Official Report: Minutes of Evidence

The Chairperson (Mr Gildernew): I welcome Hayley Ward and Richard Jordan from the Department. Stephen Orme from the Bill Office is following proceedings on Zoom and will be available to the Committee in closed session at the end of the meeting, should members wish to discuss options and instructions for drafting Committee amendments. Do members agree to proceed on that basis?

The Chairperson (Mr Gildernew): I remind members that questions or comments should be focused on the specific clause under discussion. Hayley, I will ask you to give a brief overview of each clause. I will then quickly highlight any issues that have come up in our evidence on that clause before I ask members whether they have any queries or comments for the Department. Are members content with that?

The Chairperson (Mr Gildernew): Before I get to clause 1, we asked respondents to comment on the overall policy objectives of the Bill and whether they foresaw any unintended consequences of the policy objectives. Three out of the four respondents felt that the Bill met its policy objectives and saw no unintended consequences. The University of Stirling said:

However, that research also found:

We have heard that from young people. The University of Stirling continued:

The University of Stirling stated that it would expect to see a similar pattern in the North.

I will now move to clause 1 and ask Hayley to give us a brief overview of that clause.

Ms Hayley Ward (Department for Communities): Thank you for the opportunity to come here today. I will jump straight into clause-by-clause consideration of the Pensions (Extension of Automatic Enrolment) Bill. Clause 1 is:

Clause 1 amends provisions in the Pensions (No. 2) Act (Northern Ireland) 2008 — the 2008 Act — to provide regulation-making powers that will enable the Department to make regulations to reduce the lower age limit at which otherwise eligible workers must be automatically enrolled and re-enrolled into a pension scheme by their employers and to reduce the lower limit of the qualifying earnings band to repeal or lower the limit of the qualifying earnings band so that contributions are calculated from the first pound earned.

Clause 1(2) inserts a regulation-making power into section 3 of the 2008 Act to enable the Department to decrease the age at which an employer has an obligation to automatically enrol job holders into a scheme that fulfils the criteria for an automatic enrolment (AE) scheme. At present, the minimum age for automatic enrolment is 22. It is the policy intention to reduce that to 18.

Clause 1(3) inserts a regulation-making power into section 5 of the 2008 Act to enable the Department to make regulations to decrease the age at which an employer has an obligation to automatically re-enrol job holders into a scheme that fulfils the criteria for an automatic enrolment scheme.

Clause 1(4) inserts a new section, section 13A, into the 2008 Act. It contains a regulation-making power to enable the Department to reduce or abolish the lower limit of the qualifying earnings band contained in section 13(1)(a) of the 2008 Act. It would also enable the Department to make regulations to repeal section 9 of the 2008 Act, as section 9 would no longer be required if the lower limit were abolished. Section 13A(2) allows the Department to make amendments that are consequential to the repeal of section 9 and section 13(1)(a).

Clause 1(5) inserts new provisions into section 112 of the 2008 Act to provide that any regulations that are made under the new powers are subject to the confirmatory resolution procedure. As regulations made under clause 1 would amend primary legislation, it is considered appropriate for those regulations to be subject to the confirmatory resolution procedure to allow Assembly scrutiny.

The type of Assembly control is prescribed in the parent Act that the statutory rules are made under. The 2008 Act — the parent Act — currently prescribes two types of Assembly control: the negative resolution procedure and the confirmatory resolution procedure. The Bill seeks to amend section 112(4) of the 2008 Act so that regulations to implement the new measures are also subject to the confirmatory resolution procedure, therefore retaining consistency of approach in the parent Act.

That concludes clause 1.

Ms K Armstrong: Thank you very much for that, Hayley. At clause 1(2), (1A) is about decreasing the age. What is the upper age for automatic enrolment? Is there an upper age for that?

Ms Ward: It is state pension age.

Ms K Armstrong: Which is whatever it is, depending on your age.

Ms Ward: Depending on your age, yes.

Ms K Armstrong: OK. Thank you.

The Chairperson (Mr Gildernew): As a follow-up to that, we heard that there was an argument for it to be 16 to 74. What is your view on that? We were told that that would cover the span of people who qualify for a pension. What are your thoughts on that issue?

