million should be brought in and what should we do about it?”. They will have varying characteristics.
Secondly, we should remember that a little over 60% of the population who are eligible for auto-enrolment are male, so there is clearly a gender dimension there. There is a big carers issue. Because carers have lower earnings, they may come before the earnings threshold trigger. They may not have a lot of money to make contributions if they are in a part-time working period, or they may have periods out of the workforce. When we come on to what one can do about the gender issue on private pension saving, I do have views. People with disabilities and workers from BME communities have also been identified.
When it comes to the self-employed, I am going to agree with you—a rash of consensus outbreaking here. Active engagement is really good and people should engage, but it does not result in mass change. It does not work. The evidence is pretty overwhelming. People do not actively engage; inertia always kicks in. That is not an argument for not encouraging active engagement or making good decisions, but if you want to get mass coverage or a substantial reaction, you have to get as near to something like auto-enrolment as possible. You have to remove as many barriers as possible and almost create it as default that you are saving unless you actively engage not to. That leads those self-employed workers to HMRC and using the tax system to do it. I just can’t see how else you could do it. One has to look into the self-employed, because that would work for a lot of them.
The characteristics of the self-employed population have changed over the last 10 years. There are many more lower-paid people and women in that population, so one would need to be sure one understands the full implications of that. For a lot of the self-employed, the answer may lie in the contract of employment, as it did for the Uber workers.
I agree that just prompting or incentivising self-employed workers probably is not going to get you up from the 15% of self-employed workers who currently save, so you are going to have to get as near to auto-enrolment as you can. I don’t know exactly how you would do that, but if there were more frequent tax returns, you could set the tax rate based on assuming people are making a pension contribution unless they opt out, and then it is handed over together with the relief at source tax relief, either to NEST or some other chosen pension scheme. I think that is the main way.
On the position of women, I will come on to what we could do—
Chair: Can we come back to that? We want to pick that up in a minute, so we will leave it there.
Q132 Sir Desmond Swayne: The Minister has often told us that “events” have got in the way of the implementation of the 2017 review. Sir Steve, you have told us that it is actually the Treasury that has got in the way. Bearing in mind potentially both points of view—the reluctance of the Treasury and the background that we now have of rising prices—what would your strategy be for going about implementing the 2017 review? Where should the priority lie? Should it be dealing with those people who have several sources of income, none of which reach the threshold for auto-enrolment? Should it be the £10,000 trigger, or reducing it or abolishing it? Where would you put the priorities?
Sir Steve Webb: My motto is: if you cannot get over a wall, go around it. Maybe fixating on the 2017 review— The language this week in Parliament was even wetter than it has been; so far it has been “the mid-2020s” and now I think the phrase that was used was “as time goes by”, so I have kind of given up. I mean, it is good stuff. If we did the things in the 2017 review, it would be good stuff, but it would not really be a game changer for most people. It is incremental, not a game changer.
What would I do? A couple of things. I would look at 5+3, so at the moment it is 5% from the worker and 3% from the firm. I cannot think of a country in the world where workers have to put in more than their employers, so at some point we have got to level to 5+5. It seems to me there are pros to that.
First, we want more money going into pensions, but the worry is that if we make people put more in, they might opt out, because it is voluntary. If you go to 5+5, you do not trigger more opt-outs, because the worker is still paying the same. Potentially, you trigger fewer opt-outs because they are giving up 5% not 3% from the employer, so in my view the goal has got to be 5+5.
The cost of living crisis and all that means you cannot ask employees to pay more at the moment, but you could say to employers—maybe this year, next year or the year after or maybe phased over four years—"At some point, more money has got to go in and somebody has got to do something a bit uncomfortable.” Because employers are going to be setting relatively high nominal wage increases—maybe not 10%, but perhaps 5% or 6%—in the context of putting up pay by 6%, if you said, “We are going to put your pay up by 5% and put 1% extra in your pension,” that is almost easier to do at a time of high inflation than if inflation were 2% or something. For me, levelling up to 5+5 would be a simple thing to do. That is the beauty of it. We complicate things, don’t we? That would be a simple thing.
On the £10,000 threshold, the state pension next year will be £10,000. We know that. We have to think quite carefully. People who say we ought to get rid of the £10,000 threshold are effectively saying, “You should be enrolled at £8,000 or £7,000,” or whatever. To say to a worker on £8,000, “We are going to put you in a pension, and we are going to take money out of your £8,000 a year to top up your retirement income of £10,000 a year”— Economics would say that is the wrong way around. You don’t smooth from a low-income time to a high-income time. I do not buy the argument that says that people on £8,000 a year should be auto-enrolled in a world of a state pension of £10,000. I think £10,000, which is roughly the state pension, is about the right threshold. That is my view.
Sir Desmond Swayne: Baroness Drake, have you anything to add or dispute?
Baroness Drake: Yes. In terms of increasing the contribution rate, one essential is keeping all employers in auto-enrolment, because a key gap previously was workers in small and micro-businesses, and many medium-sized employers were under-saving or not saving. It is essential, with any level of increase in contributions, that the staging and phasing of that is driven by catering for the whole of the employee population, not just looking at the bigger companies.
That was obviously taken into account in the staging and phasing. How you do it means that you have to be sensitive that you are covering from a micro to a big corporate. You have to give plenty of notice. You need to come out and declare what you are going to do on contributions, so that people can start preparing, and not just defer it forever. If you are going to go for it, go for it, and state what it is. But make it manageable, so that you do not bring the edifice down. That is really important.
Tax relief should be part of it. Personally, I would flat rate tax relief and try to make that tax relief higher than 20% as a flat rate, because that would be a much more efficient use of tax relief, from a public policy point of view, because the gain for saving would be higher. Remember that auto-enrolment is targeted on lower to moderate earners. That’s the population that is under-saving that you need to turn round with the auto-enrolment policy.
I do not agree with Steve on the £10,000, and people on £8,000 not saving. First, people’s participation in the labour market, particularly women’s, changes all the time. You may have periods of lower earnings but your lifetime earnings justify that you should save more than what may be your lower earnings at a point in time. If you have got two children under three, you might be on quite low earnings, but when they go to school, your earnings go up. You have to be very careful about what that kind of assumption means for women.
Also, with pension freedoms, where you now do not have to secure a pension—I know we’ll come back to that—why is it that the lower paid cannot use the benefit of auto-enrolment and employer contribution and tax relief to build a little asset base, to give them resilience in old age? Why must they depend only on the sort of smoothing of income that public policy gives them? We want them to have more financial resilience. Why should they not be able to build up?
You may want to think about how you handle the employer contribution and that employee contribution, but I would not want to exclude them. There will be some who need to be excluded, but the idea that anybody at a point in time who is on £8,000 or less must also automatically be excluded because there is no merit in their saving, I just do not buy; I do not agree with that.
Baroness Altmann: I heartily echo what Baroness Drake has just said about the idea that you should exclude somebody because they earn less than £10,000, when, as the Committee has already pointed out, many women will be in more than one job, each maybe paying less than £10,000. They are completely excluded from auto-enrolment at the moment, because of that £10,000 threshold.
I would have serious concerns. It is really important that we do not, if you like, discriminate against the lower paid in terms of pensions. Effectively, they are missing out on the money that the employer has to put into the pensions for people who earn more than them, which again seems slightly the wrong way around.
I also ask the Committee to consider whether it is right that we force the employer to keep paying more and more into people’s pensions, when the employer is already paying quite high national insurance, to provide the basic state pension. In the end, how much extra you have above that is an individual responsibility usually.
We have been lulled into this idea that employers should do pensions because of the traditional defined benefit scheme, but, in most cases, it comes out of the labour costs pot. If you tell employers that they need to put more into a pension, people will get less pay. I would rather leave it up to people to decide whether they want to put their extra pay into a pension or have it now.
Sir Steve Webb: Can I just add a PS to that point? There is a suggestion that going from 3% to 5% is an onerous demand on employers, going for more and more unreasonable amounts. We always laud Australia, which went from 3% to 6% to 9%, and that is all on the employer. That is not the employee—that is what they expect from employers. We say that this is the best system in the world, and yet we are whinging about going beyond 3%, for goodness’ sake. If we are serious about pensions, we have to get serious money going in—and 3% from the employer is a joke in the long term.
Chair: I am going to slightly change the planned order and, as we have started talking about gender issues, move on to Selaine Saxby.
Q133 Selaine Saxby: We have already touched on gender. Apart from changes to auto-enrolment, what do you think the Government should do to prioritise and reduce the gender pensions gap?
Baroness Drake: The drivers of the pension gap are largely the same as those driving the income gap, so anything you do to improve women’s earnings will come through in their pension as well.
In terms of being gender-specific, I have three points. They are not the only ones, but it would be great if you would consider them. Some women are out of the labour market or on low incomes because they have care responsibilities. The care demands on women are growing; they are being squeezed. They have the care challenge of their own children and then, as they enter their 50s, the care challenge of their grandchildren and elderly relatives. The failure in social care policy is actually increasing the care demands on women. That squeeze is getting greater.
The principle is that women should earn pensions in their own right, both through the state system and the private savings system. In fact, since the single state pension has come in, women do not accrue pension entitlements through their partner; it is only what they accrue in their own right. When the single state pension—the new state pension—was introduced and the second-tier pension went, the principle that had been won that carers should be credited into the second-tier pension went with it. That is lost.
The argument is put that the state pension has been flat-rated but made more generous, and women can accrue that more quickly. That may be the case, but, because they are caring—it is an economic activity; that is accepted—they have still lost out on the ability to accrue an entitlement on the second-tier pension, which is a principle they had under the state system. We should have that principle back. It was fought for. The principle that carers should be able to accrue both second-tier and basic state pensions should be there.
