Official Report: Minutes of Evidence

The Chairperson (Mr Gildernew): I welcome to our meeting Charles Cotton, who is senior policy and practice adviser in pay and reward in the Chartered Institute of Personnel and Development (CIPD). Members, there is a copy in your packs of the citizens-based submission from CIPD. Charles, we have your briefing paper in front of us, and I invite you to make a brief opening statement, please, of five to 10 minutes, before we move to members' questions and your answers.

Mr Charles Cotton (Chartered Institute of Personnel and Development): Thank you very much. Hopefully, you can all hear me all right.

The Chairperson (Mr Gildernew): We can hear you loud and clear, Charles.

Mr Cotton: For people who may be unaware, the CIPD is the professional body for HR and people development. We are a not-for-profit organisation. We champion better work and working lives, as well as setting the benchmark for excellence in good people management and organisational development. It is something that we have been doing for 100 years in the UK and Ireland. We have 160,000 members across all sectors and sizes of organisations, again, predominantly in the UK and Ireland.

The CIPD welcomes the opportunity to feed into your thinking on this topic. While some of our members see their workplace pension schemes simply as another business cost, many others see them as a way of standing out in the labour market by signalling that they are a good employer.

From the employee perspective, pensions are often seen as a crucial aspect of their financial well-being. Eighty-three per cent of UK employees who were surveyed by the CIPD in 2022 said that being able to save for the future was important to them. CIPD research also finds that employee performance is more likely to suffer if people are experiencing poor financial well-being. Twenty-eight per cent of UK employees whom we surveyed reported that money worries, including pension worries, had negatively affected their work performance.

While automatic enrolment has been great in getting more employees to save more for their retirement, various surveys indicate that workers are not saving enough for a reasonable retirement. One way of boosting the size of pension pots is to lower the age at which staff must start saving. At present, only 22-year-olds earning £10,000 a year or more are automatically enrolled. Starting earlier, at 18, could have a significant impact due to compounding.

Similarly, reducing or abolishing the lower earnings limit would see more money going into pensions. While that is good, we should acknowledge that, in workplaces that use the lower earnings limits, its abolition would see employers and employees having to pay more.

The CIPD's 2024 UK-wide good work index, which is a survey of around 5,500 employees, found that 77% of employees were in a pension plan in Northern Ireland. That was virtually the same proportion for people in the survey as a whole, which was around 78%.

In addition to the UK-wide good work index, this year, the CIPD, for the first time, published a dedicated report for Northern Ireland, which was based on a sample of 499 people, representative of all working adults in Northern Ireland. If you are interested, 36% of Northern Irish workers said they were in a defined contribution plan; 25% said that they were in a defined benefit plan; 17% said that they were in a plan, but they did not know whether it was a defined benefit plan or a defined contribution plan; 1% did not know whether they were in a plan; and the rest — 21% — said that they were not in a workplace savings plan. That picture is very similar to what is going on in the UK.

If we look at young employees in Northern Ireland, we can see that staff aged between 18 and 34 are less likely to be in a pension plan than those aged between 35 and 54. Among 18- to 34-year-olds, around 50% of people were in a pension plan. For those workers aged between 35 and 54, 71% of employees were in a pension plan. For those who were aged 55 and over, the proportion fell to 66%. Again, that mimics a similar pattern in the UK as a whole.

Lowering the age of auto-enrolment could increase the numbers of people in a workplace pension, and it could boost the number of younger people. We should, however, be realistic and recognise that many people might be tempted to opt out because of their finances. Again, the UK working lives survey found that only 38% of Northern Irish workers agreed that they were keeping up with all their bills and commitments without any difficulties. By contrast, the figure for the UK overall was that 49% of workers agreed that they were keeping up with their bills and commitments without any difficulties.