Ms Ward: At the moment, the policy intention is to reduce the age to 18, but the Bill gives us the power to reduce it to any age, really. Thought is being given to the age. Whilst the policy intent is 18, the Department will have the ability to reduce it further.

Mr Richard Jordan (Department for Communities): I will add a bit more detail to that. Employees aged 16 to 21 or between state pension age and 74 can opt in, so long as they hit the earnings trigger of £10,000 that we talked about. Employees aged 16 to 74 who earn between the lower earnings threshold of £6,240 and £10,000 can also opt in. The age range is quite wide. The Bill gives us the power to make those aged under 22 and potentially down to 18 become subject to AE.

The Chairperson (Mr Gildernew): I get that, but we are talking about the benefits of automatic enrolment. Why would you not extend those benefits? I get it that you can opt in, but we have said that there is a significant increase in uptake when you bring it in automatically and give people the option to opt out rather than to opt in. I am flagging that up as it may be worth considering.

I will go back to Kellie, quickly, and then to Brian.

Ms K Armstrong: You talked about the policy intent, which, I understand, is to lower the age from 22 to 16. I am interested in the other end of the pension scale. It comes down to pension credit. We know that there are people on an earnings level, with a pension, that takes them out of the ability to claim pension credit and any other benefits that are associated with it. With automatic enrolment, we could see a 60-year-old being added into automatic enrolment for a part-time job. What amount would be saved in an automatic enrolment pension that would exclude someone from pension credit and other benefits? Have you calculated that? That is one of the vital communication pieces. We have been through the experience of women against state pension inequality (WASPI) and have seen what happened there. It is about what will happen to prepare those people for the fact that they will not have access to those benefits. Do we know the figures for that?

Ms Ward: No, I do not have figures for that. That is not something that I would have here.

Ms K Armstrong: I ask that the Department looks into — even if it is based on looking at minimum wages — how much it would take for someone who had not had a pension before but goes on through automatic enrolment to be taken out of pension credit levels.

Mr Jordan: Just to clarify, that is in the case of someone who is 60 years old and does not have an AE pension at the moment but has been opted in by the AE rules. In one sense, the person who has been opted in would have to consider, "Is this right for me? Am I going to be able to accrue a sufficient pension in whatever career path I have left?". That is a decision for the individual.

Ms K Armstrong: The important thing is communication. DWP does not touch on that in its communication strategy. You could say to a 60-year-old, "That is great. I hear that you are auto-enrolled and will get a pension," when they will actually be financially worse off in the long term, because they will be like the WASPI members in that they are at the cut-off point and have not had time to save up enough contributions to have a good enough pension to replace what they could get with pension credit.

Mr Jordan: It would depend on how much they earned, as well. That figure is very variable, and if they are part time —.

Ms K Armstrong: Even based on a basic wage, how much of an income would somebody have to have for an automatic enrolment to mean that they would not achieve pension credits? We know that, currently, if you are on less of an income, you can get pension credit, a winter fuel payment (WFP) and all those benefits. I am happy with the reduction in age to 18 and with the fact that 16-year-olds and 17-year-olds could apply if they wish, but my concern is that we are talking about something that is going to happen to people and that that could have unintended consequences on their state allowances thereafter.

Mr Jordan: I understand what you are saying. There is a new variation with the winter fuel payment. It has always been the case that pension credit would be affected by your other income. There is a new variable here, however, which is WFP.

Ms K Armstrong: I just see this as the start of an end to pension credit, because, in any work that you do, you will be automatically enrolled over the age of 18 and £10,000. Or, is it just 18?

Mr Jordan: The earnings trigger is £10,000, but you can opt in yourself, if you wish to.

Ms K Armstrong: So, if you have that gathered up. People need to know what the impacts will be so that they can plan for their future.

Mr Jordan: I must stress that this is not a new thing; this has been the situation since 2012.

Ms K Armstrong: It will be a new thing for anybody who is coming up to pension age in the next 10 years.

Mr Jordan: In terms of WFP.

Ms K Armstrong: Yes.