I think some system of giving carers credit should be put in place. You can do that either through the state system or by allocating a payment to a NEST account or a pre-existing account. Restoring the principle of credits for carers in the auto-enrolment system is key. There is no way that lots of carers can get access to the second tier when they are caring—it may be the earnings trigger, that they are out of work, or whatever. That is just not fair, when your principle is designing a system under which women have to accrue pension in their own right—they can’t depend on their partner.
I give credit to Baroness Altmann for the second point—she has done huge amounts of work on this—which is the issue of tax relief at source and net pay. This is affecting women who, because of their earnings, cannot get tax relief, but they cannot get the benefit of relief at source, where they get a tax credit, in effect. It really needs to be addressed. Again, the Treasury keeps saying that it will be, but it hasn’t. It should.
I think the earnings trigger for auto-enrolling someone should be lowered, because it is just excluding too many women. It has got better, because the £10,000 trigger has been frozen. The intention was to track the threshold at which you started to pay income tax. It would be nearly £13,000 now, so millions of women would be out if it had stayed at that. Obviously, more women are coming in because it’s frozen, but I do think it should come down and bring in more women. So, carer’s credit and the second tier saving of auto-enrolment tax relief at source should be given to all women and the earnings trigger lowered.
Sir Steve Webb: I have a couple of specifics. One is something that the Treasury could do at the stroke of a pen with very little short-term cost—I hope the Treasury heard that—which would make a huge difference. This is to do with the fact that when you get child benefit you get a credit for your state pension. That has been a feature of the system since the late 1970s, but we are in danger of losing it because when George Osborne brought in the high-income child benefit charge for people earning over £50,000 or £60,000 a year, the reaction of families on £50,000 or £60,000 plus was to say, “Well, what’s the point? If I’m going to get child benefit and my husband or partner is going to pay a tax bill equal to it, why should I bother? I’m just not going to bother.”
Every year since George Osborne brought in that change, the number of families on child benefit has gone down and down and down. Before the change came in, it went up and up and up every year. The number of families on child benefit has fallen every single year since he made that change. In many cases, the mothers—we are usually talking mothers here—are not getting credits for their state pension, so we are going back to the 1940s. We are going back to a world in which mothers who stay at home with children are going to get lower state pensions. We have a crediting system, but they are not accessing it because you access it through child benefit. You can claim the credits but not the benefit—duh! Try saying that to a real human being: “Hang on. You want me to put in a claim for a benefit but tell them that I don’t want the money and I want something called credits for when I’m old? I don’t get it. I’m just not going to bother.”
All we need to do is decouple the credits from the child benefit. When you register a birth, you get credits. It is the child that is bringing in the credits, not the child benefit, so just give the credits for the birth. Do it through birth registration; that would work. You have issues of migration and so on, but they can be fixed. Failing that, something could be done at the stroke of a pen. There is a three-month time limit on backdating, so if a mother realises what she has done in not claiming and realises she has missed out on five years of credits, she cannot fix it because there is a three-month time limit on backdating the claim. Scrap the three-month limit. That would cost the Treasury virtually nothing up front because it is credits for 20 years hence, so it would be a future Government’s problem, but it would mean that all those women would start to build up a decent pension. If the Committee recommends anything that would improve women’s state pension position, that is the one thing I would encourage you to change.
Baroness Altmann: I certainly echo what Jeannie said. The new state pension has particularly disadvantaged so many women because they were able to accrue state second pension for every working year of their life, way beyond the 35 years if needed. If they already had credits for 35 years, they could still accrue more second state pension or additional pension. That has been lost, and it is important to recognise that the 35-year limit for a full state pension has ended up disadvantaging particular groups, and most particularly women who are not high earners or who are carers for part of their life. The average woman spends 10 years of her life out of work, caring.
On the other issue, I think Jeannie is right. Let’s find a way to credit women for extra pension while they are caring. Otherwise, they will get no credit for that. It could be that we should have more auto-enrolment of partners to help with pensions for their partner while they are caring, or children contributing to grandparents if they are under state pension age while those grandparents are helping them with child care.
There are ways in which we can better bring in women and carers, but we haven’t really done that. Only 27% of women work full time most of their lives, so the vast majority of women will be affected by this. We have a system that looks at lifetime income to determine how much pension is accrued over a lifetime, and whether or not the gender pay gap is extinguished—of course, we have made great advances in reducing it—the fact is that women work for fewer years, so their lifetime income ends up being lower. Society itself needs to look at that. We want people to do the caring and to look after elderly relatives, partners and children, but we should not penalise them for that in later life. I hope that the Committee will be able to find a way.
I agree with Steve’s point about backdating a claim for child credit if you do not know. Most particularly, we need to sort out the problem of women on divorce. Divorced women have about £69,000 of accrued pension wealth at age 65, while the average man has £205,800 and the average woman has around double what divorced women have. That stark differential highlights that although the legislation allows pension sharing on divorce, that is not necessarily feeding through in reality and is disadvantaging lots of women.
Q134 Nigel Mills: Steve, you told us that you think pension policy is a slow-motion car crash. Is it a slow-motion Lamborghini car crash? I remember those, years ago. You paint a fairly bleak picture for somebody in their 40s. What solution are you recommending? It will need a large and sudden increase in pension contributions, rather than 2% in a few years, won’t it?
Sir Steve Webb: We have touched on pension tax relief, which is the obvious area to focus on. Some people ask, “High earners get 40% relief; basic rate taxpayers get 20% relief. Why isn’t it flat rate?” I would actually go further than that. We have talked about people on £8,000 a year who might be paying 8% of 2,000 quid into a pension—1,600 quid into a pension. The tax relief on that might be 400 quid. If you make it flat rate, that turns into 500 quid. Well, so what? That change—making it flat-rate relief as opposed to basic rate relief—makes very little difference when so little money is going in.
I think we need some sort of Government match, so you don’t call it “tax relief” any more. What you say is, “For the first £1,000 you put into a pension, the Government put in £1,000.” I pause there, because that is so different from what we do at the moment. If you put in £1,000 net of tax, the Government put in £250 basic rate relief. I am saying that the first slice, which is the most important slice for the low earners, is a real ramp up—and then Martin Lewis will go on MoneySavingExpert and say, “You’re an idiot if you’ve got £1,000 to save and it is in a cash ISA; stick it in the pension, and the Government will you another £1,000.”
Of course, you have to get that money from somewhere, and you would get it from people like me. You would get it from people—dare I say it?—like us, who are higher rate tax payers. If the Treasury is going to spend less overall on pension tax relief, which I am sure it wants to, where will the money come from? People like us, probably. There are political limits to that—I understand that.
Don’t think of it as tax relief, which nobody understands. In 2016, the Treasury did research on people’s understanding of tax relief—it forgot to publish it, but it was FOI’d recently and was published—which showed that virtually nobody had a clue what pension tax relief was. They did not know what the rate was; they did not know how it worked. But if you say, “When you put in £1,000, the Government put in £1,000,” I understand that. You have to look to tax relief for a game-changer.
Q135 Nigel Mills: That would completely and fundamentally change exempt-exempt-tax into tax-bonus-exempt, wouldn’t it? No higher rate taxpayer in their right mind would put money into a pension to be taxed when they drew the pension, would they?
Sir Steve Webb: I don’t think I am saying that. I understand what you are saying, but the basic structure in a relief-at-source regime is that you put your money in net of tax, and HMRC write a cheque to your pension scheme. If you are in NEST, you put in your money out of your take-home pay, and the Government give you basic rate relief. It is a Government contribution into your pension. That is what we do now. I am just saying that the value of that should be tiered. That is literally all I am saying. What happens at the other end is the same—tax-free cash stays the same, taxed as income on retirement, as currently.
Q136 Nigel Mills: What I am saying to you is that once you have exhausted your bonus, or your gift from the taxpayer, you would be mad to put more money into a pension scheme, be taxed on the income that you put in and then be taxed when you drew the income back out at the end. That would not be a likely system for people, would it? You would effectively be moving to the lifetime ISA. I think you were in government when George Osborne tried that. You would effectively end up there, wouldn’t you?
Sir Steve Webb: There is an element of that. I guess the distinction I would make is that higher rate taxpayers aren’t getting no tax relief. They are getting—I said, £1,000 and £1,000. Maybe the next £1,000, they get £500. So as you say—
Q137 Nigel Mills: At some point, you stop.
Sir Steve Webb: Yes, you stop. But—dare I say it?—I don’t care. We have got a problem here. We have got people on £15,000 or £20,000 a year who can’t afford to stop work. We have got people on £25,000 a year. If people like me get to a point where I don’t get any extra reward for pension saving, so what? I can choose not to.
Q138 Nigel Mills: I am just saying to you that your scheme would not just not reward them, but would actively penalise them by double taxing them. You would have to recast the whole thing.
Sir Steve Webb: You would, but if you think about what we are doing to limits at the moment, there is a lot of that going on now—you know, freezing the lifetime allowance for five years. That is going to bring an awful lot of ordinary people bumping up against those thresholds. So in a way we are already capping tax relief for higher earners; we are doing that now.
Q139 Nigel Mills: Yes. I suspect your proposals would make DB schemes for higher earners even more complicated.
Sir Steve Webb: You would have a different regime for DB. I think you would just have a lifetime allowance for DB.
Q140 Nigel Mills: That is the only solution you can think of.
