Committee stage in the Lords
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)Labour- Quote
- My Lords, I beg to move that the House do now resolve itself into Committee on this Bill. Moved accordingly, and, on Question, Motion agreed to. House in Committee accordingly. [The CHAIRMAN OF COMMITTEES in the Chair.]
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Lord SkelmersdaleConservative- Quote
- moved Amendment No. 1:
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Lord Oakeshott of Seagrove BayNon-affiliated- Quote
- We on these Benches support the amendment, and if the noble Lord chooses to press it to a Division we will support him. There is a fair element of motherhood and apple pie in it, but we Liberal Democrats are always in favour of that. I am not sure which of the team on the Official Opposition Front Bench represents the motherhood tendency and which the apple-pie tendency, but we are with them on this. As this is the first amendment, I want to say a word following the noble Lord, Lord Skelmersdale, having pointed out how extremely complicated the Bill is. The more I looked through the amendments last night and thought about what we would say today, the more I thought that the Floor of the House was not the right place to hold this Committee stage. We on these Benches do not see why one party with 201 Peers out of 733—28 per cent—seems to have a complete veto on where Committee takes place. That same party has under 40 per cent of the non-government Peers. Operationally and practically, we would make better progress, have an interactive discussion with the Minister’s officials—they would be better able to deal with points as they arose—and make better law quicker if Committee on the Bill, like that for some of its predecessors, had been held in Grand Committee. Report gives plenty of opportunities to challenge and, if necessary, pass amendments on the Floor of the House. Having said that, we take no exception. We broadly support the new clause, and will support it in a vote if necessary.
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Lord LyellConservative- Quote
- At the outset, I apologise to the Committee for not being available to be here on Second Reading. In spite of what the noble Lord, Lord Oakeshott, said, perhaps we should look at the newspapers. One leading newspaper has a wonderful headline saying, today of all days: “If the old refuse to die, let them work longer”. I do not know whether that referred to our deliberations on the Bill, but one aspect of the article came to mind. Doubtless my noble friends will be able to cover it in considerable detail, and I suspect that even the Minister may be able to use his accountancy qualifications and experience on it. The article states that: “In the UK, longevity is not only increasing; the increase is accelerating”. Experts in the field that we are discussing have predicted that 50 per cent of those of today’s population who are 30 years of age will live to 100 years of age. We can do some simple actuarial calculations; I am sure that that will be meat and drink to my noble friend Lady Noakes and the Minister. The statistic gives some idea of the importance of the Bill, even though we take into consideration the wise words of my noble friend Lord Skelmersdale on the Front Bench. A massive task is in front of us, but we have to set about it. I am interested in and supportive of what my noble friend proposes in his amendment.
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- Lord McKenzie of LutonLabour
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- I welcome the opportunity for a brief Second Reading debate about the principles of the Bill, and welcome the general thrust of the amendment. However, I fear that it sets out only a partial story about the general objectives of our reform. For that reason I hope that the noble Lord, Lord Skelmersdale, will not press it in its current form. Together, this Bill and last year’s Pensions Act provide an integrated package of reforms that build on and carry forward the analysis and recommendations of the Pensions Committee. I place on record, again, our gratitude to the three Pensions Commissioners, the noble Lord, Lord Turner, Jeannie Drake and Professor John Hills for all that they have done to help us face up to the challenges, and legislate for solutions that are affordable and sustainable in the long term. Last year’s Pensions Act provided a simpler, more generous and widely available state pension. It addressed and corrected the historical inequalities in women’s state pension entitlement, provided for gradual increases in state pension age, and ensured sustainability in the long term. Taken together, these reforms set out a solid foundation upon which people can plan for retirement. This Bill, as the noble Lord recognised, makes changes primarily to the private pension system. As the amendment sets out, the Bill ensures wider availability of pension savings opportunities, but I suggest that it does more than this. In establishing a personal accounts scheme, it specifically targets a market that has been poorly served by existing pension providers. Those on low to moderate incomes will—many for the first time—have an opportunity to save for retirement in a simple, low-cost scheme. In encouraging people to take personal responsibility for their financial security in retirement, our policy on auto-enrolment will help individuals to overcome such barriers to saving as inertia. The Bill provides safeguards on auto-enrolment, such as the right to opt out, the definition of a jobholder, and enforcement and compliance provisions to ensure that the policy is not undermined. The core policy principle is to make inertia work to the benefit of individuals, not against them. Another key feature is to give people an incentive to save for their retirement, requiring the state, the employer and the individual to contribute towards pension savings. Finally, and importantly, in protecting and maintaining the existing market, we propose a number of measures that ensure that the personal accounts system stays focused on the unserved target market. These measures will minimise the burdens on employers in complying with the duty to register qualifying schemes and to contribute 3 per cent; roll back some of the regulatory burden on existing schemes to simplify their administration; and foster compliance by providers, employers and individuals in a light-touch but effective way. I acknowledge—and we will surely debate—the points made by the noble Lord, Lord Skelmersdale, about levelling down, savings incentives, auto-enrolment, to which I have referred, and issues of low cost. The noble Lord, Lord Oakeshott, suggested that they would be better debated in Grand Committee than in this Chamber, which is a fair point. I would have preferred to debate them in Grand Committee, but the decision is not ours and we are happy to debate them wherever the powers that be determine. The noble Lord, Lord Lyell, specifically raised the issue of increasing longevity. One of the issues at the heart of Turner commission’s report, on which this Bill and last year’s Act are built, is the need to make sure that this is addressed and we have a system that is sustainable in the long term. I quote some statistics, which I have quoted once before. DWP statisticians have worked out that somebody alive today, aged 59, most likely a woman, will live to be 120. That means that next year, halfway through her life, she would get her state pension. That encapsulates the challenges of pension provision. We will debate the detail in the coming weeks, but the broad objectives of the package, which go further than the noble Lord’s amendments, are built on lengthy discussions in Parliament, with interested external organisations and with the general public. The commitment and effort, shown on all sides in the other place, to raising awareness, deepening understanding and widening the circle of consensus is exemplary. It is a key consideration if we are to give people confidence and certainty for the long term. I applaud and warmly welcome that effort and commitment and I do not think we disagree about the general objectives of these reforms in terms of what they are or should be, but I do fear that the amendment is not an entirely full reflection of those objectives. On that basis, I would ask the noble Lord not to press it.
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Baroness Thomas of WinchesterLiberal Democrat- Quote
- I feel slightly warmer about the amendment than does my noble friend on the Front Bench. I would call it more of a rudder for the whole Bill, putting it into context and giving it coherence. Surely the fact that not everything is in the objectives should not mean that we should not have any kind of statement on the front of the Bill. I believe that the expression is, “The best is the enemy of the good”, so I feel strongly that it should be there.
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- Lord McKenzie of LutonLabour
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- If we set out something at the start of the Bill which we say encapsulates its objectives and it does not do that in a complete fashion, we run the risk that that will create issues around the interpretation of the legislation. We have to be mindful of that.
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- Lord LyellConservative
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- I wonder if the Minister is aiming at me as the open target. I am 69 years old, I have not changed sex yet, but according to the article I read out, there is a chance that I might still be here. Perhaps I might be the one; he might consider that.
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Lord DearingCrossbench- Quote
- Perhaps the proposed introductory clause is imperfect, but I would be interested to know if the Minister is prepared in principle to insert a more accurate form of words should the amendment be withdrawn.
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- Lord McKenzie of LutonLabour
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- That is an entirely reasonable request and I am certainly happy to see if what I sense is the view of the Committee can be met. I do not commit to anything, but I shall take it away to consider whether we can construct something that we would see as more complete.
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- Lord SkelmersdaleConservative
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- I am extremely grateful to all noble Lords who have taken part in this short debate. I say to the noble Lord, Lord Oakeshott, that not I, he or the Minister are even micro-members these days of the usual channels. As I said in my opening speech, we are where we are and we have to make the best of it—and I am sure we will. I am sorry that what I said has given rise to something that I tried desperately hard to avoid; namely, a Second Reading speech. I agree that the Minister was tempted by my noble friend Lord Lyell, who of course reminded us of why we are here and what last year’s pensions Act and this Bill, taken together, are for. I am well aware that the danger inherent in purpose clauses, especially at the beginning of our proceedings, is that not all the amendments may be incorporated in a Bill; indeed, it is just possible that not all the clauses currently in the Bill will, as the Minister would like to have us believe, be incorporated. When we send it back to another place, they will all be encapsulated in it. I ask the Minister and the rest of the Committee to look at the amendment again. I defy any noble Lord to say that the phrase “new or”—not “and”— “better ways of providing such”, does not cover any possible eventuality. It certainly covers personal accounts—that was a complaint of the Minister’s. The words in the amendment were not chosen at random; they are to be found in Section 1 of the Courts and Legal Services Act 1990. If they were good enough for Treasury counsel then, they are certainly good enough for me now, and I hope the Committee will think so too. I wish to test the opinion of the Committee.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 2:
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- Lord SkelmersdaleConservative
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- I am grateful to the Minister for sending me a grid of government amendments, some of which, like these two, are purely about drafting. As the Committee will know, one of my interests is drafting, so I have looked at these with particular care. The Minister need not look so shocked. When I first read the Bill, I noticed that it was littered with references to “jobholder”, “employee” and “worker”. I found in Clause 1, for example, that I simply could not distinguish between “employee” and “worker”. I am glad that, on reflection, the draftsman could not either. There are still references to “employee” in Clause 55, but no longer to “worker” in Clause 77. And what about Clauses 78 to 85? Rather than make a meal of it and put down endless amendments, I ask the Minister to have the rest of the Bill looked at again, now that a “jobholder” is purely a worker for the purposes of Part 1, to see if other simplifications can be made elsewhere to tidy up any confusion that may remain.
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Baroness Turner of CamdenLabour- Quote
- I thank the Minister for this amendment. I have received a briefing from the TUC, which is also very supportive of this. It believes that otherwise some unscrupulous employers might try to avoid having a contract of employment with their staff so that their workers would enjoy fewer rights and less security. I am pleased that the amendment, by emphasising the title “Jobholders”, will restrict that from happening. I think it was at Second Reading that we introduced the further point that agency workers will not be debarred from belonging to schemes under the Bill.
