Webb attacked for claiming dinner ladies better off under AE reforms

Pension minister Steve Webb has come under attack for claiming workers such as security guards, dinner ladies and cleaners that have traditionally not been offered pensions are being helped towards ‘a more prosperous future’.

Webb made the claim following the release of statistics from the ONS that show big increases in pension coverage in sectors of the workforce that have not traditionally been offered membership of workplace pensions.

But Hymans Robertson partner Chris Noon has attacked the claim, arguing that these sectors of the workforce are more likely to be contracted in to state second pension and therefore are amongst the biggest losers from the single-tier pension reforms, which are being implemented alongside auto-enrolment. Taken together, the two policies will leave many of these groups worse off, he argues.

ONS statistics show there are nearly 1 million additional savers in DC workplace pension schemes since 2011. The sectors with the biggest rises were sales and customer service, which rose 8 per cent, an increase of 160,000 cashiers, sales assistants, supervisors and related roles who now have pensions. There has also been an increase of 130,000 in so-called ‘elementary occupations’, which includes low skilled professions such as security guards, cleaners and dinner ladies.

These sectors of the workforce have traditionally not been offered pensions by their employers, and have been less likely to contract out of the state second pension into a personal pension of their own. Contracted-in workers with full working lives are worse off in all age cohorts as a result of the reforms. A low earner on £14,200 with a full work history would have expected a state second pension of £2,444 a year if retiring in 2025, £2,860 a year retiring in 2035 and £3,380 a year in 2050. Factoring in basic state pension gives combined state pension of £8,031.40, £8,447.40 and £8,967.40 for these three cohorts of low-paid workers – all of which are higher than the £7,488 a year flat rate pension. Medium earners on £25,800 lose nearer £2,000 a year from the changes. In a large proportion of cases auto-enrolment pension will not make up for the state second pension lost.

Contracted-out workers, including public sector workers, who by definition already have built up some pension benefits, will generally be better off through the single-tier reforms, as they will be able to build upon their basic state pension at a rate of £4.11 a week for each year they pay National Insurance.

Pensions Minister Steve Webb says: “The tide is turning for pension saving in Britain after decades of decline. Automatic enrolment is putting pension saving within reach of all workers, whatever job they have, including many on low to middle incomes.

For the first time, thousands of hardworking people with jobs or businesses that have not traditionally provided pensions can start saving with a contribution from their employer, helping them towards a more prosperous future and restoring fairness in retirement.”

A DWP spokesperson declined to confirm that elementary workers would be better off as a result of the combined auto-enrolment and single-tier pension policies, saying: ”Today’s state pension system is too complex and people don’t know what they will get from the state in retirement which makes it difficult for them to plan and save.  The new single tier pension will deliver a simple and fair state pension set above the means test, providing a foundation for saving, and automatic enrolment will help millions build up more savings on top.

Noon says: “It is of course positive that more people are saving, but it is a shame that these people are going to have to use this money to make up some the money they are losing through the reforms of state pension.

“The losers in the state pension reforms are concentrated in these sectors of the workforce that have traditionally not had pensions in the past, where low-paid workers have been contracted into the state system. They are now amongst the biggest losers from the Government’s reforms, while people in contracted-out DB schemes, including millions of public sector workers, and those who contracted out into personal pensions are better off.

“When you think some low earners are seeing their state pension cut by a fifth or more, I am amazed that the unions are not kicking up more of a fuss about this.”

Hargreaves Lansdown head of corporate research Laith Khalaf says: “If you take single-tier reform and auto-enrolment together the net effect will in many cases amount to the same income, but with a different person paying for it. But the state pension changes are a given. So given it is happening, auto-enrolment has to be a good thing.”