Sir Steve Webb: If you want to get serious money. I come back to my earlier points. We have got to get the contribution rates up. We have got to increase coverage.
Auto-escalation is the other thing—people, when they get a pay rise, by default put a bit more in and they can opt out. It’s “Save More Tomorrow”. There are British companies who do this now. I think Heineken do it for their employees. You pre-commit that when you get a pay rise, a bit more will go into your pension, unless you opt out. These things just work. We don’t need more commissions or anything—we know that they work.
Nigel Mills: That is auto-escalation?
Sir Steve Webb: Yes, auto-escalation.
Q141 Nigel Mills: It is like rolling back the years 2010 to 2015. We have done defined ambition—that one was got on the statute book in the end. We’ve just about done that. We are now on pot follows member.
Sir Steve Webb: Yes, quite.
Q142 Nigel Mills: Jeannie or Ros, have you got any other brilliant quick solutions to fix Steve’s slow-motion car crash?
Baroness Drake: Two things. I think you have to distinguish between the shorter term and the long-term issues you are addressing. The Pensions Commission was largely focused on the long term. We are heading for a kind of car crash in 20 or 30 years’ time, so you are designing something that will get you into a better position in 20, 30 or 40 years’ time.
We couldn’t solve the immediate short-term legacy issues, and we didn’t address them, in a sense. You know, lots of poor women, because they were left on very low state pensions because there was no crediting, or whatever—women still dominate in the pensioner poverty league; the fact that self-employed men could only get the basic state pension—they can now get the new state pension; and people benefiting from auto-enrolment in their mid-50s are only going to get a certain amount of time. You have to look at a set of measures that deal with your short-term problems—I know you don’t want us to go on, so I won’t go into that—and you have to then design something that is stable and workable over the long term, and keep those separated. They are a whole when you have got your policy worked out, but what is it you are trying to address?
On the tax relief problem, when we looked at it, we were obviously taking into account what is sustainable over the long term in terms of pensions. That changes over time. That is not an argument for not putting up the contribution rate. What we also said is that in terms of increased dependency ratios and more older people and morbidity challenges and whatever, the state exposure to catering for pensioners and benefits for pensioners—depending on how you define benefits—also rests in the social care and the NHS system. When you are looking at sustainability, you really ought to have a comprehensive view across all three. If you improve somebody’s pension but there is negligible support for social care, that affects the value of their replacement rate, or the minimum load of the pension savings you have achieved. It also goes to sustainability. We are now seeing the use of NI to start to address social care, although that is largely going to the NHS at the moment.
When you are looking at what is sustainable in relation to tax, NI and the percentage of GDP going to pensions—we certainly recommended that the percentage of GDP going to pensions had to go up—you also have to have an eye on the total challenge you are managing around the increased dependency ratio due to people living longer and having lower incomes when they come to retirement. I tend to look at it more holistically, in terms of what you allocate to pensions.
Q143 Nigel Mills: In theory on the numbers, you could scrap tax relief and put up the state pension by 50% at roughly the same cost, and then leave saving as completely voluntary. I am sure the pension industry will be falling over, and my invitations will be suddenly disappearing, but that would be an alternative, wouldn’t it?
Baroness Altmann: That is sort of along the lines of something I was suggesting with the compulsion. You have a basic baseload minimum that takes you above poverty, including the state pension. The state then has no interest, at the time you retire, in worrying about whether you are in poverty, because you shouldn’t be. You, though, would want to have your own extra money, and the pensions industry would have a huge vested interest in enticing you to buy its products. At the moment, we don’t have that D-to-C approach because the pensions industry is being handed its customers on a plate via auto-enrolment. The very wealthy are helped to take advantage of the very generous tax reliefs that they can enjoy.
Q144 Nigel Mills: I seem to recall that when Sir Steve introduced the new single-tier state pension, that was meant to be pegged at above the poverty threshold, so it fixed the very situation you just set out. Are you saying that we should be using a different measure?
Baroness Altmann: It doesn’t, because pension credit then opens the door to so many other benefits that can add huge amounts of extra money, so you could still lose out significantly by having an overall pension just slightly below the level at which you qualify for pension credit. That is a problem with our system, and it goes back to complexity. We have enormous amounts of leakage of taxpayers’ money within the pensions arena, including in state pensions. Why don’t we pay a much bigger state pension by rolling in all the extra benefits that pensioners get, such as the winter fuel payment, which we have just increased substantially, but which is tax-free? If you are a higher rate taxpayer or a basic rate taxpayer, it is worth much more to you, whereas if it were part of your state pension, it would be taxable.
There is another important element of tax relief. We looked at the £1,000 match initially when we did the modelling in 2015-16 for that very major review of tax reliefs, which in the end was shied away from. The modelling showed that the costs of that are extremely high, and you don’t really have anything left over to incentivise much more above that, relative to most current costs, partly because there is an enormous extra cost of national insurance. It is not just tax relief. Employers, particularly, don’t pay national insurance. Salary sacrifice is a brilliant deal, but nobody pays national insurance on their pension. Again, apart from the tax-free cash, there is leakage throughout the system, which tends to divert money away from the low-income groups that could be used to help higher-income groups.
My main message is that the pensions industry needs to step up to the plate. Yes, we need to simplify the system so that people have a hope of understanding it, but if the industry can’t sell a product that offers free money to lots of people, something is going wrong. People who are already in auto-enrolment have a pension, but they do not seem to want to, or are not being encouraged to, put more in. We keep coming back to being told, “Well, the Government needs to tell you to”, rather than, “This is why it is in your self-interest to do more”, which it clearly is for so many people.
I agree completely with Steve that auto-escalation can form an important part of that, but it could also be on top of a compulsory minimum, which establishes everybody in pension saving, so that they have got a pension if they want to do more. That is really important to get over the inertia—and then have the approach of auto-escalation. If they get a pay rise, they can put more in, or indeed the pensions industry itself can explain and help them to understand why there are so many reasons for them to do that of their own volition, and very often it is much better than having an ISA or saving money in a bank.
Chair: Okay. Thank you. We are a bit up against the clock, but there is one more issue that we would like to cover and Chris Stephens is going to raise it.
Q145 Chris Stephens: Thanks very much, Chair. As much as I am touched by the panel’s concern for males in their late 40s like me, I am more concerned about self-employed and gig economy workers, because we have only touched on that issue.
Baroness Altmann, if I could start with you, you will be aware that a number of people in the gig economy are women and black, Asian and minority ethnic workers. Chris Curry, the director of the Pensions Dashboards Programme, told us that the 2017 review looked at possible solutions to increase the number of self-employed people with suitable pension savings, but everything had drawbacks. Five years on, are we any closer to finding a solution, or are there any particular approaches that you support that would help self-employed people?
Baroness Altmann: I don’t think we are any closer and, as Steve has already said, we might even be further away from getting more self-employed people into pensions. Clearly, it has been a difficult time economically and now it is increasingly so.
However, I do think that the promotion of pensions and helping people to understand just how good the products are, with national television adverts and simple language, is part of the answer. If we can do some kind of automatic tax relief for people who are self-employed and make a tax return, and get that money to them, so that you can tell them that at least for every £4 they put in, another £1 will go in from the Government, that might help.
However, I think we need to change the image of pensions if we are going to crack this one properly, because there is no employer to add the money; they are their own employer. The taxpayer, I think, can add basic rate relief. You could have compulsion, but I think you would need to do that for everybody, and that has potential downsides.
Q146 Chris Stephens: Thanks. Baroness Drake, if I can come to you next, it is six years since this Committee suggested auto-enrolling self-employed people through the tax system. The DWP was in some discussions with HMRC about that, but said that it was a few years away from having an option. Do you know if those discussions have made any significant progress, or do you have any other suggestions to help self-employed people that the Committee should consider?
Baroness Drake: I don’t, no. I know that there are discussions going on, but I don’t know what progress they have made; I have not been privy to those.
The situation is getting worse, because the number of people, or the proportion of the working population, that is self-employed, has gone up. There are more lower-paid women in that group of self-employed people and the savings have gone down. For some, the answer rests in getting a different contract of employment that they should be on.
I think that the answer has to be, for most of the self-employed, through the system. The Inland Revenue now has so much information on people that it is extraordinary. They do relief at source—I mean, they fund-backed pension schemes against the records that they have on individuals for that relief at source tax credit. If you have got these self-employed people making tax returns and they are going to make them more frequently, I just don’t know why it can’t be done, to be honest. Lack of will—lack of sense of priority.
Q147 Chris Stephens: Steve, if I can come to you, when you were here in Parliament, I think that things like zero-hours contracts became a massive issue. Do you agree with the Committee’s view that, as a matter of urgency, one way of helping those in the gig economy and self-employed people is for the Government to set out a timescale for legislation to clarify the employment status of those in the gig economy?
Sir Steve Webb: I do. This issue about the boundary between employment and self‑employment is crucial, as Jeannie says, and there are a lot of these jobs that really are employment. It looks like employment, it smells like employment, and yet it is called self‑employment. It just isn’t, so getting that boundary right would bring a lot of people in, and in quite large numbers as well. That boundary issue is the first thing.
The second is that we have all been talking about this auto‑enrolment version, and again, why hasn’t it happened? Guess what: it is tax relief. HMRC would have to run it; they would have to enrol people. Self‑employed pension contributions would attract tax relief, and the Treasury does not want to spend more money on tax relief. That is why we have made no progress, and we are going backwards.