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- Lord McKenzie of LutonLabour
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- I am grateful for the responses from both noble Lords, particularly from my noble friend who has referred to agency workers. This is an important provision in the Bill. I am happy to ask officials to look at the remaining clauses in this part of the Bill to see if any further tidying up needs to be addressed. I had a quick flick through myself and could not readily see any, but we will take it away and liaise with the noble Lord, Lord Skelmersdale, if there is anything more specific. Indeed, if, on reconsideration, he wants to raise any specific points with officials, he is just to let us know. On Question, amendment agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 3:
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Baroness NoakesConservative- Quote
- moved Amendment No. 4:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- This seems a very sensible and reasonable amendment. Almost by definition, non-executives are in office for only a few years. It would be quite messy, from the point of view of personal accounts, to include them. If we think of high-profile boards non-executives have recently been on—for example, Northern Rock—we realise that the last thing we would want would be that they should accrue pension rights. Indeed, it would not be normal practice. This seems, therefore, to be a perfectly sensible amendment and I do not see why personal accounts should make a major change in established practice. As the noble Baroness said, non-executive directors are not part of the target market.
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Lord TunnicliffeLabour- Quote
- Up until a few weeks ago I, too, would be declaring an interest in this and I, too, confirm that both in the public and private sectors I have never received any pension remuneration as a non-executive or chairman. Clause 1 sets the core scope of this package of reform by establishing the group of individuals who qualify for workplace pension savings with a contribution from their employer. We call individuals who are workers between the ages of 16 and 75 who ordinarily work in Great Britain and have qualifying earnings “jobholders”. This group of amendments seeks to exclude non-executive directors from the scope of these reforms. However, this is not necessary because Clause 1 requires an individual to be a worker in order to be a jobholder. Non-executive directors are not workers—
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- Lord TunnicliffeLabour
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- I thought that might raise an outcry—as they are not employed under contract for their services by the companies to which they provide those services. Instead, non-executive directors are appointed as office-holders and therefore fall outside the scope of these reforms. Office-holders are excluded unless specific provision is made to include them. We have no plans to take such steps for the purpose of these reforms. Amendment No. 43 would exclude non-executive directors’ fees from qualifying earnings. This is similarly not required as such fees would not fall within the scope of these reforms. From my own recollection, I believe that non-executive directors in the public sector are also office-holders. I will write to the noble Baroness, if she will forgive me, having checked the position as far we are able. I therefore urge the noble Baroness to withdraw these amendments.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- Did I hear the Minister right? Did he say non-executive directors are not under contract? They might be office-holders, but all the non-executive directors I know have contracts for serving on boards. What is the basis for saying that they are not under contract?
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- Baroness NoakesConservative
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- Before the Minister replies, as I mentioned at the outset, I declare an interest: I am a non-executive of several companies and have been of more in the past. In each case, I have had a contract. I also rather resent the suggestion that I am not a worker.
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- Lord TunnicliffeLabour
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- I am sure the noble Baroness works very hard but company law details directors as office-holders and they receive fees. I have in my own experience come across this requirement from legal advisers. If Members of the Committee would like us to provide some chapter and verse on the relevant parts of the law, I would be happy to do that.
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- Baroness NoakesConservative
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- I raise this as a technical issue. It needs to be clear beyond peradventure, because otherwise it would change market practice and cause a lot of problems. I am grateful for the comments of the noble Lord, Lord Oakeshott, who referred to the sort of problems that may occur. I am not convinced by the argument that, because one is an office-holder, one is not also under contract as an employee. My understanding is that quite the reverse is the case, and the provisions will not necessarily deal with all the issues that I have raised around the public sector. The department needs to take this away and look at it further. I am very happy to engage in any discussions with the Minister’s officials if they would like to know what a modern non-executive’s contract actually looks like. This was a probing amendment, but this is an important issue that we need to resolve before Report. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 1 agreed to. Clause 2 [Continuity of scheme membership]:
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- Lord SkelmersdaleConservative
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- moved Amendment No. 5:
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- Lord McKenzie of LutonLabour
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- I shall speak to government amendments in this group and to Amendment No. 5, which I ask the Committee to reject. Automatic enrolment will establish the presumption to save as the new default. However, we need to ensure that employers do not enrol their workers one day then look for ways in which to take them out of workplace pension saving shortly after. Clause 2 prohibits employers from acting, or failing to act, in any way that results in the loss of active membership for a jobholder. The compliance regime in Chapter 2 will apply in respect of the employer duty in Clause 2. Breaches of the duty may, where necessary, result in the Pensions Regulator taking enforcement action in the form of compliance and penalty notices. Government Amendment No. 6 extends this prohibition to actions, or failed actions, of the employer that would result in a jobholder scheme losing its status as a qualifying scheme. This will provide additional security for the jobholders and help to ensure that continuity of good-quality pension saving is protected. For example, some employers like to be able to retain an ability to control their costs, by varying either contribution rates or the definition of pay on which contributions are calculated. Such employers who offer money purchase arrangements could use that ability to reduce the amount that they are otherwise required to contribute to meet the duty, thereby subverting the duty without terminating active membership. Opposition Amendment No. 5 would remove the element of the clause relating to employer omissions. We are clear that it is inappropriate to allow employers to benefit by failing to do what they are required to do, either deliberately or accidentally. Employers should be held responsible if they terminate scheme membership, even if that is by accident. Some pension providers may require an employer to keep their employee details up to date. We do not want a failure by an employer to provide such details to result in the termination of the active membership for any of their jobholders. This amendment, however, would undermine the duty on employers to maintain active membership of a scheme and could increase the number of jobholders who come out of pension saving without having made the decision themselves. That would undermine the central objective of these reforms. The Government recognise that some employers voluntarily pay higher contributions or offer schemes with high benefits significantly above the default. We recognise that, in the longer term, this is to the advantage of their workers and we want to support these employers to continue to do this. Clause 4 therefore enables an employer offering higher-quality pension provision under the employer duty to be able to defer automatic enrolment for any or all of their jobholders for a limited period, the details of which will be set out in regulations—for example, the length of the period. Amendments Nos. 13 and 14 ensure that an employer who takes advantage of the facility to defer automatic enrolment must guarantee membership of the higher-quality scheme for a minimum period. If an employer is unable to maintain membership of the higher-quality scheme, through no fault of their own or of jobholders, regulations made under a new clause to be introduced by Amendment No. 21 will require the re-enrolment of a jobholder into alternative higher-quality provision within a set timeframe. Therefore, I urge the noble Lord either to withdraw Amendment No. 5 or ask for it to be rejected. The noble Lord asked a number of questions about the costs of automatic enrolment and re-enrolment. The whole thrust of these provisions is to make sure that the arrangements are efficient and low-cost and we do not want to impose undue burdens on employers. We are not at a stage to be precise about what the process will be and quite how it will proceed. We will be looking in part to PADA and its work to advise and help us to develop these arrangements. However, the noble Lord makes a good point: we need to ensure that we do not impose undue burdens on employers by this process. There is no reason to assume that the process necessarily would, but those details have yet to be worked out and the matter will be developed in the coming months. We are absolutely convinced on the essence of the Bill, which is that auto-enrolment is the route by which we deal with the current inertia whereby so many people are prevented from saving.
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- Lord SkelmersdaleConservative
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- I am grateful to the Minister, who need have no fear on this occasion; I described this as a probing amendment, so of course I will withdraw it. I am relieved to hear that the Government intend to make this whole operation as low-cost as possible for employers because, without that, there would be very grudging acceptance, to say the least, of these reforms. I understand why the Government are not yet ready to be prescriptive on all this. In part, as the Minister almost said, he is waiting for PADA to tell him what is appropriate and, in part, the department is still working on this with the various stakeholders. I shall say a bit more about them in a minute. We must be extremely careful that we do not throw the baby out with the bathwater. We will have quite a discussion, in which I hope other Members of the Committee will join, on the qualifying schemes and the test scheme. From what the Minister has said, I assume that more, rather than fewer, existing schemes are likely to qualify, because that would keep the cost down. That is perhaps too broad a question for now and would be better repeated at another time.
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- Lord McKenzie of LutonLabour
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- I am sure that we will debate that in some detail, but the Government are keen to make sure that all existing good-quality provision is maintained and we seek that objective through part of the structure of this Bill.
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- Lord SkelmersdaleConservative
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- I am delighted to hear that, but we will see. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 6:
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- Baroness NoakesConservative
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- moved Amendment No. 6A:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I defer to no one in my admiration for Scottish solicitors. I have the pleasure of dealing with them a lot and, on this occasion, I would not want to add to their worthwhile comments.
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- Lord McKenzie of LutonLabour
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- Automatic enrolment, as we have said, will establish a presumption to save as the new default. After jobholders have been enrolled, they have a right to remain in qualifying workplace pension saving. Clause 2 is designed to protect this right by prohibiting employers from acting or failing to act in any way that results in the loss of active membership for a jobholder. The compliance regime in Chapter 2 will apply in respect of the employer duty in Clause 2. However, employers will not be in breach of Clause 2 if they make arrangements for the jobholder to become an active member of another qualifying scheme within a prescribed period. The thrust of the noble Baroness’s amendment would allow employers simply to offer membership of another scheme rather than enrol jobholders into one. If a jobholder declined membership of the replacement scheme, the employer would still be considered to have met the duty. That would undermine the core principle that jobholders have a right to participate in workplace pension saving without interference, unless they make the choice that they want to opt out or terminate membership later. Under this amendment, if a scheme closed, the jobholder could be forced to make a decision on whether to continue saving and might suffer detriment simply because they had not had access to the wider information associated with any decision to opt out under Clause 7, which provides a process for opting out. There is nothing to prevent a jobholder who wishes to terminate their membership of a scheme from doing so. However, we want any such choice to be free and informed. The amendment could, although I accept entirely that this is not its purpose, enable unscrupulous employers purposely to terminate a scheme and subsequently require jobholders actively to opt in to a replacement scheme. That would undermine both the principle of automatic enrolment and that of maintaining scheme continuity. The key to automatic enrolment is that it must be done by the employer, with the employee’s choice following that in light of information that must be provided under those enrolment arrangements.