Mr Kingston: I want to test my understanding of the Bill. It gives us the opportunity to align and maintain parity with changes that are going through in the rest of the UK, in GB. That is my understanding. Currently, if you take up a job, you have to be aged 22 for automatic enrolment in a pension scheme, and that will reduce to 18. It could be lower, but 18 is being talked about. The earnings threshold for automatic enrolment will remain at £10,000. That is my understanding.

I want to ask more about the £6,240. Your pension contributions are calculated on what you earn above £6,240, and the proposal is that that will reduce down to zero, so your contributions will be a percentage of everything that you earn, from the first pound. Will that impact on every employee? We talk about the 3% and 5% — 5% from the employee and 3% from the employer. I know that those percentages can be higher, but can they be lower, or is that the minimum that they need to be, which means that an employer cannot be contributing less than 3%?

Earlier, one of the witnesses said that the net increase will be £499. I realise that that was based on around 8% of £6,240, because the contributions will include the £6,240. He said that the employee would be paying an extra £250 a year, the employer would be paying an extra £187 a year, and there would be tax relief of £62 a year. The pension contribution will be calculated from the first pound that you earn; the £6,240 threshold will disappear. Does that mean that everyone's pension contributions will be going up, from the employee and the employer?

Ms Ward: I will take the first point. It will bring us in line with Great Britain, yes.

Mr Kingston: Those changes are in process. They have not finally gone through.

Ms Ward: Yes. It is important to note that the Bill only gives the Department powers. Absolutely nothing is going to change, if we get to Royal Assent, until the subordinate legislation is in place. It is in development.

It brings us in line with GB in that we will have the same powers as the rest of the UK. Your understanding is correct. We hope to reduce, possibly, to 18. The earnings threshold for eligibility for automatic enrolment is £10,000. Therefore, you have to earn £10,000 before you have to be automatically enrolled. The lower earnings limit is £6,240. Of the £10,000, the employee and employer pay pension contributions on everything above £6,240. Yes, you are correct. The employer pays 3% and the employee 5%. Those are the minimum contributions.

There are different types of pension scheme, as, I am sure, you are aware — defined contribution, defined benefit — and they will all have different employer and employee contribution rates. The 3% and the 5% are the minimums, as required by law.

Mr Kingston: My question then remains. Pension contributions from employee and employer will be calculated on the entire salary.

Ms Ward: Yes, so it will affect every employee.

Mr Kingston: Every employee across Northern Ireland will find that both their personal contribution to the pension and their employer's contribution will go up. Therefore, this impacts on everyone.

Ms Ward: It impacts on everybody's pension. The powers in the Bill are to reduce or repeal. Most likely, it will be phased in on the basis that everybody can get used to the increased contributions. The weekly contribution rate increase for an employer is £3·60 per week, per employee. Have you got the figures?

Mr Jordan: Yes, I have. Mr Kingston, you are right: everyone will benefit from contributions from the first £6,240 of their income. It will proportionately be more beneficial to lower earners, because, relatively, it is a greater amount for them. The figures are —.

Mr Kingston: Obviously, there will be two views on that. They will benefit in the long term, but, in the short term, it will actually reduce their take-home pay.

Mr Jordan: It will. Employees will pay £4·80 a week extra, but what they get for that, in one sense, is an employer contribution into their pension pot of £3·60, and they will also get a £1·20 input via tax relief. So, effectively, they double their money with regard to the pensions pot.

Mr Kingston: Please give me those figures again.

Mr Jordan: Sure. Employees, £4·80; employers, £3·60; and tax relief, £1·20.

Mr Kingston: Thank you.

Mr Jordan: It is useful to know that £6,240 is the lower earnings threshold. We propose to reduce that or to abolish it. There is an upper earnings threshold, too, of £50,270. That is the band on which, currently, you pay contributions, both as an employee and an employer.

Mr Kingston: One of the witnesses earlier said that the evidence showed that smaller employers, effectively, were paying out the extra money, whereas larger employers were finding ways to recoup the extra cost, by maybe reducing staff bonuses, overtime and so on. That relates to the outworkings of this: they might find other ways to be less generous.