Finally, picking up on something Jeannie has just said, we have talked about people with multiple mini‑jobs, some of which might be gig economy and some of them employment. We have this thing called real‑time information now: as soon as you employ somebody, even on a modest wage, you have to tell HMRC straight off, so HMRC sees the whole person—they see both jobs. The individual employer does not, so you cannot use the individual employer employing someone on £6,000 a year to auto‑enrol them, because they do not know about the other job, but HMRC does.
HMRC could combine the jobs, spot somebody over £10,000 or whatever the threshold is, and do a form of auto‑enrolment at HMRC level, maybe with basic rate relief, and enrol them into NEST. This is an area where technology is advanced and allows us to do something we could not have done five years ago, so use HMRC’s knowledge of the whole person, not the individual employer of the individual low‑paid person, because the employer does not know, but HMRC does.
Q148 Chris Stephens: So that will be pressure on the matter of an employment Bill, then. The Government are saying that they will introduce a Bill when the time is right—we have heard that phrase before, haven’t we? They seem to be saying that the aftershocks of the pandemic are continuing to affect the economy and the labour market. Are there any credible ways of saying that the time is still not right to introduce an employment Bill?
Sir Steve Webb: The phrase, “the time’s not right”, has bedevilled pensions. I went to Ireland in about 2012 when they were thinking about auto‑enrolment, and they decided that the time was not right. We did auto‑enrolment off the back of a global financial crash. The time is never right, but if the time is never right, you never fix the problem.
Where you might get some traction is that good employers are being undercut by bad employers, for want of a better phrase. You create something that is not employment to save yourself pensions, sick pay, holidays, maternity and all the rest of it. “Good employers” have a lot of incentive to not want to be undercut by people who are offering less to the workers, so Jeannie would probably say that one of the reasons the CBI were pro‑auto‑enrolment, which was a mandatory 3%, was that all CBI members were paying 3% anyway. If you want an ally for this, ironically, it is the people who are making people employees with proper fringe benefits. They are on your side in this argument, so “make them your allies” would be my advice.
Baroness Drake: May I just add a qualification to that? You have to look at the supply chains of good employers. Good employers can be good at the front, and their supply chains can be putting on the pressure that is driving the gig economy, particularly somewhere like that. Also, is there any good reason? If one looks at the Government’s statements on levelling up, then really, they should be addressing this.
Chair: Thank you all. Sadly, that is all we have time for. It has been a very interesting hour; thank you all for being willing to give us your views, and for a very interesting session. If I could ask you now to step aside, we will invite our second panel to come forward and pick up your seats.
Q149 Chair: A warm welcome to all of you. Thank you very much for being with us; I noted you all listening to the first panel as well. Can I ask each of you very briefly to introduce yourselves, starting with Charles Counsell?
Charles Counsell: I am Charles Counsell. I am the chief executive of the Pensions Regulator. Before that, I was executive director for automatic enrolment at the Pensions Regulator and then chief executive of the Money Advice Service.
Chair: It is worth putting on the record that you have told me that you are planning to step down next March, so thank you very much for what you have done. You may well be back before next March, but let’s put that on the record anyway.
Charles Counsell: Thank you, and may I also say congratulations to you, Sir Stephen, on your knighthood?
Chair: Thank you very much.
Sarah Pritchard: May I also pass on my congratulations on your knighthood, Sir Stephen? I am Sarah Pritchard; I am an executive director for markets at the Financial Conduct Authority. I am jointly responsible for all of its supervision, policy and competition work, with Sheldon Mills. I am also responsible, as part of a broader range of activities, for pensions.
Caroline Siarkiewicz: For the power of three, congratulations on your knighthood, Sir Stephen. I am Caroline Siarkiewicz; I am the chief executive of the Money and Pensions Service. Our role is to be there to provide guidance for people around their money and pensions. We also fund debt advice in England.
Q150 Chair: Thank you all very much. To start with, I will put three points to you. Could each of you tell us what you think the main challenges for pensions savers are today, then what each of your organisations is doing to address those challenges? Then, given the broad agreement on the need to increase pension contributions further—beyond where we are at the moment—how do you think the Government should take account of current cost of living pressures in moving in that direction? Let us do it in the same order, starting with Charles Counsell.
Charles Counsell: In terms of challenges, as we heard from the previous witnesses, there are clearly significant challenges in the degree to which people are saving enough for their retirement. That is a complicated picture because we know that, again, as we heard in a previous session, the degree to which people are saving enough depends on their demographics—gender, ethnicity, disability, and other factors. That is No. 1. No. 2 is that we have a continued challenge in engaging individual savers on saving and encouraging them to make decisions on their own behalf.
Turning to what we do as an organisation, first, of course, we are responsible for maximising employer compliance with automatic enrolment duties, so, fundamentally, ensuring that employers are doing the right thing by their employees. That is putting the employees into a pension scheme in the first place, once they are eligible, then continuing to make contributions to the minimum levels.
We set out, in the strategy that we published last year, a new ambition to focus on the saver and on ensuring that they are at the heart of everything that we do. We set out five priorities in that. I think that, for this hearing, two of those are particularly important. The first is around decision making, because one of the unique things about pensions is that, despite the fact that it is a consumer product, almost all of the decisions are made—partly because of the lack of engagement—by others on behalf of the saver. For us, ensuring that the decisions made by others are in the best interests of the saver is absolutely crucial.
The first example of that is ensuring that we have more diverse trustee boards, because we know that a diverse trustee board will make better decisions and the outcomes for savers will be better as a result. The second is ensuring that trustees are making good decisions around climate change risks and opportunities. Again, those are decisions that are made on behalf of the saver.
The second key priority is establishing, with the FCA and the DWP, a framework for value for money. Again, we have a consumer product here where we do not have a value for money framework. We are driving, alongside the FCA, the putting in place of that framework. We have just issued a response to a discussion document that we published last year, which sets out how that framework will work, broadly. There are three elements to it: investment performance, service and governance communications, and costs and charges. All three of those elements together represent how you get value for money.
At the moment, the focus really is on costs and charges. We need to move away from that to ensure that it is value that we are looking at. By having a framework, we are getting to the point where schemes are declaring how they are representing value for money. I think that that will drive improvements in value for money in its own right, and give us visibility of the degree to which schemes are offering value for money.
I think the third part of your question was about the cost of living challenges. It is difficult for us to have a complete picture of the cost of living challenges and their impact. We referred earlier to the 2017 review; what we know is that as we increase contributions through phasing—when it went from 2% to 5% to 8%—the data we have looks at the degree to which that had an impact on opt-outs or cessations and the degree to which it increased levels of non-compliance. In both cases, there was no significant increase in opt-outs, and there was no increase in non-compliance. Sir Steve Webb talked about “no time is the right time”; it seems to suggest to me that you can do these things, and you can make the change through the 2017 review, for instance, and there will not be an increase in non-compliance as a consequence.
Sarah Pritchard: I think the first part of your question was, what do we see as the main challenge facing pension savers? I want to echo what Charles just articulated, but in the context of the feedback statement that we provided yesterday in relation to the consumer journey, which really brought out three areas of consumer harm that we are concerned about. Then I can talk about the package of measures that we are working on jointly with TPR and others in response.
There are no surprises: the three themes that come out are very much themes that have been raised at this Committee before. First is a lack of engagement and understanding from consumers about pensions, which are viewed as complex products. We are concerned about the levels of understanding that people have. We want to make sure that people know how to exercise good choices and engage and understand their pensions effectively.
The second harm is that people remain in poorly performing products that do not reflect value for money. That is where it is really important to draw on the work that we are doing jointly with TPR in relation to value for money. There are other steps that we have taken, looking potentially at helping the self-employed through rules that we are consulting on at the moment on default investment options for those in non-workplace schemes. Through that, we are helping to make sure that people are encouraged into products that perform well for them and meet their needs.
Thirdly, as we have touched on before and you have touched on in a separate Committee hearing, we are concerned that people are susceptible to scams. That is where some of the evidence that you have heard previously is relevant, in terms of the steps being taken. The broader engagement piece, I suspect, we will come back to later.
We are doing work collectively and jointly, and the stronger nudge came into effect from 1 June. It is very early days, but there is an opportunity there to nudge to take up Pension Wise guidance. We all want to see how that develops in terms of increasing the take-up of guidance. Overall, in relation to guidance and ensuring that consumers have a greater level of engagement, the main theme that came through our consumer journey feedback statement yesterday is that there is no one silver bullet to address this. To address all those three harms, you really need to look at the package of measures and regulatory activity that we are working on jointly with TPR and other colleagues.
Finally, to touch on the cost of living, the areas we are particularly concerned about would be moments in time where we may see increases in potential scam activity or consumers concerned about scams. People seeking to draw down their pensions potentially access pension savings because of cost of living challenges. We have not yet seen that come through the data, but we need to be mindful that there is always some lag in the data that we capture. We are working jointly to issue comms and reminding people of the importance of the guidance services that exist, and pointing people to our ScamSmart activity. That is an area we will keep in very close focus in the weeks and months ahead, as we are in the cost of living crisis.
Caroline Siarkiewicz: I do not disagree with the challenges that have been put forward by both Charles and Sarah, as well as in the previous session. I want to come at the question from a slightly different angle. For me, it is about asking what are the challenges that people are facing in their day-to-day lives? One of the things that we know at MaPS is that only 36% of women feel that they know enough about how to plan for their retirement. For men, that number is not much better—still only 54% of men think that they know enough about how to plan for retirement. That, for me, is the real area that the Money and Pensions Service should focus on. Our role is to help engage people with the complexity of the pensions landscape—something that we have already heard about. One of the things that is really helpful—and one of our agendas for change—is the ambition that 5 million more people will know how to plan for their retirement as we go forward.