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- Baroness NoakesConservative
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- I do not find the Minister’s response very satisfactory. Part of the problem is that the DWP now seems to see unscrupulous employers round every corner, which influences its attitude to the way in which the Bill will be approached. That is unfortunate, given that the vast majority of employers are, and wish to be, compliant. The notion of the unscrupulous, non-compliant employer has been raised several times this afternoon and it has permeated all the proceedings and explanations in another place. That is unfortunate. Let us take this case. The Minister is saying that if, for perfectly good reasons, the employer decides to shut one scheme and start another, he must positively enrol all employees even if one says, “I have done pension saving. I am now 55 and don’t want to save”. Does the employer have to enrol that employee, who then has to opt out? Is the Minister really saying this because of the shadowy fear that there might be the odd unscrupulous employer who could not be caught by some other compliance mechanism?
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- Lord McKenzie of LutonLabour
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- In essence, that is the thrust of the Government’s position. Of course, I accept that the vast majority of employers wish to be compliant and to engage in this legislation positively. Automatic enrolment is fundamental to the legislation and that process will bring with it information that is provided to the jobholder, who can then decide whether to stay in or opt out. If one misses the loop of automatic enrolment, there is a real risk that a fundamental part of this legislation will be undermined.
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- Baroness NoakesConservative
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- I said that this was a probing amendment, so I shall not press the point. Instead, I shall ask the Law Society of Scotland to read what the Minister has said. I should just say that we are talking not about initial enrolment but about somebody who chooses not to stay in replacement arrangements. It is not a very big point, which is why I shall not spend any more time today on it. The Minister has the wrong approach. He is simply creating bureaucracy and paperwork for no good purpose. If that is how the Government approach the whole Bill, we will have more trouble as we progress into more difficult areas. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 2 agreed to. Clause 3 [Automatic enrolment]:
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- Lord SkelmersdaleConservative
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- moved Amendment No. 7:
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Baroness Hollis of HeighamLabour- Quote
- I support the amendment and only wish that the noble Lord had gone further. I would like to see personal accounts, as structured for those over 22 and with auto-enrolment, being available for people at the age of 16. Let me explain why. I read the House of Commons debates and, as far as I could see, the Government’s main concern, which I can understand, is that there is a lot of job movement at that age; therefore there is a significant hassle factor and it is possibly not worth doing. I am not sure that I accept that, because the whole point of personal accounts is to produce the pot that you take with you. Therefore, after the initial hassle of setting it up, you should be able to port it with you. There are two, possibly three arguments that I ask my noble friend to consider. I understand that you can voluntarily enrol but I should like to go beyond that. The first point is to instil as early as possible the habit of saving. If you are in a job at the age of 18 or 21 and are not contributing to a pension, and then suddenly at the age of 22 auto-enrolment arises and you experience a drop in income, there may well be an increased psychological willingness to opt out. However, if the habit of saving has been instilled in you and you pay your pension contribution along with your tax and national insurance from the first day that you are in work, and you are above the LEL, the sums involved will be quite modest. Often, they will be only £3 or £5 a week for the employer or the employee on, say, half-median earnings. We are talking about quite modest sums, but the habit of saving will be in place and there will be less risk of dropping out from the option of auto-enrolment at the age of 22. The second point is that it really is worth making those contributions. I am not confident about my statistics, as I have been trying to work them out myself, and I defer to PENSIP or any other model. For example, you would normally save on half-median earnings—which for a woman is about £11,000 a year—for 30 years in a personal account. However, I calculate that if you started six years before that, you would add 50 per cent to your total pot or possibly more because you would have started at a young age and would have a much longer investment return. That is particularly salient for women because their peak earning age is 29, as opposed to 42 for men, because they are most likely to earn before they have children. When they have children, half of them stop contributing to a pension. Therefore, for young women, in particular, who may be training to become a hairdresser, for example, it is key that we increase the number of years in which they are likely to contribute to a pension before they settle with a family, which almost always adversely affects their pension contributions. For those reasons, I am not sure that the hassle factor is a substantial argument. It is desirable to inculcate the habit of saving, rather than risk people failing to auto-enrol at the age of 22 because they are not used to making payments. That is the case, above all, because those six years of early return can increase the value of a 30-year pot by something like 50 per cent. That is particularly important for low-paid women who may be part-time workers. I hope that my noble friend will reconsider this matter, and I shall be bringing forward something similar in a later amendment. Obviously, the scheme is discretionary and a young person can contribute if they wish, but what I should like to see is that where that young person “does”, the employer “must”. In that way, the scheme would be made worth while. I hope that the noble Lord, Lord Skelmersdale, will accept a wider interpretation than he may have originally intended with his amendment. I also hope that my noble friend can take this matter away and think again about the outcome that we want, which is to ensure that low-paid people who work part time—women in particular—retire with the best possible pension. We should do everything we can to ensure that they start paying in as early as possible and as easily and continuously as possible, and this amendment could be a means of achieving that.
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- Lord DearingCrossbench
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- What the noble Baroness said seems very persuasive. People who leave school early are least likely to earn high incomes. Therefore, the earlier they start to contribute, the more effectively they are able to provide for their old age and the less likely they are to be a burden on society. Therefore, for national as well as individual reasons, this proposal makes a lot of sense.
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- Lord McKenzie of LutonLabour
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- This has been an important debate. As we have said before and will doubtless say again before the end of these proceedings, automatic enrolment is at the heart of this package of reforms. However, the amendment seeks to remove the lower age limit to allow jobholders to be automatically enrolled between the ages of 16 and 22. That would undo the balance that we have struck between maximising saving through automatic enrolment and minimising employer burdens by limiting automatic enrolment to between the age of 22 and state pension age. In addition, requiring employers automatically to enrol jobholders aged between 16 and 22 would increase the burden on them. We believe that selecting the age of 22 strikes the right balance between the age when job tenure becomes more stable and encouraging workers to start workplace pension saving at an early age. Starting automatic enrolment at age 22 will also minimise costs associated with frequent job turnover among the young, especially students, which might reduce the incentive to hire younger workers. As has been recognised, we are not excluding young people from saving in a workplace pension as jobholders between the age of 16 and 75, because they can opt in to workplace pension saving and receive an employer contribution. I think that both my noble friend and the noble Lord, Lord Skelmersdale, assumed that there would be no automatic employer contribution if a 16 year-old opted in.
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- Lord SkelmersdaleConservative
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- There is no automatic employer contribution.
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- Lord McKenzie of LutonLabour
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- No, there is. We need to distinguish people whose earnings are below qualifying earnings and people between the ages of 16 and 75 who opt in. They get an employer contribution if they do so—I am looking to the Box to confirm my understanding.
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- Baroness Hollis of HeighamLabour
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- If my noble friend is correct, I shared the mistaken assumption of the noble Lord, Lord Skelmersdale. If that is the case, it is even more important that there is automatic enrolment.
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- Lord McKenzie of LutonLabour
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- It definitely is the case; I can confirm that. My noble friend makes a very important point about instilling the habit of saving as early as possible. We recognise that. We are dealing here with a balance. Younger people, especially if they are students, tend to have a succession of jobs, and there are administrative costs associated with that. I am interested in my noble friend’s calculation of the impact on the pot. I am happy to look at that; perhaps we may get together after the Committee to work through the calculations. The noble Lord, Lord Skelmersdale, asked what happens if someone elects to be enrolled and then reaches the age of 22. If they are enrolled in a qualifying scheme, under Clause 3(3), reaching the age of 22 does not require any further action on the part of the employer, because they will then become a jobholder and will be an active member of a qualifying scheme.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I deliberately did not intervene earlier because I find this quite a difficult balance to strike in this debate and I was interested to hear the thrust of the Minister's reply. Does he have any statistics to help us further? Although one’s instinct is obviously that job turnover is much higher and that there would be a lot of administrative cost from including later teenagers and 20 and 21 year-olds—one is conscious of the administrative cost for employers and possible extra costs for the Personal Accounts Delivery Authority of having a lot of small and very mobile accounts—that would help us decide. The point made by the noble Baroness, Lady Hollis, about instilling the savings habit is valid, although I think her figures are a little optimistic when it comes to how much difference it makes. I should not have thought that 16, 17 and 18 year-olds are earning anything like as much as average female earnings. Even accepting her point that female earnings peak earlier than those of men, I should not have thought that we were talking about very large amounts of money. I would be interested to hear further statistics on job turnover in that group.
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- Baroness Hollis of HeighamLabour
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- I would also very much welcome statistics on that. The figures that I gave were for half median earnings, not median earnings. I absolutely take the point that a 16 year-old will not be on median earnings, but half median earnings—£10,000 to £11,000—for a young woman who by 18 or 19 is a qualified hairdresser is perhaps not an unreasonable assumption.
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- Lord McKenzie of LutonLabour
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- I have some statistics. I am not sure that they cover precisely what the noble Lord, Lord Oakeshott, wanted. If we assume that those aged 16 to 21 opt out at the same rate as 22 to 24 year-olds, there would be a £77 million or 10 per cent increase in employer contribution costs. Removing the lower age threshold of 22 would increase the number of people eligible for automatic enrolment by some 2 million—assuming working age starts at 16—notwithstanding plans to encourage people to stay in education or training. This group of 2 million young people earn, on average, less than half as much as those aged 22-plus. One of the ramifications of that would be that if the group does not opt out, this amendment is likely to lead to many more small pots which are expensive to administer. We have had an interesting discussion of this issue and we certainly want to have another look at it. To confirm what I said earlier, in terms of someone who is aged 16 or 17 or under 22 opting in, Clause 1 defines a jobholder and all jobholders are entitled to an employer contribution on their qualifying earnings. If they do not have qualifying earnings, they would not get an employer contribution. If they opt in, whether they are above state pension age or between 16 and 22, they would get an employer contribution on their qualifying earnings.
