More thought needed on mid-life MOTs, says House of Lords committee

James Phillips reports...

Mid-life MOTs are in danger of “missing those most in need of support”, the government has been warned following a review of intergenerational fairness.

A House of Lords select committee said the government “needs to give a good deal more thought” on how the financial guidance sessions should be rolled out.

In a wide-ranging report published yesterday (25 April), peers said mid-life MOTs could play an “important role in preparing people for a longer working life”.

The idea was initially proposed in 2017 by Sir John Cridland (pictured) in his review of the state pension age, and have since been trialled by a number of providers, including Aviva, Legal & General and Mercer. In February this year, the government launched a dedicated website to the proposal including signposts to free guidance bodies.

In its report, however, the committee said: “Mid-life MOTs cannot be a one-off, discrete event, and are most effective when viewed as part of a process of good management. The government’s efforts to encourage mid-life MOTs are in danger of missing those most in need of support, including individuals who work for employers that lack the capacity to provide mid-life MOTs and those outside the workforce.

“On the other hand, providing a single statutory MOT at a fixed age to every employee would lack flexibility and might lead to waste. If MOTs are to be introduced effectively, the government needs to give a good deal more thought to how they should operate.”

Generational income gaps

The comments were part of a raft of suggestions to improve intergenerational fairness and bonds, which also included means testing various old-age benefits, improving housebuilding capacity, and establishing later-life retraining schemes.

Committee chairman Lord Nicholas True said: “We found that intergenerational bonds are still strong, and the evidence suggested both young and older people recognise the contribution the other makes and the challenges they face. However, there is a risk that those connections could be undermined if the government does not get a grip on key issues such as access to housing, secure employment and fairness in tax and benefits.”

Quilter head of retirement policy Jon Greer agrees there is a danger of this bond “eroding”, and points to Office for National Statistics (ONS) data, also released on 25 April, which found a growing gap between the respective increases in disposable income for retired and non-retired households.

The statistics body found disposable income for retired households had increased by 59.5% between 2005/06 and 2017/18, while costs grew 38.3%, as measured by the Households Costs Indices (HCI). In contrast, non-retired households saw disposable income grow just 36.1%, while costs rose 31.4%.

But the Lords committee had not proposed solutions to the problems facing the mid-life MOT, Greer adds. “A toxic combination of socio-economic factors – including longer lives, more freedom in pensions and reducing state benefits – mean people now more than ever need to be engaged with their later-life savings.

“A mid-life MOT is not a new proposal and, unfortunately, the House of Lords paper doesn’t bring some of the challenges of the policy any further forward beyond pointing out that it needs more thought.”

Gig economy

While auto-enrolment (AE) has seen more than 10 million new pension pots established, there are significant portions of society omitted, including the low-paid and the self-employed.

One area which has been in the spotlight over the past few years is the lack of provision for some workers of gig economy companies. Depending on the firm, the employment status ascribed in contracts may not provide all workers’ rights, including the right to be auto-enrolled into a pension.

This has led to courts having to decide on the exact status of gig economy staff, with mixed results. While the Supreme Court ruled Pimlico Plumbers workers were entitled to workers’ rights, the High Court rejected the same approach for Deliveroo.

Now, the House of Lords committee has suggested the government could do more to ensure greater access to rights for gig economy labourers.

“Denying workers the rights that come with worker status fails to protect them from exploitation and poor working conditions. This disproportionately affects younger people. There should be an assumption of the employment status of ‘worker’ by default, in order to make the rights and protections that come with this status enforceable, without interfering with the rights of those who genuinely wish for self-employed status to adopt it.”

Following the Matthew Taylor Review of Modern Working Practices, published in July 2017, the government last February launched a consultation on employment status. While the call for input closed in June, there is yet to be a government response.

Wider measures

The Lords’ report also recommended scrapping the triple lock on increases to the state pension, as well as abolishing the National Insurance exemption on state pension receipts, with this gradually being merged with the income tax.

International Longevity Centre UK director David Sinclair said the report “highlights the failures of successive governments to respond to the policy challenges of ageing”.

“The government could actually go further than the committee proposes,” he continued. “The National Insurance exemption for older workers seems an anachronism. And savings could be better invested in any number of other initiatives – including in addressing the gross underfunding of public health and social care.”