The important thing is linking the services that the Money and Pensions Service can provide by working collaboratively with multiple organisations. That is a way to drive up engagement and to provide the information and guidance that people can use to make better decisions, to understand their options and to start teasing out the complexity of this landscape so that they can plan and prepare for their future in retirement. Our role is very important in both the accumulation phase and the decumulation phase—when people enter retirement and draw down on their pots. The biggest challenge for me is working out how we help people understand the environment, landscape, options and choices that they have—bearing in mind the huge numbers of people who do not know where to go to do that.
The second question was around cost of living pressures. We are obviously at the beginning of that, and in terms of the number of callers coming through to the Money and Pensions Service, we have not seen any spikes in the number of people who, for example, might be asking, “How can I access my pension pot because I am running short of money?” We have not seen that yet, but we are keeping a very close eye on it. We will need to monitor any trends or changes to make sure that the right information and guidance is available for those people. My view is that cost of living pressures will clearly impact, but we have not seen what that is going to look like yet.
Q151 Sir Desmond Swayne: The Office for Budget Responsibility has identified a pandemic-driven increase in the number of over-50s bringing forward their retirement plans. Do we know enough to know if that is something we should be worrying about?
Caroline Siarkiewicz: I will take that question first, and then perhaps my colleagues might want to come in. I think that goes back to what I have just said—we do not yet know. There are little pieces of evidence out there, some of which are anecdotal, but it is not sufficiently clear whether it is about the number of pots or whether people are drawing down on a very small pot—that might make perfect sense, but we do not have enough data at the moment. We absolutely need to collect and scrutinise more data and review that issue. However, we have to be careful when drawing any conclusions just yet.
Q152 Sir Desmond Swayne: Does anyone wish to add anything to that?
Sarah Pritchard: I absolutely endorse what Caroline has said about not yet knowing the full extent of the data. I want to highlight one bit that we do know: from what we have captured through our retirement income data, we saw that withdrawals significantly fell at the start of the pandemic and then started to pick up towards the end of 2021—I should caveat that our retirement income data only covers contract-based pensions. It is not possible to tell whether increases may be through delays caused by 2020 or not. The important issue here is understanding and having visibility of the right sort of data that enables more assessment on what that may mean. At the moment we do not have that.
Charles Counsell: I completely agree about the point on the data. It is too early to say whether or not there is an issue that may be emerging because of this, for all the reasons that Sarah and Caroline have talked about. Of course, we do not yet know the nature of this. What it might be signalling is something that we have known for some time: the nature of retirement may be changing. It may well be that what we are seeing is that people are starting to draw down, but that is part of a wider picture in terms of their household income. They might have other jobs. They might be self-employed alongside drawing down on their pension earlier than they would have done traditionally.
I am speculating a little bit because we do not have the data yet, but I think we know that that is the direction of travel in which the country is going, so we need to think about whether we have a model that works for that change in the nature of retirement.
Q153 Sir Desmond Swayne: On the issue of making the receiving of pension advice the norm and our quest in that respect, we made a number of recommendations, which the Government rejected, saying that it would only consider further measures when it had been able to assess whether its strong nudge had had an effect. When and how will that be measured?
Caroline Siarkiewicz: Stronger nudge came in, as we know, on 1 June, so we are literally in the first few days of that. What I can tell you already is that we have had significant hundreds of appointments being booked. We have increased our capacity to be able to take in more people coming through. We do not know, to be perfectly honest, how many people will come through through this stronger nudge. There is all sorts of speculation about how it will not be enough and not make enough of a difference, but we do not know that and I do not think we should rush to evaluate something that has been in place for just 10 days. My view is that we monitor very closely and understand what will come through—we evaluate that, analyse that, and then we look to say, “Has it actually achieved what the Government wants it to do?”
At MaPS we then set the policy we are delivering against the Government policy initiative. We will work to do that and make sure that people are coming through to us, getting the appointments that they need, evaluating the intervention, making sure that they are getting quality guidance and support, and then we will monitor it to make sure we have enough capacity there. We will work very closely with DWP, our sponsoring Department, so that we can feed that data through. I will be more than happy to share the data with the Committee, and happy to send that through perhaps quarterly so that you can start to see for yourselves what is coming through.
Q154 Sir Desmond Swayne: We also recommended that the FCA and MaPS develop proposals to ensure that customers acquire a much better mix of retirement products that will suit them over their retirement. How is that going?
Caroline Siarkiewicz: It is probably worth separating out what a pension freedoms appointment does—the appointment that people have at age 50-plus to look at options for using their pension pot—and what general pension guidance MaPS provides. The pension freedoms appointment is a very scripted, specific set of information pieces. It sets out what the options are for people to do with their defined contribution pension pot and the age that they can take it at. One of the options is that people can take a mix. It does not just have to be an annuity, a drawdown or cash. It does not have to be a range of other things, but one option that is discussed with anybody calling through for one of those pension freedom appointments is the mix. That is actually happening.
What we have found since MaPS has been around—it is only just three years now—is that people still want further information. What we find is that our general pension guidance appointments can provide some of those additional touchpoints and additional information pieces and guidance that people will need. In short, we are already providing information and guidance to people on actually drawing down on a mixture of products and services.
Sarah Pritchard: Stronger nudge will be an important moment in time, when it is important to see what effect that has through the data. As Caroline said, ensuring that people understand the range of options available to them is something I would expect consumers to have better understanding of through the Pension Wise take-up.
Overall, you may have seen the whole suite of measures that we are considering jointly with TPR2 as part of the pensions consumer journey yesterday, when we published the feedback statement about the areas we are giving greater focus to. As part of that, we talked about the new consumer duty; we will confirm rules from an FCA perspective by the end of July.
On the new consumer duty, this is a moment in time when we expect firms to really consider what good outcomes for consumers look like, and to put the consumer at the heart of the journey all the way through the lifecycle. While as regulators we look at the moments in time when we can nudge people to Pension Wise, through the new consumer duty we want firms to take that step back and look at, “Are they delivering good outcomes?”, “Are there different opportunities to improve customer communications?”, or, “Could nudges be given earlier?”.
We consulted, as part of our stronger nudge final set of proposals, on the time at which the nudge is delivered. Some of the feedback was that an earlier nudge might also be beneficial. These are some of the areas that we are considering in the potential for further developments. First off, however, we want to see how effective the stronger nudge—a few days old—is to start with.
Charles Counsell: I have a couple of points to add, if I may. First, our role in stronger nudge is to make sure that trustees know that they have a duty to offer or to book Pension Wise appointments, so we have set out guidance for that. We also want to encourage trustees and indeed employers to make sure that their members or employees are aware of Money Helper, and therefore go to it and use the Money Helper service.
I want to pick up on the point about our response to the pensions consumer journey that we published yesterday. The point in that is about the role that employers can play here, including in offering things like the mid-life MOT or considering life events. We know that life events are one of the triggers for when people may reconsider their financial circumstances, whether that is returning from maternity leave, divorce or other things. There are things that we can do to encourage employers to help their employees in this space.
Q155 Sir Desmond Swayne: We expressed the concern that it certainly was not apparent to us that there was a framework for judging the pension freedoms. How are you going to make the evaluation of whether further intervention is necessary?
Caroline Siarkiewicz: To speak on behalf of the Money and Pensions Service, our role is very much that of the delivery organisation of a Government policy. We will not be judging whether or not the Government policy is successful; our focus will very much be on, “Are we providing the right service for people?”, “Can they get access to appointments?”, “Is the quality of that intervention good and high?”, and, “Are we getting good feedback from customers?”. Our focus will be very much on that. It will be for DWP to decide whether it thinks that the policy itself—in terms of the numbers approaching and coming forward—is successful.
Sarah Pritchard: What will be very easy to count, in terms of data, will be numbers of appointments with Pension Wise delivered through the stronger nudge. If we look at what stronger nudge is intended to assist with in terms of consumer harm, it is very much intended to assist with low levels of consumer understanding and engagement. That is genuinely a difficult issue to measure. There are several touchpoints where we are able to have some visibility into that, so our financial lives survey—the FCA is on its third financial survey—or the data collection exercise, which is a moment in time when this year we reached out to over 250,000 households to get data on a number of different issues that cover financial understanding, pensions included. We also have the retirement incomes data review, which we publish annually—typically, in the autumn—and which deals with pots access for the first time, but also the numbers of consumers who have advice and guidance.
I do think that how you measure levels of consumer understanding is a difficult question. Our financial lives survey is one element, but I wouldn’t expect to see a very—there is no silver bullet in terms of delivering increased engagement, so even with stronger nudge, I wonder how long it would take to see that feed through to the measures that we have, such as the financial lives survey.
Charles Counsell: I completely agree. It is in the end about outcomes and about whether savers have made the right decisions at the point at which they do make decisions. And frankly, understanding why someone has made a particular decision is really complicated. It may be that they have decided, for instance, to cash in a bit of their DC pension, or their DC pension, and they are clearing debt, or they are investing in another perfectly justifiable product. So it is a complex area, but there is an awful lot of data out there. I think it is about looking at that data—Sarah has talked about some of that data—to understand it better.
Q156 Nigel Mills: Caroline, you have kindly offered to share the data on the new trials. Could you just explain why the stronger nudge report omitted the data that showed that somebody was something like three or four times more likely to attend a Pension Wise appointment if they had rung up with a general inquiry about their pension, rather than wanting to do something specific with their pension? I think that was revealed by an FOI request recently, and it seems to be quite relevant data when we are all agonising about how we get people better informed about their pension options, yet a third of your trial was ignored in the final report.