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- Lord SkelmersdaleConservative
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- There has obviously been some confusion resulting from the research of various Members of the Committee. It would be extremely helpful if the noble Lord could point to where in the Bill it says that if a youngster—in other words, someone between the ages of 16 and 22—is enrolled in a personal account, the employer is duty bound to contribute at personal account rates. While the Minister was speaking I was trying to have a quick gander at the beginning of the Bill but failed to find any reference one way or the other. I do not understand how the amendment works for 16 to 22 year-olds, whether or not they are enrolled in a personal account, or indeed any other sort of pension scheme. I am not sure that it is right to pursue it just at this moment, unless the Minister has extra information that he can give us. I should be most grateful for one of his very explicit letters in due course, if he feels like writing one, as I am sure will the noble Baroness, Lady Hollis, on this occasion.
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- Lord McKenzie of LutonLabour
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- I will see how much I can deal with now but I am sure that I will end up writing in any event. On the issue of the employer contribution, you have to go right to the start of the Bill, to Clause 1(1), which defines a jobholder as an employee—or now, a worker—who works or ordinarily works in Great Britain and who is aged at least 16 and under 75. That is the key to the employer contribution. You then have to look at Clause 6(3). If people are active members of an automatic enrolment scheme, then you get the requirements for the employer contribution for that scheme if it is going to be an automatic enrolment scheme to satisfy the quality tests and the qualifying scheme test. That is the route into it for someone aged between 16 and 75. It is different for someone who does not have qualifying earnings. Someone who does not have qualifying earnings is not, within that definition, a jobholder. I shall have one more go about how it works for someone who opts to be enrolled under the age of 22 and then becomes 22. He or she is enrolled in a qualifying scheme and therefore when it comes to issues of automatic enrolment the employer is relieved of the obligation to take further action by Clause 3(3). Subsection (2) is the provision that makes the employer undertake prescribed arrangements by which the jobholder becomes an active member, because subsection (2) does not apply if the jobholder was an active member of a qualifying scheme on the automatic enrolment date. Therefore, there is no need to do anything if they are already in the scheme. I hope that has clarified matters. However, if it has not, I am very happy to write to the noble Lord to make sure that it is very clearly understood.
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- Lord SkelmersdaleConservative
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- I am afraid not, because once you are in the scheme and over 22 you have to re-enrol every three years, as we will debate in a little time. The noble Lord looks confused.
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- Lord McKenzie of LutonLabour
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- If you are in and remain in a scheme, the question of re-enrolment does not arise. Issues of re-enrolment are focused on when people cease to be members of a scheme, and it is a rolling process to make sure that people who are not involved in saving initially are caught and involved later.
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- Lord SkelmersdaleConservative
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- I may have been barking up the wrong tree. As I understand it, if you are an adult—22-plus, for these purposes—and on your birthday you enrol in a personal account for the first time, all the advantages of enrolling in such an account will accrue to you. However, one of the duties of that enrolment is that you are asked every three years whether you want to continue saving into the scheme. I may have misunderstood that. My noble friend Lady Noakes says that I have, so on this occasion the Minister can save his breath and she will take me aside quietly at some appropriate moment in some, I hope, appropriate place and explain it to me.
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- Lord McKenzie of LutonLabour
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- I object most seriously to the fact that the noble Lord takes the word of his noble friend but refuses to take the word of the Minister.
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- Lord SkelmersdaleConservative
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- I was just suggesting that, for the moment anyway, the Minister might save his breath. If he does not want to, he can carry on explaining to me why I am wrong.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- It sounds like a case of, “Trust me—I’m not a Minister”.
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- Lord SkelmersdaleConservative
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- I could not possibly comment. Enough of this frivolity. I will consider carefully what the Minister and the noble Baroness, Lady Hollis, said. If she reduces the £5,035 figure—the entry LEL—to zero or thereabouts, that might well put enormous burdens on small and medium-sized enterprises. We might be able to discuss that on a later amendment.
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- Baroness Hollis of HeighamLabour
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- I shall see whether I can persuade the noble Lord.
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- Lord SkelmersdaleConservative
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- I am sure that the noble Baroness will see whether she can persuade me, but at the moment I am—what is the word?
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- Baroness Hollis of HeighamLabour
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- Agnostic?
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- Lord SkelmersdaleConservative
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- No, not agnostic—suspicious. With that, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord SkelmersdaleConservative
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- moved Amendment No. 8:
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- Baroness Turner of CamdenLabour
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- I am puzzled by this. If you insert “state pension age”, it clearly ties the scheme entirely to the current state pension age, but the state pension age may gradually increase as we all live longer. At the same time, there may be types of work where it is desirable that people do not have to work to state pension age before they get their pension. It depends on the kind of employment. It seems that not having “state” in the Bill allows for a degree of flexibility, which we may welcome.
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- Baroness Hollis of HeighamLabour
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- My question is triggered by the contribution of the noble Lord, Lord Skelmersdale. I had assumed—this may be an error on my part—that a qualifying scheme would, none the less, not be disqualified by virtue of the fact that one could retire earlier than state pension age. If I am wrong in that assumption, what then happens to the tax-free lump sum, which at the moment one can draw aged 50? It is going up to 55 in 2010. If the noble Lord’s fears are valid—which I hope they are not—does that suggest that different rules must therefore apply to the tax-free lump sum and when one may draw it?
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- Lord McKenzie of LutonLabour
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- I shall not repeat the opening remark of my speaking notes, which says that automatic enrolment is at the heart of this package of reform. I can deal very swiftly with the point that has been raised about what “pensionable age” means. The definition is given in Clause 86: “‘pensionable age’ has the meaning given by the rules in paragraph 1 of Schedule 4 to the Pensions Act 1995”. I know that that is familiar to the noble Lord. It links the state pension age and makes the proposed amendment unnecessary. It also picks up on the point made by my noble friend, because the definition includes the equalisation of women’s state pension age when it increases from 60 to 65 between 2010 and 2020. It covers the subsequent increases introduced by the Pensions Act 2007—for both men and women—from 65 to 68 between 2024 and 2046. It locks into that definition. A number of other points were raised about pensionable age. The noble Lord asked whether a scheme could allow a person to draw a pension if they were below state pension age. Yes, it could, but that scheme must allow auto-enrolment to the age of 65. It would not prevent someone drawing a pension and retiring when they were below state pension age as long as it had the facility for someone to be auto-enrolled, should they so wish, up to the age of 65. The noble Lord also asked whether, when someone is already drawing a pension from a scheme, there would be a requirement to auto-enrol. To avoid the auto-enrolment requirement, a person would have to be an active member of a qualifying scheme. If they were not, the auto-enrolment procedures would apply. It might be that the decision would be to opt out, but it applies only if someone is not an active member of a qualifying scheme. I hope that that deals with the point. The fundamental point about the definition of pensionable age is that it locks into the state pension age as it is today and as it will progress under the reforms that are already provided for in legislation.
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- Lord SkelmersdaleConservative
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- So, the Bill as printed is confusing and the Explanatory Notes are right—I think that in précis is what the Minister is saying—and I am grateful. However, I think he would agree that the answer to his noble friend Lady Turner of Camden is that when the phrase “state pension age” is mentioned, it means the state pension age at the time and therefore so far as women are concerned, it is rising to 65, while in due course everyone will go up to 68. In the previous Pensions Bill, we tried to make this open-ended, but the Government were adamant that enough was enough for the time being, in other words up to 2050. Governments have a reputation, sometimes deserved and sometimes not, for short-termism, but I do not think that this decision fits into that category. I think that I now understand the position, so the amendment has served as quite a useful probe. I have to confess that I am not word perfect on the 1995 Act and I shall certainly look at it again. However, I rather doubt that I will need to come back to this point. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness Thomas of WinchesterLiberal Democrat
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- moved Amendment No. 9:
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- Baroness Hollis of HeighamLabour
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- I declare an interest as trustee of the Pensions Advisory Service. I welcome the amendment. Whether its precise wording will finally be reflected in legislation is a different matter, but it is right that the noble Baroness should raise the issue of advice early in the Committee stage. Why? We all accept that conventional DC schemes carry a much greater risk for the employee than DB schemes in regard to investment returns, longevity and life styling, disinvestment returns, annuity rates—the noble Lord, Lord Oakeshott, has been campaigning about open markets and so on—inflation, assessment of household needs and, of course, over and beyond the investment and disinvestment risks, there is no PPF. All of this risk is laid on the employee. So it is not surprising that currently a great deal of interesting discussion is going on about hybrids, risk-sharing, career average and the later amendments on conditional indexation being run by the actuaries. But if the conventional occupational pension DC schemes are riskier than DB—which they are by far—personal accounts might be riskier still than the conventional DC scheme. There are a number of reasons for this. First, with personal accounts you are dealing with people with very low incomes. For those people— mostly women—the opportunity cost of saving is very high and issues of debt or divorce can devastate financial situations. Secondly, personal accounts are much more likely to deal with small pots because they will be used by low earners, often part time, and of course—an issue to which I shall return—the first £5,000 of income is exempt. This may mean that half of a median earning is not even covered by a pension contribution, leaving a small pot with all the risks, as the noble Baroness highlighted, of interaction with income-related benefits. Thirdly—this should be said in capital letters—there is the question of the small contribution of employers, at the de minimis level, to a personal account. The employee will pay in as much as in a conventional DC account at around 4 per cent; the employer, however, will pay in only half, at 3 per cent, compared to the DC average at the moment of 6.8 per cent, and even then, for someone on half-median earnings, on only half the income. So the employer will be contributing nearly 7 per cent on average into a DC pot on all earnings, as compared to an average of 3 per cent on only half earnings into a personal account. So the employee is taking all the risks, as in a DC scheme, but with very little of the financial cushion offered within existing DC schemes of virtually a two-to-one match by the employer of the employee’s contribution, thus making the pay-to-save worth while. That equation is very much altered in personal accounts. So we will see women workers, especially older women, who are not sure whether they should opt out; and we may see, I fear, as with the reduced married woman’s stamp in the past, more unscrupulous employers encouraging them to opt out. It is interesting that TPAS, the organisation in which I have declared an interest, was running a helpline earlier in the year for women seeking information about their pensions. Of its first 9,000 calls, 95 per cent were from women over 45. Over half wanted to buy extra contributions on the spot—a point to which I shall return—but their lack of knowledge about the basic state pension more than vindicated the noble Baroness’s concern about this. I fear we may also see the media hyping up the risk that women should be encouraged to opt out along the lines of Mr Cazalet’s remarks in the FT a few days ago, which asserted that for very many women it was better to keep their money in a teapot. That seems to me deeply implausible but as his report costs £1,600 a time, it was clearly not designed to be available to the women he claimed he was seeking to help or influence. Why do we need this amendment or a version of it? The noble Baroness rightly identified fears that older women will opt in when perhaps they would be well advised, if they had that tailored advice, to opt out. I have the opposite fear that they will opt out when they should not. The latest longitudinal research on ageing by the DWP, that the noble Lord, Lord Skelmersdale, and I were privileged to hear recently, shows that even for low-paid older women it can be, and usually is, worth saving. The DWP’s own slides gave the example of a woman of 54 on half median earnings. For a contribution of perhaps £5 a week she could get, even with a very brief contribution record, a pot for trivial commutation of over £5,000, and might therefore have a little capital on which to retire. I emphasise the words “could” and “might” rather than “will”. Both for those who may opt in when they should opt out and for those who may opt out when they should be opting in, because the trivial commutation pot is worth having and therefore it pays to save, they will need quite specialised advice, as the TPAS helpline clearly shows. They may also need advice at the disinvestment end that the noble Lord, Lord Oakeshott, highlighted. We cannot build out all the risks. We cannot necessarily foresee for individuals’ earnings, health and caring responsibilities. Who knows whether the benefits system 15 years down the line in terms of pension credits will remain as it currently is? But we know where the problems may occur for older people, particularly those who may be claiming housing benefit in retirement. For some, it might be right to opt out; for others, it may be sensible to hang on. However, the latest DWP research shows and the TPAS helpline suggests that people are in a very poor position to be able to make that judgment for themselves. Information may be enough for most, but it will not be enough for some. One at-risk group is older women and the Government must do more to ensure that they get the advice they need.