Ms Ward: The research was carried out during the introduction of automatic enrolment between 2012 and 2017. We are now in a different place. Automatic enrolment is well established in the workplace, and it is generally seen as a valuable part of an employee's remuneration. We feel that it may have had an impact then, but employers are now set up for automatic enrolment, as are employees. You are also looking at a cohort of people who are generally lower paid, possibly part-time workers. They may not reach that £10,000 threshold in order to be automatically enrolled. It is very hard to measure the impact exactly, but we have estimates of quite low figures of the impacts across the workforce.

Mr Kingston: This is my last question, Chair.

You said that this might be phased in.

Ms Ward: The lower earnings limit. The power —.

Mr Kingston: Might it be reduced in stages?

Ms Ward: Yes. The power is to reduce or repeal. While we are developing the subordinate legislation, it will be looked at to decide whether it would be better to reduce or repeal that. That is why we are, hopefully, going to gain the power.

Mr Kingston: When you say repeal, do you mean abolish it, as in zero?

Ms Ward: Yes. Abolish.

Mr Kingston: Whether it is done in stages?

Ms Ward: Yes.

Mr Kingston: Right. OK.

Ms Ward: That is what that power will enable the Department to do.

Mr Kingston: OK. Thank you.

The Chairperson (Mr Gildernew): I will ask this question now because you kind of raised the issue. You are moving on, I take it, to the so-called Henry VIII powers around whether it would be repealed or reduced. The Committee generally is concerned about the use of those Henry VIII powers. We will take views from the Examiner of Statutory Rules next week about that. It is not that common, but why are those powers needed and why are they being used in this case?

Ms Ward: Clause 1(4) will allow the Department to repeal section 9 and section 13(1)(a) of the 2008 Act. Section 9 of the 2008 Act allows workers without qualifying earnings — those who are earning under £10,000 — to require their employer to make arrangements to enrol them in a pension scheme. However, such enrolment does not attract contributions from the employer, so abolishing the lower earnings limit of the qualifying earnings band would also mean that those who currently earn below the lower limit would be entitled to the employer contribution if they opt in. Given the low level of earnings, however, such increases would be modest. Giving the Department the power to repeal those sections means that we do not have to come back to repeal them with primary legislation again. We will be able to do it through subordinate legislation, as secondary legislation. It will be done through confirmatory resolution procedure, so the Committee will have its scrutiny time, and the Assembly will also have time to debate it to ensure that it is content with the changes.

The Chairperson (Mr Gildernew): Is it the case that this is because we are kind of moving ahead in a sense? When you say "the power to repeal", does that mean that there is also the power to not repeal? In that sense, I suppose that there is a worry that you are buying a pig in a poke in that you do not know what is going to happen and you are handing a bit of a blank cheque. How can you assure the Committee that that is a good idea?

Ms Ward: The power to repeal just allows us to change the primary legislation through subordinate legislation rather than having to do it through another Bill. It would be in consequence of the removal of the lower earnings limit, so it is in consequence of another power that we are being given through this Bill. It is not something that we can just use.

Mr Jordan: It is two paths to the same end point: either we reduce the lower earnings threshold or we just go the whole hog and abolish it, but the end point will be the same.

The Chairperson (Mr Gildernew): What will the consideration be there? Will it be what eventually comes in across the water, what the financial situation is here or the impact? What will inform that eventual decision?

Mr Jordan: The Bill is a parity measure, so the subordinate legislation will also be a parity measure, but the consideration of what the subordinate legislation will be will be undertaken over the next number of years so that we arrive at an agreed position.

Ms Ward: We will be in contact with the Committee during the process, and we will happily update you as the subordinate legislation is being developed.

The Chairperson (Mr Gildernew): This is my final point on this: is that necessary, or is there another way to do that without utilising Henry VIII powers? Could the same end be achieved without using those powers?

Ms Ward: We need to repeal section 9 if we abolish the lower earnings limit. If we abolish it, section 9 will no longer make any sense, so we need to do it. However, if we reduce it, it makes sense to have section 9 in there. Having the power to repeal section 9 at a later date allows us to reduce the lower earnings limit and then abolish it and not have to do primary legislation at a later stage to then repeal section 9.