Caroline Siarkiewicz: I think what you are asking me is about what people are saying they need from us. When people contact us, what we are finding is that if they phoned specifically and their appointment is a Pension Wise, pension freedoms appointment, quite often we have a drop-out—well, we have a drop-out rate of just under 10%. This is people who do not actually stay on for the whole appointment, because what they are flagging in that appointment is that actually they want to have some further guidance and so we then need to give them a pension guidance appointment.
One of the things that we are trying to do with our pension transformation strategy is to put in place triage, because one of the things that we want to do is to make sure that we are being responsive to people’s needs. By putting in a triage space right up front, when people call us, we can be sure that we are capturing all of their needs and make sure that they get to the appropriate outcome and intervention.
Q157 Nigel Mills: Caroline, I think what I was asking you was this. You did a trial of stronger nudge a couple of years ago and produced a report, but omitted from that the 1,300 people—a third of your sample—who hadn’t rung up and said, “I want to access my pension tomorrow,” but had rung up and said, “Please can you give me some information about what I can do?” In terms of referrals, that cohort of people was three times more likely to go through with a Pension Wise appointment than people who had actually made their mind up and were ringing up to do something. Yet somehow that did not appear in your report on the stronger nudge trial. It is quite relevant evidence when we are debating whether we should be trying to auto-enrol people at age 50 so that they have information before they make a decision, or whether we try to intervene at the point of the decision to make sure it is the right one.
Caroline Siarkiewicz: Yes, it is a perfectly—
Nigel Mills: I hope you accept that is quite fundamental and useful information. It is not clear to me that everyone would have chosen the same stronger nudge pilot now had we known that the results were three times better doing something different. Just explain why that was not in your report—it was a third of the sample.
Caroline Siarkiewicz: Yes, can I respond to the Committee in writing? I will do that later—this afternoon.
Q158 Nigel Mills: Oh, so you are in a position to write to us in a couple of hours but not in a position to explain to a parliamentary Committee while you are here. That seems strange.
Caroline Siarkiewicz: It is not strange. It is not something that I’ve got in my briefing, to be perfectly frank, and I just want to get my pension expert to draft that for me.
Chair: Thank you. Neil Coyle has a quick point to raise.
Q159 Neil Coyle: Yes, it’s a follow-up to Nigel’s one. And I should say this: sorry if I’m scowling more than usual, but I have a trapped nerve. First, Caroline, you have offered some more information to the Committee, which is really helpful, but following on from Nigel’s question, perhaps we could have the full picture and anything coming forward could include everyone who’s approached.
My question was about the evaluation. There will be people who choose to do nothing after receiving the information—some for very good reason because you are helping them avoid fraud, for example. How will that be evaluated and picked up? In your comments, you suggested that that might just be from the individual’s response and feedback, but that does not sound like a strong enough data set to evaluate the service.
Caroline Siarkiewicz: We need to ensure that we are collecting data from various points. One of things that we will be able to share, and we do share, is the number of appointments that are made, the number that are completed and the outcome of those appointments. One thing that is particularly strong is the assessments of quality, which come back from people who have been through the service. Those are in excess of 90%. Those are all touchpoints in data that are useful for us to collect. Where we can actually share this, which was the point that I made earlier, we now know from feedback from people using our services that the scripted, narrow focus of a pension freedoms appointment sometimes does not give people all the information they need at that point in time. For us as an organisation that is delivering services to people, we want to ensure that what we are providing is what they need and to ensure that we can do that.
We are funded through a variety of different levies. The levy that funds our pension freedoms appointments is different from the levy that funds our pension guidance services and the MoneyHelper, too, so we have to ensure that we are reporting back on each of the interventions funded through those different levies. There are a number of touchpoints, and we take them into account. It is important that we ensure our services are fully focused on meeting people’s needs. Where we find that people have other questions or need further information than what they would get through a pension freedoms or Pension Wise appointment, we ensure that we provide pension guidance through our MoneyHelper services.
Q160 Neil Coyle: So you are linking through to others. I am just concerned that there is a chance to capture and tackle some of the fraud, which might be being missed, and no one is talking about how you link to other agencies on that. I am also concerned—Charles and Sarah are equally welcome to chip in here—about how cases are captured where people are supported to do nothing as the right thing to do, as otherwise it might look like a service is being paid for that has no value to those who are doing the bean counting in Government Departments.
Sarah Pritchard: May I just come in with a few extra points?
Chair: If you would, then we need to move on.
Sarah Pritchard: In the final stronger nudge rules that we confirmed, we placed requirements for record keeping on those who have received advice and guidance and those who have chosen to opt out.
If your question goes to the extent of whether people make a different decision after an appointment with Pension Wise, I think it is a difficult one. It would be difficult to have full visibility of that. I don’t know whether we would necessarily have that throughput of information, but just to repeat what Caroline has said, the satisfaction rates are high. We have also said that we will give some consideration to our regulatory data capture.
Q161 Dr Spencer: You will have background data in terms of what people are doing, so you will be able to compare that to the new intervention and see whether people are making different decisions. Going back to Neil’s point, if your primary assessment point is, “Well, people were satisfied with the discussion,” you could say that for all sorts of things that make people feel satisfied. You could have a discussion about elephants and dinosaurs, and they might feel satisfied about that—certainly, my young children would prefer that to a discussion about future pensions. How you are judging quality is a bit confusing.
Caroline Siarkiewicz: We are interested in ensuring that people receive the information they expect to receive. We ask them if the information has helped them make a decision. There is a raft of things. It is not just, “Were we good, bad or poor?”. How we assess the value of that intervention is broader than that. The important thing for us, as I say, is that people feel that they have got enough information to go ahead and make a decision.
As we touched on earlier, there needs to be linkage with other services, so that if other needs come forward while we are having those sessions with customers, we are able to support them. Whether it is an issue around debt, an issue around money or an issue around fraud, we will either deal with it ourselves or forward it to other organisations that can support and help them.
Chair: We are going to stick with guidance and support, and Steve McCabe has a question.
Q162 Steve McCabe: Morning. I just want to ask about the issue of employers being able to give a bit more support. It came up in the Committee’s previous report on accessing pension savings, which Sir Desmond has already referred to. Basically, this Committee recommended in March that the regulators should get together and set out some kind of plan for how it would be easier for employers to give guidance and signpost to advice. Have you done that, and what is the plan?
Sarah Pritchard: May I go first on that? Up front, I want to say that it is important to realise that the advice/guidance boundary is there for a good reason, which is to protect consumers and make sure that where financial advice is required, it is high quality and there to meet the needs of consumers. We have seen the consequences when good advice is not sought. The definition is in legislation, so there are certain steps that we as regulators can take in terms of issuing guidance about what falls within and without. But in terms of changing the definition, that would be a matter for Parliament and Government policy makers. We have done a lot of work on this issue, which I appreciate is a difficult one that is raised is very regularly. In 2017, we issued guidance on streamlined advice. In 2018, HMT changed the definition and we issued perimeter guidance. Then just last year, jointly with TPR, we issued guidance for employers and trustees on areas that are safe in terms of the advice/guidance boundary and where close attention needs to be paid.
We do think that firms can do more themselves, and a range of different approaches are being taken. We have seen some examples through very recent engagements since the last Committee meeting that I attended. We have kicked off some work with the ABI, particularly to bring together practical examples of where this is causing an issue. Although that work is at early stages, when we have concluded it, we will be looking to share the main themes and any extra guidance more broadly. Those conversations are really helpful for us in articulating and understanding the practical examples that are causing difficulty.
To give an example, we think that some firms are reluctant to offer any guidance once they become aware of any details around someone’s personal circumstances. If they understand that an individual is on benefits, they are more reluctant to signal guidance around the impacts on benefits that some pension decisions may have. Of course, that is the benefit of those practical conversations with industry, whereby we can start to understand what is causing concern.
So we are doing the work with ABI. Our new consumer duty is also important in this context, because this is very much going to be focused on firms showing that they are delivering outcomes for consumers. In those contexts, when we finalise the rules, it will be less of an option for firms to simply avoid providing support to consumers where they are able to do so. My encouragement is that the new consumer duty is another moment in time when the industry can take a step back and examine for itself whether there is more that could be done.
The other thing I want to touch on are the services we offer that are being taken up and that are helping more innovative propositions to market. We offer our innovations pathways and previously named advice unit, which is now encapsulated as part of that innovation pathways work. It provides support to innovative firms, particularly in the advice space. We have supported 74 firms with an advice business model, and there are some good examples of how we have assisted firms to innovate in this space, providing online nudges and tiered advice services with low costs.
That said, I think it is an important issue and we need to get to a really clear understanding of whether there are more steps that firms can take. We can’t change the legislation ourselves, but if there were genuine issues around the legislative definition, shared by us, including the conversations we are having—
Q163 Steve McCabe: Do you think the definition needs changing? Is that what you are saying?
Sarah Pritchard: No, that is not what I am saying. I am saying that there is more that the industry can do right now.
Q164 Steve McCabe: Are you satisfied with the definition as it stands?
Sarah Pritchard: I think more can be done within the existing framework. That would be a matter for Government and for policy makers—
Q165 Steve McCabe: Yes, I know, but presumably you must give them advice on something like this. With your experience, I wondered what you view of it was?
Sarah Pritchard: I think we would have to articulate the evidence base for the need to suggest a change in the legislation, and I don’t think we have that information as yet.