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Lord Kirkwood of KirkhopeLiberal Democrat- Quote
- I would like to add a brief contribution to this well focused amendment. There is a much broader debate to be had about generic advice and the Thoresen report, and the consultation and work that has been done will inform that process later in the year, but what is so attractive about this amendment is that it is saying that there are groups of people who are very clearly at risk. The two main policy levers and drivers behind this reform are getting auto-enrolment and the contingent employer contribution behind that. Auto-enrolment must succeed for this policy to make progress in the longer term. The Government sensibly are already indicating that come 2017 the whole thing can be looked at again and some in-flight adjustments can be made, and I welcome that. But there are at-risk groups which are identifiable right now. For people over 50 who are in social rented housing and on a low income, all the odds stack up. This group is easily identifiable from departmental records. We know where they live and we know the risks are likely to be greater. If they go inadvertently into auto-enrolment without thinking about it carefully, they could pop up in 2017 as a group whom we have collectively failed. It is not for the want of knowing in advance that they comprise a group that can be collectively failed. It would not be good for the continuation of a policy that, it is hoped, has a lifespan of 50 years or more, in order to address some of the points that the Turner commission drew to our attention as policymakers. It is not in our or anyone else’s interests, be that a future Government or whoever, for the policy to fail. This is an understandable, measurable and identifiable group of people. We may hear from the Government that, “Face to face for everyone is too big a task”, which I understand, but they cannot argue that in terms of the specific group of people who are identified in this amendment. Like the noble Baroness who has just spoken, I think the wording may not be perfect, but my noble friend has identified an important issue.
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Baroness GreengrossCrossbench- Quote
- I add my support to what noble Lords have been saying. It is essential that we get the right advice and help to this vulnerable group of people. After all, the whole initiative is designed to get the low-income and medium-income people, who are in most need of advice and help, to save for an adequate pension. We have identified the groups that need this sort of advice. I particularly support what the noble Lord, Lord Kirkwood, has just said. I say that as president of the Pensions Policy Institute and a trustee of the Resolution Foundation. The foundation did the initial work that led to the Thoresen review and identified the groups that are most at risk. We must get the right advice and help to the people who are the least likely to manage without it, which is the group that has been identified here. I strongly support the amendment.
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The Lord Bishop of DurhamBishops- Quote
- I support what has been said, but I was surprised to see in the amendment the words, “at least one hour of generic financial advice”. I know from my diocese people such as those whom we are talking about. They are unlikely to be able instantly to latch on to the technical stuff that will be talked about. Specifying an hour seems extremely arbitrary, so I wonder whether instead there might be some way of listing the specific topics to be covered, recognising that some people may take a little longer to catch up with some of them and that by the time that even those who are moderately financially literate get to the age of 50 the pensions legislation may have advanced so far that it may be quite difficult to understand. I do not know how many topics would be covered under “generic financial advice”, but I wonder whether they could be listed, as opposed to the arbitrary period of a single hour being specified.
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- Lord SkelmersdaleConservative
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- The right reverend Prelate has hit two nails very firmly on the head. “Generic financial advice” is a little like the motherhood and apple pie of the noble Lord, Lord Oakeshott, because it means different things to different people. For some of your Lordships who have just spoken, it is clear that it means pensions advice, whereas to me it means advice on savings. After all, it is total savings that will affect one’s benefits and pension credit and so on when one comes to claim them. There is in this generic advice a great danger of what in an earlier Pensions Bill—I think that it was that of 2004—the noble Baroness, Lady Hollis, referred to as “moral hazard”. Of course, I take note of the Thoresen review and report, but who will be responsible for this advice in individual cases? Will it be the global organisation that is set up, or will it be the individuals within that organisation? We live, alas, in an increasingly litigious society. If people feel that they have had the wrong advice, they may go to a pro bono lawyer and ask whether they can get recompense as a result. Nobody wants that. It is not good for auto-enrolment; it is not good for personal pensions; it is not good for savings generally. I worry about it. The other nail that the right reverend Prelate hit firmly on the head was the prescriptive nature of a part of the amendment. It states that the advice must be both face to face and, more important, last at least one hour. We all know that the general level of financial literacy in this country is abysmal. For many people, one hour might be scarcely enough; for others, it may be a fraction—but probably only a fraction—too long. I do not know how many noble Lords have been to the retirement conference hosted by one of the big insurance firms that takes place—I think, annually—in Westminster. That takes three to three and a half hours to explain retirement income and allied matters such as capital gains tax and capital transfer tax to people who are at least financially educated enough to go along and try to understand this advice and, one hopes, in many cases to act on it. However, I am afraid that I do not regard them as representative of the general mass of the population. I do not mean to be patronising in the least. I am sure that many people up and down the country would understand the advice and act on it, even if it is being given for, say, half an hour or 45 minutes. However, there are many of us—and at one stage in my life, that most certainly included me—who would have taken a lot longer to understand it. Having said all that, I believe that there is clearly a need for financial advice of a general nature. The real problem is how you can safely provide it without brickbats falling either on the Government of the day or on the organisation or individual members of the organisation that is set up to give it. I am glad that we have had this short debate, which I hope will colour our thoughts on later amendments. For now, however, that is my opinion on generic advice.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- As I drafted this amendment, I think that it is only fair for me to respond and explain, particularly for the noble Lord, Lord Skelmersdale, the thinking behind it. I thank noble Lords who have spoken for their general support. We should clarify that we are not saying that everybody has to have had advice in this category; they just have to have been offered it and to have the chance to have it. If they want only a quarter of an hour or half an hour, that is fine. We stress the “at least” element. The noble Lord, Lord Skelmersdale, can say that advice is a problem, but are we seriously saying that it would be satisfactory for the millions of people in this at-risk group just to be told to ring a number and press one, two or three? Are we telling them to go on to the world wide web, which seems to be the thrust of the Government’s thinking, when many of them may not want to go on to the world wide web? They may not be comfortable with it; poorer people may not even be linked to it. We think that this is a sensible and balanced way of making sure that advice is available to those members of a high-risk group—anyone who has done any work on this admits that it is a high-risk group—if they want it. It is not prescriptive; it just says that an amount of generic advice—I stress that—would be available. The answer to the fair points made by the noble Lord, Lord Skelmersdale, about whether people will be sued and what sort of advice there will be is that, no, they will not be sued because the advice is of a generic nature. The typical thing that we will want to say—this is why I believe that the Government are being much too complacent about the risks—is, “Are you paying 17 per cent interest on your credit card bill each month, which you have not paid off? Are you having a choice between paying that, paying your mortgage and contributing to a pension?”. Those sorts of questions are the ones that will focus people’s minds. The work done by the DWP and the most recent projections of entitlement to income-related benefits still show a high number of people on pension credit, even under the present system: 40 per cent of people will still be on that means-tested pension credit in 2020, with 30 per cent in 2050. These projections show people who are at risk even if they have no debts at all—even if they are not paying high rates of interest on debt. Many people in the poorer target groups are badly stuck in debt. There are about 2 million people irreversibly stuck in debt in this country and that figure is going up rapidly. We do not propose to press this amendment to a vote today, but I look forward—particularly after we have heard the Minister’s reply—to constructive discussions and to seeing whether we can bring forward an amendment that works on Report. We believe that there should be a national network. We would probably prefer to have it based on the citizens advice bureaux, but we are not prescribing that. We are saying that the network needs to be a trusted brand and that it needs to be financed by the Government. There is such an enormous expansion of the many millions of people who are the least sophisticated financially in our society that it is unthinkable that we should pass this Bill while leaving this issue on a wing and a prayer, hoping that Thoresen’s work, or other things, may emerge later. There will be web-based or telephone services with no guarantee of face-to-face advice for the people who need it the most. I very much welcome the support from many parts of the Committee and hope that we can get to a more workable and generally agreeable amendment on Report.
