Official Report: Minutes of Evidence

The Chairperson (Mr Gildernew): I welcome Dr Jonathan Cribb to the meeting. He is associate director at the Institute for Fiscal Studies (IFS) and head of retirement, savings and ageing sector. Jonathan, can you hear us OK?

Dr Jonathan Cribb (Institute for Fiscal Studies): I can hear you loud and clear. Can you hear me?

The Chairperson (Mr Gildernew): Yes, we can see and hear you clearly, Jonathan. Thank you. I ask you to give a brief opening statement, Jonathan, and then we will go to members' questions.

Dr Cribb: Thank you. It is fantastic to be here today. I should start by saying that there is a very strong case for Northern Ireland to remain aligned with Great Britain when it comes to automatic enrolment. In particular, there will be many businesses and employers that operate United Kingdom-wide, and it would be very strange for them if the regulations around automatic enrolment were different for their Northern Irish colleagues and, indeed, if the minimum offer that employers had to make in employer pension contributions in Northern Ireland was different from that in Great Britain.

That having been said, it is, of course, worth looking carefully at particular items in the Bill, which I will go through very briefly. There is a very strong case for lowering the start of the age range to 18. We must remember that extending the age range of people who are targeted for automatic enrolment is not only asking implicitly for people to make contributions to their pensions out of their pay but asking employers to make that contribution on their behalf. There is some strangeness about the age thresholds. Essentially, the state expects businesses or employers to make contributions to some, but not all, of their employees on the basis of their age. For what it is worth, my colleagues and I wrote a report that makes the case for extending that range, potentially in the future — the report does not make a case that Northern Ireland and Great Britain not be aligned — down to age 16 and, indeed, up to age 74. That is the whole age range within which you are allowed to save into a pension, and we think that, given that existing age range, there is a case for automatic enrolment for that age range.

As to the removal of the lower earnings limit, it is nice to have some quick numbers on that. Essentially, for anybody on minimum contributions — that is about 30% of people enrolled in pensions — that would mean an additional contribution of £499 a year, £187 of which would come from the employer, £250 from the employee and £62 from tax relief. That would have the largest impact on lower earners because, of course, looking at that from the employee's point of view, £250 is more for lower earners than it is for higher earners, and lower earners are more likely to be on those minimum contributions.

That was a bit of a whistle-stop tour, but I hope that it was OK for opening remarks.

The Chairperson (Mr Gildernew): Absolutely. It was a very interesting whistle-stop tour, I have to say.

I note that you have that report now, and I will look at that with interest. What reasons are being advanced for not going to age 16? It seems to me that that age range of 16 to 74 is comprehensive, so what is your view on why it is not going to 16?

Dr Cribb: There are two reasonable views on that. One is that it is not very important. There are not many 16-year-olds in permanent jobs earning over £10,000 a year. The fraction of people doing so is very low in comparison with older age groups. Therefore, from a policymaker perspective, the number of people who would benefit from this is fairly small.

In my view, it is worth —.

The Chairperson (Mr Gildernew): Sorry for interrupting, Jonathan. We are also coming down to the first pound earned, so the £10,000 is no longer relevant in this Bill. In that context, what is the reason not to go to 16?

Dr Cribb: It is worth being extremely clear on this. There is an earnings trigger, which is at £10,000 a year. That is the level above which employers must automatically enrol their staff. It is not proposed that that change. What is proposed is a change to the band over which earnings are measured for calculating contributions. The current earnings limit is around £6,000, and the proposal is to bring down that level from £6,000 to £0.

The Chairperson (Mr Gildernew): OK.

Dr Cribb: It would still be the case that people need to earn over £10,000 to be automatically enrolled.

The Chairperson (Mr Gildernew): Again, that is interesting. I note that you set out in very clear terms the benefits that would accrue from that. What are your thoughts on communicating those benefits to, say, younger people who may not be thinking about pensions or, indeed, people who are involved in the gig economy and more precarious work? How can we communicate the advantages — the benefit — of being enrolled as early as possible?

Dr Cribb: It is a very difficult question, in that, ultimately, automatic enrolment harnesses people's inertia and the fact that they do not engage with pensions. It harnesses that beneficially by keeping people saving for later life. I think that you can extend that to age 18. In the future, one could consider going down to age 16. You can do that without major communication campaigns.

It would be good to provide some information, but, in a sense, most people continue to save in a pension, and, for most people, that is good. We must always remember that, with automatic enrolment, we have the benefit of something generally good happening — saving for retirement — even if people are not particularly informed about it, although, in general, having more informed consumers and workers is a good thing.

The Chairperson (Mr Gildernew): Thank you, Jonathan. I will now go to our Deputy Chair, Ciara Ferguson.

Ms Ferguson: Thank you, Jonathan. I have just two questions, which are on implementation. Should the percentage contribution for young people be staged over time, as it was for others, before it is increased to 3% and 5%? Likewise, should the call-up period for businesses happen over time, meaning that larger companies are called up first, followed by smaller companies?

Dr Cribb: You correctly note the two ways in which, starting in late 2012, the reforms were phased in across the United Kingdom. It is fair to say that there is less of a case for phasing of this Bill's changes in comparison with the case for the original ones, because this is a marginal reform rather than a large reform. Essentially, all companies have automatic enrolment up and running, and these changes are an extension of who in their firm needs to be automatically enrolled. That is about phasing from smaller businesses to larger ones. My honest opinion is that the cost of doing that probably outweighs the benefit. If we go for it, it should just be introduced on an agreed, specified date in the future.

What you said about the phasing of increased contributions over time — the rates were 1% and 1% and then 2% and 3%, and now they are 3% and 5% — is interesting. There is a case for that, but there is a complexity case against it, in the sense that companies would have to automatically enrol slightly older workers with higher contributions and younger people with lower contributions. That complexity case probably weighs against it, in all honesty.

The Chairperson (Mr Gildernew): Thank you. Do members have other questions? I have one, although I am not sure whether it is on your area of expertise, Dr Cribb. Are you aware of any engagement with trade union representatives across the water or here? Have they taken or stated a view on the Bill?

Dr Cribb: I do not know the trade union view on the Bill specifically. My understanding is that the people at the TUC in London who work on this have generally proposed higher contributions to pensions, particularly on the employer side. The Bill goes partially towards that, particularly for lower earners. Higher earners are less likely to benefit, and the employers of higher earners are less likely to be affected by it, because it affects people on minimum contributions and the employers of young people, who do not tend to command extremely high wages.

Mr Kingston: Jonathan, you gave figures for typical contributions. Would you mind repeating them? At what salary level were they? Were they for someone on the minimum wage and working for a certain number of hours?

Dr Cribb: The numbers that I gave were these: if we reduce the lower earnings limit from around £6,000 to £0, how much do minimum pension contributions rise a year? The point here is that, because of the way the schedules work, however much you earn, if you are on the minimum pension contribution, as set up by the Government, the pound amounts of pension contribution will change by the same amount. Just to be clear, a lot of people are not on the minimum. In the public sector, for example, it is much larger. Many private-sector companies will be much more generous than that. However, if you are on the minimum, the total extra that will go into a pension year is £499: £250 from the employee, £187 from the employer and £62 from tax relief.

Mr Kingston: OK.

The Chairperson (Mr Gildernew): OK, members. I thank Dr Jonathan Cribb for his contribution. It was very interesting. There was some great detail in what you gave us, Jonathan. Thank you for attending the Committee today. We can let you go. Thank you.