Q166 Steve McCabe: Okay, fair enough. I will come to the other two witnesses in a moment, but can I ask one last thing, Ms Pritchard? At the start of your answer, it sounded to me as if you were making a reasonable defence of the boundary and why it is good thing. In its previous report, the Committee suggested that perhaps the notion of limited advice or enhanced guidance might be a way of helping employers to improve the service you deliver. Does that make sense? Is that constrained by the definition and would that be too difficult?
Sarah Pritchard: I would like to point to the work that we have done already in terms of defining personalised guidance and streamlined advice. I think that is sufficient to capture some of the recommendations from before. When our work with the ABI reaches a relevant point, I commit to sharing the outcome of what we have learned with the Committee, because I think it would be of interest in terms of showing the types of scenarios that we have identified and what the plan of action may be, when it gets to that point.
Steve McCabe: Thank you. Do either of the other witnesses have anything to add?
Charles Counsell: I will just add a couple of things briefly, if I may. First, to build on what Sarah has said, we work closely with the FCA and we are making sure that we have consistent guidance for employers and trustees. There is always more to be done and we will continue to work with the FCA on that.
We have also set up three panels, two of which are relevant to this, to help us better understand what is needed in this space and in other spaces. That is a panel of savers or organisations representing savers who will help us to understand better the sort of issues that need addressing, and also a panel of employers for the same reasons. That will bring those two views into the organisation.
The other thing I wanted to talk about picks up on the point about the industry picking up here and doing more. There are some quite interesting models being developed by trustees of DB schemes. For instance, one model is taking on advisers and assuring the advice that is offered—they are providing assurance about the adviser firms in the first instance, which are part of a panel of advisers to their members, and then they have a mechanism for assuring the advice. I think that is an interesting development in terms in making available advice to scheme members.
Steve McCabe: Caroline, do you have anything you want to add?
Caroline Siarkiewicz: No. This is more relevant to my regulatory colleagues, because obviously the Money and Pension Service does not do financial advice; it does guidance. We are very close to making sure that what we are delivering fits that definition of enhanced guidance and that we give people the support they need.
Q167 Steve McCabe: Sarah, you talked about the work you are doing with the ABI. You will be aware of the concern we have raised about the dashboards and whether signposting people to guidance or advice would be banned because it would be considered to be advertising. What are you going to do about that?
Sarah Pritchard: What is important in that context—I am conscious that MaPS is leading on the dashboard programme itself. We will be consulting later this year on setting out the rules for other qualifying dashboard service providers. I am aware that it has been raised as an issue by the ABI. That is something that we can have a look at in that context.
In terms of signposting, I don’t think signposting to guidance would fall foul of the advice/guidance boundary, but if that is extended to a sort of throughput—encouraging transactions through the dashboard itself—that of course takes the dashboards into a wholly different remit that is not within scope to start with. I am aware it has been raised and it is something that we can pick up with them. To the extent that we need to give more guidance to help qualifying dashboard providers understand whether they can signpost off a dashboard or not, that is something that we can look at in the context of the consultation that we will put out later this year.
Q168 Steve McCabe: I don’t know if Sarah was subtly passing the buck to you there, Caroline. Are you going to do something about it?
Caroline Siarkiewicz: Look, our role is not a regulator, so obviously that is a role for the FCA, and we will be working closely with them. Our role in terms of the dashboard programme is to build the central architecture that means that other organisations can build a front end. MaPS will be building a front end and we are already starting now to pilot out with some dummy data to see what that looks like, so that we can start to move through the phases.
I think it is really important that for the dashboards to be successful they need to engage. It is one thing to know where your pension money is but actually it is really important to have services around those. Certainly, as MaPS, we will be looking to use that as an engagement tool to help people to understand what else they might do. There is an issue about being careful, which will be a regulatory matter. I have every confidence that the FCA will be looking very closely at that and we will co-operate in any way we can.
Q169 Steve McCabe: Well, there we go. Thank you. Charles, finally, in a similar vein, this all seems to be about how your best laid plans might run into some difficulty with existing law. You will be aware that some organisations—the USS trustees being one—raised this thing about Privacy and Electronic Communication Regulations and the fact that that might impact on what you are trying to do. Have you got a view on this? Is it a problem and, if so, how is it going to be addressed?
Charles Counsell: Fundamentally, the issue here is about the difference between what is called service communications and marketing communications. There is a risk because of the way that automatic enrolment works that individual savers are put into a pension scheme and they don’t have any option about that. There are no opt-ins to marketing and there are no opt-ins to communications—there are no opt-ins to anything through automatic enrolment. The consequence is that trustees are concerned about whether or not, if they are communicating with members, they stray into providing marketing.
I think there is an issue here that we need to look at. We are talking to the ICO about it and whether it can be addressed through guidance. Hopefully, it can be. If it can’t be, we need to look at the scale of the issue. We need to look at the scale of the potential harm, and then we may need to look at the rules. If we do look at the rules, we have got to look at them from both sides. There is a reason why the rules are there—to protect people against marketing—just as there is a reason why we want people to be able to make decisions around their pension schemes. I recognise the issue. I don’t have an answer here now. We will work with the ICO on it.
Q170 Chris Stephens: I have some questions for MaPS around the Money Helper service pension guidance, and maybe some questions on Pension Wise as well. Caroline, your national goal is to have 5 million more people understanding enough to plan for when they are in later life. How does the Money Helper service contribute to that?
Caroline Siarkiewicz: Our Money Helper service is offered through telephone, webchat, in writing or through our digital tools. Money Helper is to help people throughout their lives. People engage with their money and pensions at different points. The thing we want to do at MaPS is to make sure that, at the appropriate times, when we engage with people, what we are helping them with is relevant to their particular choices and to the situations they are in. It is about being there for people throughout their lives. We start off working with children and young people—with young children getting a financial education—and go right the way through the various life events of adult life, all the way to savings and living off retirement income and pensions. Money Helper is there right the way through people’s life journey with content and telephony and guidance services.
Q171 Chris Stephens: Do you have any targets for take-up of the guidance?
Caroline Siarkiewicz: Yes. We publish and set our targets yearly. This year, in terms of pensions guidance, we have 455,000 sessions that we have capacity to deliver. We expect digital usage to be around 600,000, as well.
Q172 Chris Stephens: Do you have similar targets with Pension Wise? I think there was a concern that there were no details provided in the MaPS delivery plans for any material increase in availability and take-up of face-to-face and telephone-based Pension Wise appointments.
Caroline Siarkiewicz: During the pandemic, face-to-face appointments disappeared in many cases, and we are working with our supply chain to bring that back where it’s appropriate. We have found that, actually, a number of people are satisfied with telephony and digital services, so we will not necessarily replace the same level of face-to-face appointments that we had previously. It is about ensuring that those different channels are available. In terms of Pension Wise, we have those separated out, and we are looking to help. I am just very quickly looking through my briefing so that I don’t have to say I will send the information in later.
Chair: You are perfectly entitled to say that, though, if you wish to.
Caroline Siarkiewicz: I do apologise that I didn’t have that information to hand. As I say, we will be looking to help 180,000 with our Money Helper pensions guidance and 150,000 through Pension Wise.[1]
Q173 Chris Stephens: Thank you. The trial of smart ways to increase take-up of Money Helper pensions guidance appears to have had a limited effect. Would you support a statutory requirement on schemes or employers to signpost or nudge savers to Money Helper?
Caroline Siarkiewicz: There is no requirement to signpost to Money Helper. As I mentioned earlier, we find that, through our Money Helper pensions guidance sessions, we can answer a broader range of questions and information needs for people. We would welcome anything that meant more people received guidance. We certainly understand the value of that—everyone in the room understands that. We would be very much in favour of anything we can put in place to encourage more people to get the guidance that will help them.
Q174 Chris Stephens: This is my last question to you, Caroline. The Committee has been informed that interventions made to encourage savers to use impartial guidance at earlier stages of the pension journey can have a more positive effect than attempts to nudge people at the point of access. Do you agree with that assertion? If so, what could be done to increase earlier interventions?
Caroline Siarkiewicz: I do agree with that. The whole point is that people need to start their journey into savings as early as they possibly can. One of the things we are trying to do through our interventions, whether with digital information and guidance or through our helplines and digital tools, is to help people to understand what they might need to have in place to help them as they move through the different points in their life—the birth of a child, marriage, divorce, buying a home, moving home, changing jobs or losing a job.
We have just created some new content that is helping people to find a way forward, which is also linked very much to the cost of living squeeze, to ensure that that information is available. We are constantly looking to make sure we have got out our messaging—“We can help you with your money today, but we can also help you to plan how to use your money tomorrow.” That is the key message and the key part of what MaPS is here to do: we can help you today, but we can also help you to plan for the future. It is very much about ensuring that our content and tools and the sessions that we have through our pension guiders and money guiders are appropriate and relevant.
Q175 Chris Stephens: Thanks very much, Caroline. Charles, I have some questions for you around gig economy workers, which I’m sure will be a real challenge. What is the main challenge in ensuring that employers in the gig economy meet their auto-enrolment duties?
Charles Counsell: First, let me talk about the approach we are taking with the gig economy employers. I suppose there are three different parts to this approach. The first is to identify where there are gig economy employers who have workers who come under the definition as set out in the Pensions Act 2008, and therefore should be automatically enrolling their workers into a pension scheme. They have a duty so to do. In that respect, we look at employment tribunals, we listen to whistleblowers and we follow up and we take action with the relevant gig economy employer. There have been a couple of quite high-profile cases that you will probably be aware of, where a very significant number of people have been automatically enrolled into a pension scheme as a result, and an awful lot of money has gone into those pension schemes.