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- Lord McKenzie of LutonLabour
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- This has been an interesting and informed debate on an important subject. I am pleased that the noble Baroness is not going to press the amendment and that it is only by way of getting that discussion under way because we could not accept it in the form that it comes before us. The amendment would prevent the automatic enrolment of jobholders who have reached the age of 50 unless they had been offered the provision of face-to-face pensions and debt advice. It is very specific and prescriptive. Employers will be required automatically to enrol jobholders between the age of 22 and state pension age. Clearly, it is important that jobholders of all ages, including the over-50s, are properly informed about the impact of workplace pension saving. We shall be working with stakeholders to ensure that suitable information is available at the right time. I do not agree that one-to-one advice will inevitably be needed by such jobholders—or, indeed, by every jobholder. The decision to remain enrolled will be straightforward for most people, including older groups. The matching contribution through the employer contribution and tax relief provides a good incentive to save. My noble friend Lady Hollis referred to the English longitudinal study of ageing and two of the examples that flowed from it. I shall not repeat them, but they are two examples of people over 50 for whom there was a clear benefit in enrolment and saving. But we are clear that good information is important and Clause 9 recognises that individuals will need access to relevant and accurate information about auto-enrolment. The DWP and other organisations, such as Citizens Advice and the Pensions Advisory Service, which we have heard about, and the Financial Services Authority, already provide information about pensions. A number of agencies and other organisations already provide access to debt advice, and Government already give grants to the National Debtline. We will ensure that every automatically enrolled individual has access to the range of information they need to understand the process of automatic enrolment, the pension scheme they will be enrolled into, their expectations for a state pension and the implications for their later life. Crucially, anyone who does not think that workplace pension saving is for them, regardless of the reason and regardless of their age, will be able to opt out.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- Of course nobody believes that inevitably everyone is going to need face-to-face advice, but does the Minister accept that there are individuals for whom face-to-face advice will be the only proper way? There may well be people who should be saving, but does he accept that there are a number of people for whom that will be the only way in which to give them satisfactory advice—yes or no?
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- Lord McKenzie of LutonLabour
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- I am sure that it is the case that there will be individuals who need very specific advice, as I am sure that it is the case that there will be individuals for whom savings by pension arrangements are not appropriate. The challenge is to see the extent to which they can be identified. One problem with the amendment before us is that it assumes a broad category of people who are, en masse, in need of a certain service. I do not believe that the evidence supports that, which is why we are proceeding with the work programme, which I shall come to in a moment. The distinction between information and advice is an important one. As noble Lords will be aware, there is no legal requirement for individuals to receive one-to-one advice before they are automatically enrolled into an occupational pension scheme now. That is the current position. So giving those reaching age 50, or any jobholders, a new legal entitlement to one-to-one advice could give them a misleading impression that automatic enrolment is a risky and complex process. That could cause unnecessary worry and lead to opt-out by the very people who stand to gain from the employer contribution. Our reforms aim to overcome the inertia experienced by those who do not want to make what they consider complex decisions about saving. So we should avoid this at all costs. Of course, some individuals may have further questions and wish to seek guidance. That is the case for any financial decision. There are already free-of-charge, publicly funded services for pensions and debt guidance, locally and nationally—again, for example, through the Pensions Advisory Service, the CAB and the National Debtline. These services will continue to be part of the landscape in 2012, should people wish to seek guidance about whether a personal account, or indeed any pension, is right for them, and for those considering, say, paying off large, high-interest debts first. We are particularly pleased that Thoresen’s proposed money guidance service will build on such existing provision. Thoresen has stated, and we agree with him, that auto-enrolment and personal accounts do not create a new need for a different kind of information and guidance for any groups. I do not agree that there is a need to supplement all this with additional one-to-one guidance services, potentially at great cost to the taxpayer. We simply run the risk of establishing new guidance services that will be used only by a minority of individuals. Therefore, rather than inserting inappropriate requirements into primary legislation, the Government will work with a range of other organisations that already provide information on retirement planning, to ensure people’s information needs are identified and met. I pick up on a couple of specific points. There were issues around Thoresen’s proposals. I believe that the proposals are an intelligent response to the need that he was asked to address; that is, the gap in general financial capability. However, it would be wrong for us to rely on the Thoresen pathfinders to deliver the information that people will need when they are auto-enrolled. The service is deliberately non-specific. It will aim to answer a wide range of basic financial inquiries, but will then pass people on to specialist organisations, such as the Pensions Advisory Service, for more complex queries. Given that we already know that a large number of people will need information to help them at the point of auto-enrolment, it would make no sense for us to wait until they contact a general financial inquiry service. We can and should anticipate most of the questions they will have and make sure that that information is available upfront. Many bodies are already providing this kind of information. We want to use their expertise to plan the provision of this information and to deliver it. We expect the final offer to be provided through a wide range of organisations and a variety of channels, including interactive bodies. The noble Lord, Lord Oakeshott, asked about the number of pensioners projected to be on benefits in the future. We should be very cautious about equating somebody who is destined to arrive on an income-related benefit with somebody who cannot benefit from saving though a pension arrangement. That is simply not the case. It may be the case for those who would have 100 per cent withdrawal for extra income. The majority of people heading for means-tested benefits would not be in that position. Of course, the pension reforms that we introduced last year, and which we are building on in this Bill, will restrict the impact of means-tested benefits in the future. But, as we discussed at Second Reading, if you want to eliminate means-tested benefits in total, you would have to more than double the state pension. I think the statistic is that if you double the state pension in 2012, by 2050, 25 per cent of pensioners will still be on at least one income-related benefit. So it is an environment in which we operate. To equate the two is, I believe, fundamentally wrong.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- That is not what anyone is saying and the Minister knows that perfectly well. The fact is that on the figures recently published by his department the proportion of pensioner households entitled to income-related benefit will be 55 per cent in 2020 and 40 per cent in 2050. The point is that a significant number of people in this group will be at risk and need advice. It does this Committee and this House no credit to pretend otherwise.
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- Baroness Hollis of HeighamLabour
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- Perhaps my noble friend can help me on a somewhat different point, to which he also referred, about the interaction with IRBs. I cannot resist putting in a dig that the one thing you have to do is ensure that there is the full rate BSP if this is to work, otherwise there will be pound-for-pound deductions, not 40 per cent. What I wanted to push him on was the pathfinders, and perhaps he may care to write to us. I stand to be corrected, but my recollection is that there will be two pathfinders, both in the north, which will cover some 750,000 people, of whom 500,000 will be interactive and 250,000 face-to-face and telephone advice; but this will not go out until January 2009, it will take 12 months to collect the information and, I suspect, another six or nine months to analyse it. So we will reach 2012 before we have the proper loop back from the pathfinder proposals. I am relying on memory and I could be mistaken. First, can my noble friend confirm that those broad contours are correct and, secondly, if 250,000 of the 750,000 in the two northern pilots will have either face-to-face or telephone advice, what limits will he put on this? Will he target it, as the noble Baroness suggests? Will it be comprehensive? That is a huge enterprise and may be larger than the total population about which the noble Baroness is concerned.
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- Baroness NoakesConservative
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- Regarding what the noble Baroness has just said, the pathfinders will not deal with auto-enrolment and will not encounter it, except in one or two isolated instances, in the whole of that period leading up to 2012. The pathfinders will offer no guidance on the operation of auto-enrolment post-2012. Thoresen himself said that what is being done following his report will not provide the kind of evidence needed; it might provide a generic framework, but it will provide no evidence on how successful that mode of delivering information and advice will be in the context of auto-enrolment.
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- Lord McKenzie of LutonLabour
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- It is right that there are two pilots. I believe that my noble friend’s description of the timeframe is right, but I would like to write to her with the detail on that. The Government are not saying that we are relying on the outcome of that to decide what we need to do. Clearly, what we know about that, as plans are developed, will input into that process.
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- Lord SkelmersdaleConservative
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- I do not think that I was asleep, but I did not understand: what process? The noble Lords said “that process”.
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- Lord McKenzie of LutonLabour
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- I shall try to be more expansive on that. A range of work is going on, including the workshop set in train by the department, which the noble Lord attended. It is an interesting process to try better to understand issues around savings incentives. It is hoped that there will be a report on that at the end of the year. Other work is going on; part of PADA’s role will be to focus on the sort of information that job holders who will potentially be auto-enrolled will need. That is part of the process. There is ongoing engagement by the DWP with stakeholders who are involved in the workshops. So work is going on around this whole area better to understand savings incentives and related issues. None of that negates what we clearly know: that overwhelmingly it will be beneficial for people to save via pensions arrangements involving employer contributions, tax relief to give them a chance to build their replacement income when they retire. We know that already. We need to build on that with more information, but we have not identified particular groups or said that it will not be beneficial for people who fit certain characteristics to save.
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- Lord Kirkwood of KirkhopeLiberal Democrat
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- The noble Lord is making heavy weather of this and I do not think that he is winning. The benefit of my noble friend’s amendment is that it is clearly focused. We know that there is the pay to save consultation, which is all welcome, although it is a bit disappointing that we will not see it before the proceedings on the Bill are finished. However, we will no doubt return to these arguments in the future. The Minister does not seem to accept that there are any at-risk groups; that is the message that he is sending to me. From where I am sitting, this is the most obvious at-risk group and, if the consultation is being conducted on the basis that the Government do not think that there are such groups, it is bound to fail.
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- Lord McKenzie of LutonLabour
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- I am not saying that. Of course there will be people for whom it will not pay to save. The proposition is about trying to describe a group with broad characteristics about which you could say, “That group in aggregate is unlikely to benefit from saving with our pension scheme”. However, we cannot have a broad-brush approach that people who reach the age of 50 are potentially in a group that may not benefit from saving, as there is no evidence for that. We need to do further work. The proposition that we must target this group with this particular service and that members of the group cannot be auto-enrolled before they have been offered it is not the right way to go.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- Either deliberately or accidentally the Minister does not understand the point. No one is saying that everyone is in this high-risk group, but the Pensions Policy Institute, which is easily the most respected body in the field, has identified people over 50 who are renting in old age as likely to be high risk. We are focusing on this group because there may be a significant number of people in the group for whom this may not pay, which is why they need advice. Some will and some will not need advice, but can the Minister not see that it pays to focus on the groups that are most at risk? He should try to address the point that is being made from all sides of the Committee.