That having been said, while the rise in pension membership might not be as high as we hoped for — we could be wrong — those who decide not to opt out should be better off, compared with those who start a few years later. Of course, there is a discussion about whether it may make sense, rather than putting younger people straight into a pension scheme, to put them into a savings plan — a savings sidecar. Younger people could, then, dip into that fund should they face a financial emergency. Then, at age 22, their savings pot would be transferred to the workplace pension.

There are other options to boost pension awareness and membership. I will be happy to talk about those in the rest of the session.

The Chairperson (Mr Gildernew): OK, thank you very much for that very detailed presentation. There are some very interesting statistics there. You mentioned a savings sidecar. What is that, and how would that operate?

Mr Cotton: The idea is that you would be automatically enrolled into a savings scheme, where, each month, money would come out of your pay packet as well as some from the employer. That would be put into a pot, and younger people would be able to access that if there were a financial issue that they needed to meet. If an emergency did not happen, more money would go into that fund each month. Some of that fund would, perhaps, be transferred over to that person's pension scheme. The idea is that some younger workers may be a bit more anxious about being locked into a savings plan that they were not going to see for about 40 years. Therefore, having a sidecar savings plan would, perhaps, be more appealing and it may be the first step on the way to starting to save and invest.

The Chairperson (Mr Gildernew): Essentially, then, it would not be automatically locked up in the pension as such, until such times as they were comfortable to allow that to move across?

Mr Cotton: Yes.

The Chairperson (Mr Gildernew): OK. One of the issues that was raised by the Youth Assembly, which provided evidence to us in that regard, was around whether there could be a sliding scale. That may be another way of achieving the same thing. What are your thoughts on any potential sliding scale or partial commitment and, then, an optional addition to that?

Mr Cotton: Yes, that helps. Obviously, the more you put in earlier, that is going to have quite a significant impact. We should be realistic, however, in that not everybody can afford to put money in. Our data around in-work poverty shows the challenges that exist, especially for young people

Anything that can help reduce those barriers to encourage them to do that, at least, would be welcome, because something is better than nothing, which is where we are at the moment. By at least encouraging them, hopefully we can build on that.

Given that you mentioned younger workers, the other thing that CIPD has been championing is that we would like to see financial awareness becoming a formal part of apprenticeships. That might involve financial courses for younger people. For many young people, when they start an apprenticeship is when they first start earning money. Therefore, it makes sense for them to start learning about money at the same time: for instance, how their payslip works as well as about their workplace pensions. Often, when you talk to young people, you hear that they get their information from other sources and it may not necessarily

Therefore, having formal segments in apprenticeship schemes could be useful and could give them information that they need to plan for the future.

The Chairperson (Mr Gildernew): Thank you. Again, interestingly, the need to include better education within learning for life and work (LLW) came up very strongly from the young people.

You have partially answered my question, but there is another element to it. I am struck by your figure that 36% of employees knew that they were in a defined contribution scheme and 17% knew that there were in a defined benefit scheme, and that is in the adult cohort. That is quite low, and a lot of people are not sure which one they are in. How else can we communicate or reach out to young people in particular? Obviously, these are issues on pensions for young people and those who work in the gig economy. How significant do you think the Bill will be in ensuring that those groups that are currently without a guaranteed pension can benefit from one and, from your experience, how may these be communicated to improve the uptake?

Mr Cotton: On communication, another thing that CIPD recommends — it may something that your Assembly could consider — is requiring employers to put details of their pension schemes in their job adverts. A separate survey carried out by the CIPD — the pay, performance and transparency survey — found that only 33% of UK firms always include details of the workplace pension in the job ad. By contrast, 59% of public-sector employers do the same and 75% of voluntary-sector organisations do the same. In addition, 30% of UK firms that we surveyed admitted that they never put this information in adverts, something that rarely happens in the other sectors. We believe that if all employers were required to publish that information, it could help to inform applicants about which employers offer the better pension; it could raise the profile of workplace pensions among job hunters so that organisations are more likely to see a return on what they are spending on their pensions; it could encourage workplaces that are contributing less than the going rate to increase their contributions to ensure that they remain competitive in the jobs market; and it could help to reduce the pension gaps that there are around gender or ethnicity. That might be something that you could consider that would raise the profile so that every time anybody sees a job advert, they will see something about the pension scheme. That could also start encouraging young workers to think about what defined benefit means and what defined contribution means. Hopefully, over time, the figure of 17% who are unaware of what type of scheme they are in should start to fall.