We are continuing to work with other gig economy employers, because that is what they are. We currently have work with a number that covers about 150,000 to 200,000 people who we hope will therefore end up being automatically enrolled into pension schemes. That is point one. Point two is that the definition of a worker is in the legislation. What we find is that there are gig economy employers who have contractual mechanisms in place with their workers who do not come under that definition. For me, that is where we need to encourage those employers to do the right thing for their workers in any case.
Q176 Chris Stephens: Can I press you on that, Charles? Some of us want a change in the law to simplify that. Is that something that the Pensions Regulator would welcome? Does the Pensions Regulator have a view?
Charles Counsell: That was going to be third point, actually. I think we need to take stock and look at the effectiveness of the first two. With respect to the second one, we are seeing that the employment market is pretty hot at the moment and, therefore, people are having to think about the terms that they are offering to the people that work for them. I think there is a real opportunity here to get gig economy workers to do the right thing and, effectively, to auto-enrol. In the end, if there is a significant number of people losing out because they are not being automatically enrolled and they are part of the gig economy, I think we may have to look at the definition of a worker.
Q177 Chris Stephens: Should there be guidance from the Government that can help the Pensions Regulator determine whether a group of staff should be auto-enrolled?
Charles Counsell: That guidance already exists. We know what that is and, in effect, it is set out in the legislation about what the definition of a worker is. We also know that there are different definitions of a worker under different legislation—not necessarily to do with pensions but with other aspects. Of course, some time ago there was the Taylor review. The main point is that we need to see whether the first two approaches work; if not, we may need to think about the definition of a worker.
Q178 Chris Stephens: You touched on high-profile legal cases. Let us talk about Uber. Following that judgment, the Pensions Regulator called on gig economy employers to do the right thing and check whether their staff are eligible for auto-enrolment. A simple question, Charles: did they? Did gig economy employers engage with the Pensions Regulator to check whether those people were eligible for auto-enrolment?
Charles Counsell: Some have. There are an awful lot of gig economy employers. Have they all engaged with us? No, they have not. The more we can all shine a light on this and encourage gig economy employers to engage with us and, more importantly, to set up a system of automatic enrolment for their workers, the better. Some of them are engaging with us, yes, but there are a lot of gig economy employers, and I am not for one moment suggesting that they all are.
Q179 Chris Stephens: Thanks, that is helpful. Uber attracted controversy for not providing a sharia-compliant fund for its majority Muslim workforce, and it is now working with NOW: Pensions to rectify that. What can the pension regulator do to help avoid such problems in future?
Charles Counsell: As you say, it is working to put a sharia fund in place with NOW: Pensions. The guidance that we give employers is to consider the nature of their workforce. In the previous session, we briefly touched on relief at source and net pay arrangements. Part of that guidance is to consider the nature of the workforce and which type of scheme to put in place, and therefore whether it should be with net pay arrangements or relief at source. Choosing a pension scheme that has a sharia fund is another example, and there are other examples of things that an employer should take into account when they look at the choice of pension scheme.
I want to come back to something I said at the beginning. I think the value for money framework we are developing is very important. At the moment, it is difficult for an employer to look at which scheme offers value for money. Value for money is not just about costs and charges; it is about the other elements that I talked about, so we very much hope that when we have a framework in place it will enable employers to consider what they want from a scheme and what is right for their employees in the scheme that they choose, as well as whether it offers the value that they want for their members.
Chris Stephens: Thanks very much. That’s very helpful.
Q180 Dr Spencer: My first couple of questions are to Caroline. I want to pick up the question around pensions dashboards. Do you think that the guidance you are putting together could develop into a future iteration of Pension Wise or the mid-life MOT, as we suggested in one of our previous reports?
Caroline Siarkiewicz: As I mentioned earlier, with the dashboard, the thing for me at MaPS is to make sure that our dashboard really is used as an engagement tool in a real way to help people to start to plan. On the mid-life MOT, we are working with DWP on the financial pillar of that particular project as well—that is part of it—so wrapping around those elements of information sources, guidance, opportunities to engage. It’s important that we focus on all those.
Q181 Dr Spencer: I am trying to think how that would work as a structure, but on the overall package of services you offer, are you in support of a trial of an automatic appointment at 50 with respect to one of the interventions or discussions?
Caroline Siarkiewicz: Our role is very much, as I said earlier, delivery. If there was to be an auto-appointment trial conducted, we would be happy to take part in it. We would obviously want FCA and DWP in particular to organise, but our role would be very much to do the delivery of that trial, and we would be content to do that.
Q182 Dr Spencer: My final questions are to Sarah. This is about products for people who are self-employed and the decline in self-employed saving, which, as you know, has been a problem since the ’90s. We have heard evidence that one reason that might be is that, because these are difficult products to sell—some are quite complex—and with the change in the retail distribution review, there is not the same incentive for financial advisers to promote and sell them. What are your thoughts on that?
Sarah Pritchard: We don’t think that there is anything that stops financial advisers promoting pension products to the self-employed, provided that they comply with the requirements around advice, including suitability. Obviously, our changes changed the incentive structure, but there is nothing that stops that right now, so we don’t think that there is anything that prevents people from continuing to advise on those sorts of product.
Q183 Dr Spencer: What’s your take in terms of the decline since the ’90s? What would be the factors behind that?
Sarah Pritchard: It is a cause for concern, and one of the things that came out of the consumer journey feedback statement published yesterday was a difference of approach for those who are self-employed. Some other structural issues were highlighted in that feedback statement on gender and other diversity characteristics too. I think from our perspective as the FCA, we do regulate contract-based schemes where individuals access their pensions directly. We want to see the same protections whether people are self‑employed or employed by an employer, so it is important for us that there is good engagement and that people understand pensions, are invested in products that offer value for money and are protected from scam too.
One of the things that I did want to highlight, in terms of steps that we have taken since the last Committee hearing, is that we want to ensure that those who are invested in individual schemes are offered default investment options to help with some of the complexities around investment decisions. We consulted on rules that we will confirm before the end of the year on what would be an appropriate, diversified basket of investments to support that, together with risk warnings for those who might be holding investments in cash that would not be appropriate for them. That is aimed at anybody with an individual scheme, but self‑employed people should be able to benefit from that. That shows the approach we are taking to make sure that, from the perspective of the products being offered, individuals are supported in ensuring that they have a range of options available.
Q184 Dr Spencer: This is more of a general question for everyone. I know it has been covered a bit, but given that the self‑employed are this very large, very important and very specific group that have to make very complex decisions that workers do not, and that we have heard all sorts of complexities from both panels about how we increase uptake, what is your plan—what do you think the best plan is—to access them and make sure they get support and guidance to make decisions going forwards?
Charles Counsell: It is worth going back to what makes automatic enrolment a success. The reason why automatic enrolment is such a success is that it uses the nudge of putting people into a pension scheme, and then the inertia that people do not come out of it, for a number of reasons.
I do not think it is a great surprise that the self‑employed are not accessing pension savings, to be honest. Before automatic enrolment, individuals did not access pension savings, apart from those who tended to be wealthy, and we were seeing a decline in the number of people saving into pensions. Automatic enrolment, of course, absolutely reversed that, so we have to go back to the basic principles of, what is the nudge mechanism that might work for the self‑employed? You heard from the previous panel that that might well be using the tax system, and in the 2017 review the DWP talked about running various trials, one of which was to use the tax system. I personally suspect that that is the most likely way to get the self‑employed saving for pensions—through the annual tax return and maybe through the mechanisms that Sir Steve Webb was talking about in the previous panel, for instance.
This is my opinion, rather than necessarily evidence, but let’s say we are successful in creating a mechanism such as that that nudges people and effectively automatically enrols the self‑employed into a pension scheme. I think it is likely that, even with that, the take‑out rates—or, rather, the opt‑outs—will be higher than they have been for the employed. That is mostly because, in the end, if you are self‑employed, just as if you are an employer and you are the sole directors and do not have employees, you make your own decisions. Everything that you do about your business is your decision, so I suspect there will be a higher rate of opt‑outs, even if we nudge people into it. None the less, if we nudge people into it and we get a decent proportion of people saving, that is a big success, so we have to go back to the basic principles and make sure we find and use the right nudge to get the self‑employed saving.
Caroline Siarkiewicz: I would just add that we have been doing a little bit of work with HMRC on the self‑assessment pages, to try and get link‑throughs to information and guidance on our sites. That has been relatively successful—I mean, it is small numbers. We only went live in October 2021, but we have had over 30,000 unique users come through. We will make sure we have those links available and do what we can to work with HMRC to get those people through, but in the long term, I am in the same space as Charles.
Q185 Chair: Thank you. Sarah, can I just press you on Dr Spencer’s question? Why do you think it is that pensions saving among self‑employed people has fallen so sharply over the past 10 or 15 years?
Sarah Pritchard: Charles gave a really good articulation of some of the reasons why that might be the case. I do not have anything further that I would add to that. [Interruption.]
Q186 Chair: Sorry, my machine is making a strange noise. You don’t have any explanation for why pensions saving has fallen for them?
Sarah Pritchard: I do not have anything further that I would expand on beyond what Charles has already offered.
Q187 Chair: Charles has set out reasons why self‑employed people may well not want pensions, but 10 or 15 years ago, a significant number were saving in pensions. Now they are not, and I wondered whether you have any explanation for that change.
Sarah Pritchard: I don’t.
Chair: Understood. Thank you all very much indeed. That concludes our questions to you. We are grateful to all of you for being willing to join us here in person this morning. That concludes the meeting.