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- Lord McKenzie of LutonLabour
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- I note that the noble Lord referred to people who were likely to be a significant part of that group. We would need evidence for that. Clearly, there must be good-quality information to all jobholders, not just those who are aged 50 or over. The issue is what further needs to be provided. We believe that the right approach is to ensure that broader advice is available, covering debt, pensions and financial issues generally. Part of the information flows might signpost people to that extra provision of advice, but we do not think that making that broader provision around financial capability and specific groups a precursor to being able to auto-enrol is the right way to go. Of course there must be good-quality, relevant information for everyone, to inform them and help them to understand the proposition—the benefits and risks—of auto-enrolment. When one strays into the issue of advice, however, one should recognise that it should be made available by the group of stakeholders of organisations that do a brilliant job at the moment in supporting people. That should be the proposition. To tie it up in the way proposed by the amendment is not the right way to go.
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- Baroness Thomas of WinchesterLiberal Democrat
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- I am grateful to all noble Lords who have spoken in the debate. I was going to say “short” debate, but it has taken three-quarters of an hour, which shows how important it is. The Minister threw in quite a few red herrings. We are talking not about auto-enrolment but about a specific group of people—probably mostly women over 50 on low earnings. They are not the sort of people who read the financial pages of the papers and know automatically what to think about auto-enrolment. They are what the noble Lord’s department called the hardest-to-reach groups. We think that the Bill gives us a duty—not just a chance—to include this provision. Everyone should have generic financial advice if they need it and it is good that many people now provide it. However, we have a chance in the Bill to do something; we cannot do anything about it just out of the blue. What will employers be told about auto-enrolment when all the information comes to them? Will the Minister say whether they will get information such as, “If there are people over 50 in your workforce, you must tell them that if they receive means-tested benefits it may not suit them to auto-enrol”? Will that be in the information pack that is sent to employers? We are in the dark about the advice that they will get. We will certainly return to this issue on Report. We may not have the wording absolutely right but we will have another go at it, as we need to tease out further what we can do on this issue. Does the Minister want to come in on what I have just said?
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- Lord McKenzie of LutonLabour
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- I just want to refer to the role of the employer and the information that he makes available. This is all part of what is being developed in conjunction with PADA. We do not envisage that the employer will be engaged in giving advice. We want to make things as efficient and as least costly as possible for employers. That is part of how we will construct the information that should be made available to jobholders.
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- Baroness Thomas of WinchesterLiberal Democrat
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- If there is no duty on employers, an employee can be left absolutely in the dark. We must come back to this matter on Report. I am sure that it is not beyond the wit of all those groups that were mentioned to have some sort of system of advice. In the mean time, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 10:
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- Lord SkelmersdaleConservative
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- There was a lot of discussion on this subject in another place, where the Government committed themselves to going to Brussels to sort out the exact meaning of the distance marketing directive. Being of a suspicious nature, I wonder what the Government wanted the result to be. Is it the result that we have here, which ensures that workplace pensions can be used to discharge the duty on employers to operate an automatic enrolment scheme? In his speech, the Minister referred to “enabling” them so to do. Alternatively, did the Government in their heart of hearts hope that they would get approval for compulsion? It is important that we know this, because I have been asked the question in several letters from employers and occupational pension schemes. I would like to know the answer.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- After the Sturm und Drang of the last debate, we seem to be back in the calmer waters of government amendments. As the noble Lord said, serious concerns were expressed in another place and by the insurance industry about these matters. We are pleased that the issue has been properly resolved. I am afraid that I am not suspicious—unless the Minister says something that makes me change my mind.
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- Lord Kirkwood of KirkhopeLiberal Democrat
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- My noble friend has made the point for me, but I would like the Minister to clarify something that might be obvious to everyone but me. This is not just about personal accounts. The ruling will provide a completely different set of conditions for the whole of the workplace savings movement. I would like to hear how the Government are addressing how that will change things in terms of compliance, regulation and other matters. This could be a big change in the way in which workplace savings and pensions are provided in future and it could affect much more than the personal accounts that we will be discussing later in the Bill.
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- Lord McKenzie of LutonLabour
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- Perhaps we should start with the concept of the Government having a “heart of hearts”. I reassure noble Lords that workplace personal pensions are an important and growing part of the pensions market and that where we have ended up on the issue is exactly where we wanted to be—ensuring that there can be auto-enrolment into this range of provision, just as we provide for auto-enrolment into other occupational schemes and, indeed, personal accounts. That is an important outcome. The noble Lord, Lord Kirkwood, asked what this means more generally. We should be clear that what has been accepted is driven by the fact that there is an employment nexus to these arrangements. It is the employer duty that has enabled this to happen. If you consider how the directives might have operated otherwise, you see that it would be a business-consumer issue, which is why the directives are there. The employment nexus is important. It will operate from 2012, when the employer duty and its consequences take effect. I am grateful for the support of noble Lords. On Question, amendment agreed to. Clause 3, as amended, agreed to.
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- Baroness NoakesConservative
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- moved Amendment No. 11:
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- Lord LyellConservative
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- I was alerted to this amendment when I looked through the Marshalled List earlier today. I was certainly interested in the tax aspects and the balance of tax, as has been explained quite beautifully. Indeed, in all my years in your Lordships’ House, the past seven minutes have been some of the most rewarding and instructive. My noble friend has a point, and she and your Lordships will know that she is opposing a very highly qualified member of the profession. I am a member of the Scottish profession and our great motto is “Seek the truth”. We have certainly found that this afternoon from my noble friend. It seems to me that there is a considerable problem here, particularly in that people might have a higher income. Indeed, my noble friend said that it depends on how long people work for during a year. Further on in the legislation, we shall find reference to share fishermen and people working on trawlers and so on. They have somewhat irregular periods of work during the year, let alone the tax year, so if the Minister could look at that, I should be very grateful. I am certainly immensely grateful to my noble friend for giving me a free two-minute lesson. I hope that the Minister can see his way to giving a supportive and helpful reply today or even at a later stage.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- The noble Baroness raised some very pertinent points. This is probably the occasion in my life when I have felt most at sea through not being an accountant, and I look forward very much to hearing another excellent account in the Minister’s reply.
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- Lord McKenzie of LutonLabour
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- I am grateful to the noble Baroness for raising this important point. It has prompted us to reflect on where we are. As she said, tax relief on pension savings adds to, and plays an important part in, the overall incentive to save. Individuals who save at the new minimum level will see contributions worth 8 per cent of banded earnings going into pension saving. Of these, 3 per cent will come from the employer, 4 per cent from the jobholder and 1 per cent from the state for basic rate tax payers. That is absolutely right. All UK qualifying schemes will be required to be tax-registered to ensure that their members receive tax relief on their contributions and investment returns. Even non-taxpayers can get tax relief on pension contributions. Individuals may save up to £2,880 in any one tax year and the Government will top that up with another £720, giving total pension savings with tax relief of £3,600 per year. Coincidentally, that is the same as the cap on personal accounts, but it is just a coincidence. An older person aged 65 to 74—obviously one will not automatically enrol people past the age of 65—who had an income just below their personal tax threshold, which is currently £9,030, and who saved at the forthcoming default rate, would receive total pension contributions of around £320 a year, comprising their own, those from their employer and tax relief. That is £9,030 minus the £5,035, so it is 8 per cent on £4,000. Of that £320, around £40 would be provided by the state in the form of tax relief, which is well within the annual savings limit for non-taxpayers. As registered pension schemes for tax purposes, employer-sponsored automatic enrolment schemes may choose—this is important—whether to operate net pay or relief at source as the method for giving relief on the members’ contributions of their workers. However, they must operate the same arrangements for all worker members. A registered pension scheme would not be able both to operate relief at source and to accept contributions under net pay for worker members. That restriction recognises that operating both regimes would be complicated for employers, schemes and HMRC to administer, especially as the interaction between workers’ income and personal tax allowances could mean that the most appropriate way of giving relief could be difficult to determine or even change during the course of a financial year. I say to the noble Baroness that we do not need to take a decision at this point about the method the personal accounts scheme will use to deliver tax relief to its members. More analysis and thinking time is needed. It would be helpful to see the shape of the underlying tax landscape closer to 2012, as that may influence the decision. In addition, the Personal Accounts Delivery Authority will want to work with its employers’ and members’ panels to help establish the most appropriate arrangement for its target group of members, and for the employers who contract with the scheme. To reiterate, for those employers who operate the relief at source approach, there should be no difficulties for anyone, even if they are not subject to income tax in any particular year, because the £3,600 limit should enable them to get their relief. A couple of other points were raised. The noble Lord, Lord Lyell, asked about share fishermen. They are not jobholders for the purpose of the legislation, so they do not fall within the arrangements. The noble Baroness said that she presumed that the bands would increase by prices.
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- Baroness NoakesConservative
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- The Minister will have plenty of time on later amendments to debate how the bands will be uprated, so we can probably skip that point for now.
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- Lord McKenzie of LutonLabour
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- I am happy to do that. I was just going to emphasise that the objective is that they should increase by earnings. On the starting point of £5,035 and where the personal allowance currently sits, we are some way away from 2012 and the £5,035 threshold will be operated by earnings. The personal allowance depends, as ever, on what the Chancellor determines; we will know in due course; but historically, under Rooker-Wise, it has been increased by prices, so there will be some convergence. I hope that that has given the noble Baroness a degree of comfort on the valid and important point that she raised. There is more work to do to see which is the best route to achieve tax relief. I understand that it is a probing amendment, but we want to avoid a heavy additional mechanism that HMRC would have to engage in, because that could be costly and difficult. It would almost require year-end reconciliations to deliver on it rather than rely on the current arrangements through the relief-at-source mechanisms or the net pay arrangements. That is an ongoing issue on which we need to do further work.
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- Baroness NoakesConservative
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- I thank the Minister for that careful reply and other noble Lords for taking part in the debate. I think that his response can be summed up as, “Trust me—I am a Minister”.
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- Lord TunnicliffeLabour
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- Very reasonable.