Mr Kingston: Charles, thank you for your presentation and your indication of support from your membership and those employers and for reflecting on the experience in GB. You made a very helpful suggestion at the end about promoting the pension contributions in job adverts to help to raise the profile of this and normalise it.

The Chair covered other matters raised from the Youth Assembly, and the Bill proposes to reduce the age of enrollment to 18. Some Youth Assembly members asked whether it should be lower than that, at 16. Are you aware of that discussion on automatic enrolment having taken place anywhere in GB, or are you aware of any potential difficulties with that? I am not sure of any, offhand, or whether it prevents a certain entry into employment at a low level for young people.

Mr Cotton: At the moment, to get enrolled on

is linked to your earnings, so if you are on £10,000 and you are aged 16, you would not necessarily automatically enrol, but you could volunteer to be enrolled. You may have to think about how many workers there are in the Northern Irish economy who are 16. If there are, it may be that they are more in seasonal employment or combining work with education, so it may be that they would not necessarily build up earnings to the £10,000 threshold. However, they could still volunteer to join, or, as we talked about earlier, there could be another savings plan that you could recommend be put in place for younger people, which they may be more engaged with.

The Chairperson (Mr Gildernew): Just for clarity, this Bill is proposing it from the first pound earned.

Mr Kingston: Yes, so are you saying that, in GB, the threshold is £10,000?

Mr Cotton: To get automatically enrolled, you have to earn £10,000.

Mr Kingston: At any age?

The Chairperson (Mr Gildernew): OK, so this would be a change to that, Clerk?

The Committee Clerk: It will also be a change in GB.

The Chairperson (Mr Gildernew): Is this a part of what is being changed?

The Committee Clerk: Yes.

The Chairperson (Mr Gildernew): We will be keeping step with that, then?

The Committee Clerk: Yes.

Mr Kingston: So, the reduction to zero, effectively, has not yet happened in GB.

The Committee Clerk: No.

Mr Cotton: The proposal in GB is that we still have the lower earnings limit, although the Minister for Pensions does have the power to reduce or abolish it, after a consultation. In the UK, we have a holistic review of workplace pensions, and it may be that the review will explore that. However, at the moment, they do have that power, so if you were concerned about being too far ahead of the curve, compared with the rest of the UK, you could consider the things like putting stuff into job ads or apprenticeship schemes until we catch up with you.

Mr Kingston: I do not think that we are concerned about removing the lower earnings limit. I thought that that was already the case in GB, so thank you for clarifying that.

The Chairperson (Mr Gildernew): It has not happened yet, but it is in train.

Ms K Armstrong: Thank you very much, Charles. One of the things that I noted when you talked about the savings scheme is that we already have the help to buy ISA. Rather than getting supplementary payments into it from an employer, if you are going to buy a house, for instance, you will get a supplementary payment from government that balances up the amount you have saved. Like the savings plan that you are talking about, unlike a pension, you can draw down from that ISA. At the moment, we are not seeing a humongous uplift in the number of people taking that savings plan, particularly from working-class areas. Could you give us more thoughts on how we could encourage those 16-, 17-, 18-, 19-year-olds to save in that, given that there is already a scheme there that can help them save substantially, if they wish to buy a house in the future.

The other thing is that, when I started work, you could divert your state earnings-related pension scheme (SERPS) payments into pensions, so it did not look as if you were losing anything from your wages, per se, because it was your National Insurance contributions that were being moved over. We do not have that at the moment. Are there any thoughts on bringing something like that back for those younger people. There could be a cut-off at the age or 21, or something.