The Chairperson (Mr Gildernew): OK. Thanks, Hayley.

Mr Allen: On these enabling powers and the subordinate legislation being drafted, it appears to be a case of "when", not "if", these are taken forward. In that context, what plans does the Department have to evaluate the impact — positive or otherwise — of these changes?

Ms Ward: We have stat collection. We have the annual survey of hours and earnings and the labour market survey that look at the impacts of pensions and automatic enrolment. Those surveys will continue, and we will continue to evaluate the data that is collected there.

Mr Allen: There is currently no duty on the Department to evaluate, is there? It will be based on resources and prioritisation of workflow.

Mr Jordan: There will be a full evaluation via regulatory impact assessment and an equality impact assessment of any proposed changes. They will take into account the data from the annual survey of hours and earnings, the labour market survey and any other data source that we can get our hands on. The outworkings of that would be a recommendation on the way forward.

Mr Allen: I am interested more in the ongoing evaluation as we roll them out. Quite often, we are told — indeed, in evidence sessions — that, "We don't have the data. We don't have the information to be able to accurately evaluate things". I would be keen that the Department look at taking a proactive approach to evaluating. They may well all be positive impacts, but it is important that we have that information.

The Chairperson (Mr Gildernew): I will jump in, Andy, to flag that there likely will be a Committee recommendation that an active review takes place.

Ms Ward: Yes, we do hope to continually evaluate. It is not in any necessary process. We do get statistical data where we can. It is difficult to narrow down the numbers to Northern Ireland because of the UK-wide nature of pensions. However, we do the best that we can with the data that we have. We have presented the Bill as much as possible with the Northern Ireland figures, but, as I said, it is quite difficult to drill those down.

Mr Allen: I appreciate that. Thank you.

The Chairperson (Mr Gildernew): Members, any other comments in relation to clause 1, before we move to clause 2?

Ms Ferguson: I do not expect you to answer now, but is there any specific data that you would love to have that is currently not available? It would be useful to have that, given the importance of continual review.

Mr Jordan: The data that we cannot get, because it does not exist, are the causal factors for opting out. That is not collected because it is a decision made by individuals at the time they are opted in. It is just not collected. Businesses do not collect that data. It is not within their remit to ask their staff why they decided not to opt in.

Ms Ferguson: Has any qualitative research been done on that?

Mr Jordan: There is good qualitative research, which we use as a proxy, that gives reasons for people choosing not to participate. That is as much as we can hope for.

The Chairperson (Mr Gildernew): Thank you.

Are there any other comments from members or officials, before we move to clause 2? No.

Hayley, will you give us a brief overview of clause 2, please?

Ms Ward: Clause 2 provides for the commencement of provisions and the short title of the Bill.

Clause 2(1) contains a standard power for the Department to bring section 1 — Automatic enrolment: persons and earnings affected — into operation by statutory rule. As is usual with commencement provisions, statutory rules made under clause 2 are not subject to any Assembly procedure.

Clause 2(2) provides that section 2 comes into operation on the day after the Bill receives Royal Assent.

Clause 2(3) provides that the short title is Pensions (Extension of Automatic Enrolment) Act (Northern Ireland) 2024.

The Chairperson (Mr Gildernew): Thank you.

Just a brief question from me. It is not absolutely relevant, but have you engaged with unions on the Bill's clauses, and what has their view been?

Mr Jordan: The 2017 review had views from a huge number of stakeholders, including trade unions. They provided input to the review, and the review recommended these two measures. That has been the extent, currently, of trade union input. Going forward, for the development of subordinate legislation, we have to look at that again and measure it.

Ms Ward: Yes.

The Chairperson (Mr Gildernew): Thank you.

Members, there has been no comment on clause 2 from respondents. Do members have any comments? No. Any other comments from the officials on clause 2?

Ms Ward: No.

The Chairperson (Mr Gildernew): OK.

Thank you, Hayley and Richard, for attending. We will continue our deliberations at next week's meeting, when I believe that you will be in attendance again to answer any queries that may arise. I appreciate your attention to that. Thank you.