New 'pensions minister' grilled on AE expansion and tax reform

While discussing pensions adequacy at a Social Market Foundation and Pensions and Lifetime Savings Association event on October 3, Burghart was keen to stress that he had only been 'pensions minister' for a week and so his statements should not be read as firm policy intent — in fact, he has yet to be officially appointed to that role, the DWP telling Pensions Expert he remains a parliamentary under-secretary.

The panel, which included fellow Conservative MP Gareth Davies, B&CE director of policy and external affairs Phillip Brown, and PLSA chair Emma Douglas, broadly agreed that auto-enrolment had been a success, but one that had yet to reach its full potential.

I am certainly sympathetic to the idea that we want to bring the age down, I'm certainly sympathetic to the idea that we should be considering saving from the first poundAlex Burghart MP, DWP

Burghart would not be drawn on the prospect of tax reform in advance of an expected financial statement by the chancellor, Kwasi Kwarteng, in November.

The session followed a report by the Work and Pensions Committee that found 60 per cent of people are at risk of missing out on an adequate standard of living in retirement, with just 39 per cent of households and 37 per cent of individuals on track to meet the Pensions Commission’s definition of retirement adequacy.

Minister ‘sympathetic’ to AE expansion

The 2017 auto-enrolment review made a number of recommendations, including expanding the scheme to those aged 18, and removing the low-earnings threshold. The select committee said it was “disappointing” progress had not been made on implementing the reforms despite them enjoying “almost universal support”.

The committee called on the government to introduce legislation no later than the beginning of the next parliament, expected in spring 2023, and to publish a timetable for consulting on its implementation.

Douglas reiterated the PLSA’s view, which is that - though costs for employers and employees should not be increased during a cost of living crisis - the groundwork should be laid now for auto-enrolment reform to kick in over the next 10 to 15 years.

“For the last five years, the PLSA has been saying that we need auto enrolment saving to be increased and broadened,” she said.

“In terms of increase, we think that everyone currently saving should do so from the first pound of earnings. And this is really especially helpful for low income workers, and that does include many women in part time jobs. If you're earning, say, between £10,000 and £20,000, it will make a massive difference if we can actually start auto-enrolment from that first pound of savings. 

“We're also saying that we need to increase so move that 8 per cent up to 12 per cent, but by the early 2030s; and to split the cost 50/50 between employer and employee.”

She cautioned, however, that more analysis was needed to determine whether that was right for lower-income workers.

Asked for his views, Burghart praised the work done on both auto-enrolment and the pensions dashboard, but raised the question of what the next phase of development should look like.

Just please nobody write this up as [my] policy, these are the musings of an immature ministerAlex Burghart MP, DWP

He suggested the success of auto-enrolment was proof that 'nudges' work, but added that the failure of auto-enrolment in its present form to provide for retirement adequacy meant reform was probably necessary, perhaps in conjunction with other measures.

“Whilst this is not the forum to make that sort of definitive announcement, I am certainly sympathetic to the idea that we want to bring the age down, I'm certainly sympathetic to the idea that we should be considering saving from the first pound,” he said.

“I think there are another number of areas in which we have to come up with solutions, not least self employment; this was recognised back in 2012 as a bit of a gap. But since then, the gig economy has come to light. And we have a great many workers who are falling outside of the scope of auto enrolment, and in a group that is likely to grow.

“We have to be able to give a similar nudge to people in that situation so that they don't spend a large chunk of their careers outside of the system together.”

He added that he was keen to keep in mind emergency savings as well as pensions savings, referencing the ‘sidecar’ or ‘jam jar’ savings model, a type recently trialled by Nest Insight — albeit with mixed results.

“I've often wondered whether a form of auto-enrolment for more annual or multi-annual freak events would be useful. 

“Now [that’s] what's been going through my head over the past few days, just please nobody write this up as [my] policy, these are the musings of an immature minister.”

No promises on tax reform

In the question and answer session of the panel, Burghart was pressed by a member of the audience on the question of the lifetime allowance, which the questioner suggested was “overcomplicated” and “not fit for purpose”.

He also said it was forcing people to retire, an issue occurring in the NHS Pension Scheme on which the British Medical Association has long been campaigning, arguing that punitive pensions taxation rules are forcing experienced doctors and consultants out of the health service.

MPs call for AE reforms to be introduced by spring 2023 

The Work and Pensions Committee has called on the government to introduce auto-enrolment reforms next spring, while setting up new policy goals to ensure a “new consensus on adequate retirement income” is achieved.

In response, Burghart said: “We are currently in an environment where we have a great many job vacancies in the economy, and we also have economic inactivity rising in certain groups, including people in their late 50s and 60s.  

“If we were to find that tweaks in pension ceilings and in taxation levels could encourage more people to stay in work for longer and contribute to the economy and help it grow, then that would definitely be something that we should be done.”

When it was suggested to him that these changes need to be made now, Burghart replied that the the Chancellor, Kwasi Kwarteng, is preparing “a major statement” on plans for medium-term growth, to be made on November 23, and “he will be considering all these things”.

Benjamin Mercer is senior reporter at FTAdviser's sister publication Pensions Expert