Mr Cotton: There is talk about the rainy day fund or the savings sidecar. That is not something that the CIPD has developed. That was developed by the industry. From what I understand, it is focused on small amounts of money being saved on a regular basis to deal with, for example, your boiler breaking down or your motorbike needing to be repaired. It is not necessarily being set up to be in competition with saving to buy a home.

As you said, there are other schemes, and some employers do try to help their employees get onto the housing ladder. The challenge is that we need more houses to be built. No matter what employers can do to help people to buy a home, it is not, perhaps, going to make a great deal of difference until we start to see more homes being built.

Ms K Armstrong: What about that issue where, in the past, you were able to divert SERPS? That was a way of getting people to save some of what they were creating through employment but not necessarily taking out of their net wages. Have there been any thoughts from CIPD on that type of mechanism?

Mr Cotton: No. We have looked at savings plans and why various people or groups do not necessarily save for immediate purposes or for longer-term purposes. It can be linked to their attitudes and behaviours. It can be linked to income. As you said, it can be linked to class. All those play a part, which indicates that either you need a multi-levered approach or you just introduce something like auto-enrolment and everybody then gets tumbled into that activity, and most people go along with it.

The Pensions Regulator seems to indicate that older workers are more likely than younger workers to opt out of the pension scheme. Also, there can be ways to engage younger people not only in its importance for the future but in the impact that they are having. If you can show that the money that they are contributing is being invested in things that are helping to alleviate climate change and build social housing or is being spent responsibly in trying to make an impact, they are more engaged with that than just saying, "Well, we're taking this money and, hopefully, when you get to a certain age, this is the amount of money you are going to get.".

Mr Bradley: Overall, it is an excellent scheme. It brings us into line with GB. I have two concerns. The first is its impact on the smaller business, which may find it harder to increase contributions to the pension scheme. Secondly, if we build up a good, healthy pension pot, will the Government of the day not find some way of raiding it?

Mr Cotton: Well, hopefully

I mean, I cannot speak on behalf of politicians now or in the future, but if anything is going to happen, it will probably be going forward in how easy it is for people to put money into the pension scheme and the tax arrangements around that rather than seeing people's existing pension pots being eroded.

For small firms, I think that the extra cost on its own is not going to be particularly significant. However, there are other impacts: for instance, increases to the national minimum wage. Also, there is the national living wage and various age rates, but the ambition is that, over time, there will be one age at which you get the national living wage, which would be at the age of 18.

You have these additional costs that, taken together, as you suggest, could have a reasonable impact on micro employers and small employers. Therefore, it is important for the Government to demonstrate the ways in which small businesses can improve their performance. At the moment, the CIPD has a number of pilots in different parts of the UK looking at how micro- and small employers, through better people management, can improve productivity. If you can improve productivity, you can afford to give your staff higher wages or better benefits. It is not always about employers having to reduce costs. It can be about looking at other ways of managing the workflow, how work is done, the design of jobs and things like that, which can have an impact.

Mr Bradley: Thanks very much, Charles. Out of the whole Bill, my only concern is the impact on small businesses and their ability to aid their workers in a pension scheme. Again, you cannot speak about the future, and neither can I, but successive Governments have found pensioners to be easy targets.

The Chairperson (Mr Gildernew): Thank you, members. That was an interesting discussion with some very good points. I ask members to bear in mind, as we move through the presentations, that the Bill is on two very specific issues: reducing the age to 18, and reducing the amount to the first pound earned. We should focus on that.

Charles, that has been really interesting. Thank you for your submission and presentation and for taking members' questions. I appreciate that.

Mr Cotton: That is great. I can pop the notes that I have been referring to over to you, if that would help.

The Chairperson (Mr Gildernew): That would be very helpful indeed, Charles. Thank you.

Mr Cotton: I will send them over then. Great. I hope that the rest of your sessions go well.

The Chairperson (Mr Gildernew): Thank you, Charles. All the best. We appreciate your help.