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- Baroness NoakesConservative
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- Perhaps very reasonable, as the Minister's noble friend suggests. I will consider carefully what the Minister has said when I have read it in Hansard, but it seems to me that there is still ambiguity about whether and to what extent tax relief will be delivered for those who contribute and that that is therefore not an entirely satisfactory response. That is my initial response. It is important to be able to button this down because, as I said earlier and as I think that the Minister accepts, for some people who will be contributing to personal accounts by auto-enrolment, the tax relief element of the four plus three plus one is critical to whether it pays to save. That is how the whole scheme was sold and that is why it is important to have clarity about it. I will consider what the Minister has said today and, if necessary, will return to this again on Report. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 4 [Postponement of automatic enrolment]:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 12 to 14:
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- Lord SkelmersdaleConservative
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- Despite the debate in Commons Committee on 22 January, reporter at cols. 174-9, where Members of that Committee were told that companies such as Tesco needed time to adjust their existing schemes to qualifying requirements, I simply do not understand the need for Clause 4. It depends totally on the timing. The Bill allows the Secretary of State to delay regulations in all sorts of areas. On many occasions, we know, because the Minister has as good as confirmed it several times, that the Government are waiting for PADA to, if I am putting it nicely, advise them; if I am putting it nastily, tell them what to do. What we do not know is how quick off the mark these regulations will be. If they are announced, say, a year in advance, that will be plenty of time for organisations such as Tesco to change their scheme into a qualifying scheme. However, if the regulations are to be laid at the last minute, I suppose that there is a need for a clause such as this. After all, the clause permits the Secretary of State to lay an order postponing auto-enrolment, because the normal arrangement is that a worker is to be in the scheme from his first day at work. In the event of a comparatively early laying of the regulations, I cannot envisage any circumstances when the clause may be used. Secondly, subsection (2), which describes the minimum period in which a jobholder may not leave a scheme, is also very curious. The Explanatory Notes state: “Employers that are permitted to delay automatic enrolment may be required to ensure that members remain in such a scheme for a prescribed period of time, unless the jobholder leaves that employment or chooses to leave the scheme”. I do not understand the word “ensure”. Does that really mean that a jobholder will be forced to remain in a scheme that may not be a qualifying scheme at the end of the day? Given that Clause 4 is entitled “Postponement of automatic enrolment”, why cannot the employee choose to leave the scheme, as he can under normal auto-enrolment rules? Yet again, I am confused, and it would be helpful to hear the Minister's explanation. I beg to move.
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- Lord McKenzie of LutonLabour
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- I thank the noble Lord for the opportunity to put clearly on the record what the clause is about. It provides a regulation-making power to delay automatic enrolment for any or all employers, schemes or jobholders. We intend to use the regulations to establish a deferral of automatic enrolment for a short period—most likely, for three months—for employers who offer high-quality provision. To minimise risks of discrimination, we plan to require employers to keep the jobholder in a higher level scheme for a minimum period so that they can make up for any savings foregone during the delay. Three technical government amendments to Clause 4 have been made, which are grouped with amendments to other clauses that have been discussed—Clauses 2 and 3. The Committee will be aware that those amendments work in conjunction with Clauses 2, 3 and 5. However, I am happy to discuss the policy intention behind Clause 4 more generally at this point. Our general approach is for immediate enrolment so that people who change jobs frequently, together with casual and seasonal workers, have the best possible access to pension saving and the prospect of building a sufficient pension pot. However, we recognise that some employers voluntarily pay higher contributions, or provide defined benefit schemes and that in the longer term this benefits their workers. In order to encourage such employers to maintain their generous offers, once automatic enrolment is introduced, we intend to allow them to defer automatic enrolment by a short period. That is why it is crucial to have the power to permit this under the legislation. It would not be appropriate to allow all employers to delay automatic enrolment. Analysis suggests that people, on average, change jobs eight times during their working life. Enabling all employers to delay automatic enrolment for three months, for example, could reduce the fund of an individual in a minimum-level qualifying scheme who moved jobs eight times in their working life by as much as 5 per cent. This clause will enable us to set out arrangements for employers to make use of a deferral period, including the length of any period and the level of contributions required. The deferral period is a measure to support employers in maintaining higher-value provision. Using regulations will enable us to review arrangements to ensure that the approach is succeeding in supporting higher-level pension provision for both employers and workers. The clause also stipulates that, in order to ensure that members who are automatically enrolled later benefit from generous provision, employers must maintain membership in the scheme for a minimum period. This protection is crucial because people need to catch up foregone savings that they would have received if they had been automatically enrolled into a scheme with minimum contributions from the outset. Our intention is that the minimum level of employer contribution to allow employers to postpone will be 6 per cent of qualifying earnings, that is double the minimum. On that basis, we expect that employers offering these higher contributions or qualifying defined benefit schemes would be able to postpone automatic enrolment for about three months. However, we propose that the level of contributions, the length of the postponement period and the length of the catch-up period is agreed in secondary legislation, as this gives us the opportunity to continue to consult ahead of laying regulations. There is a relationship between the length of the postponement period—the catch-up period—and the level of contributions required. If we were to fix some conditions for postponing automatic enrolment in the Bill we would restrict the flexibility to tailor the arrangements to meet the dual needs of both jobholders and employers in the future. I hope that has clarified matters for the noble Lord. It is a way of supporting existing good quality provision. That is the purpose of the clause.
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- Lord SkelmersdaleConservative
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- I understand this and it would be. I pick up, from what the Minister has just said, that this is not a transitional clause, but is intended to operate over quite a period—otherwise there would be no need to change the regulations, as the Minister has said. I will have to look extremely carefully at what he has said to see that I have understood him correctly. In the mean time, I do not propose to pursue this objection tonight. Clause 4, as amended, agreed to. Clause 5 [Automatic re-enrolment]:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 15:
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- Lord SkelmersdaleConservative
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- My amendment to line 28, leaving out subsection (6), has been grouped with this amendment for perfectly good reasons. That amendment was originally intended to be a probing amendment to confirm that the Government intended automatic re-enrolment to occur only every three years and to get this period into the Bill in due course. I am, therefore, very glad that the Government have more or less done this job for me in their Amendment No. 21. Their new clause, “Timing of automatic re-enrolment”, clarifies this by doing just that. I also note that this group of amendments, as the Minister said, clarifies the re-enrolment process in Clause 5—but why three years in the first place? It would obviously be too expensive and might even encourage workers to opt out if it was to take place in a period of less than three years, but why three years and not, say, five years? There must be a perfectly good reason, but what is it? There are yet other questions around the information that must be provided. Government Amendment No. 18 refers here to automatic re-enrolment, which I hope the Minister will answer. I am beginning to understand what information will need to be provided to jobholders on their original auto-enrolment, whether into a qualifying scheme or into personal accounts. However, what sort of information are the Government thinking of? If the information is too much, it must have the danger of encouraging opt-out, which is against everybody’s interests. If on the other hand it is not very much, what value will it have? After all, we are talking not entirely but mostly about people who have already been in the scheme for at least one period of three years, then opted out and are considering rejoining. I hope that most of them will have been perfectly happy with the way in which it went for them when they were auto-enrolled. The last thing we want is for them to be put off in any way. How much information will the Government require to be sent out? Furthermore, I see from Amendment No. 18 that it is the employer who is responsible for making sure that the information reaches his employee. The latter, then, is a postbox. It is clear that the information originates with the trustee, manager or provider responsible for the scheme in question when it is a qualifying scheme. However, when it is a personal accounts scheme, will the trustees send the information to the employer for onward transmission to the employee? If not, who will?
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- Lord Kirkwood of KirkhopeLiberal Democrat
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- I said earlier—I believe it to be true—that auto-enrolment is crucial to the success of the policy. It is one of the two things that the noble Lord, Lord Turner, insisted on getting right for the whole basis of the reform to succeed. I want to do everything within reason to get people enrolled, re-enrolled and re-enrolled again if necessary. Obviously there is a balance to be struck, with the employer—not the trustee, although the noble Lord, Lord Skelmersdale, raised a good question in that direction—active from day one in enrolling and re-enrolling people. It should get the support of the Government to make that a consistent part of the policy as it unfolds. We have seen the worrying experience in New Zealand. Of course the policies are not in parallel exactly because the rules and the scale are different, but we now learn that the KiwiSaver scheme is approaching a 30 per cent opt-out level, after some years. That is a real worry. A lot of effort is necessary on the part of all the stakeholders, the Government and the employers to make sure that everyone who can be captured sensibly in the personal accounts should be so captured. Therefore, there is a role for the Government to support employers as much as they can. I do not know why three years is the given figure either. It is a good question. I want as short a period as possible, to ensure that the vast majority of people for whom the arrangements are appropriate are captured in the scheme. If not, we will go the way of New Zealand and haemorrhage participants. That would not be in the long-term interests of the policy.
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- Lord McKenzie of LutonLabour
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- I very much agree with the noble Lord, Lord Kirkwood, about the importance of enrolment, auto-enrolment and re-enrolment. That is key to the proposals. Both noble Lords asked why the period was three years. We asked stakeholders about the period for re-enrolment in the 2006 White Paper and, of the 22 respondents, the majority were in favour of three years. However, three years is only the minimum. It will be a matter for regulations in due course, but that is where we are and it cannot be more frequently than three years. I acknowledge that there is a balance to be struck. We are talking about enrolment or re-enrolment not just into personal accounts, but into the whole panoply of qualifying occupational provision. The noble Lord, Lord Skelmersdale, asked me about the provision of information. Amendment No. 10, to Clause 3, will permit qualifying workplace personal pensions to be used for automatic enrolment. Sorry—that does not deal with his point. He asked generally about what sort of information needed to be provided. Clause 9 talks about the information to be provided to jobholders, and clearly there are existing provisions relating to the requirements on pension providers to provide members of the schemes with routine information. The amendment—it mirrors earlier ones—recognises that information will have to flow to various people. It will have to flow from the employer to the employee in terms of the scheme with which the individual is involved. There will have to be some communication about the deductions process from earnings, and there will need to be communication from the employer and the scheme about who has been enrolled. It is on those sorts of issues that we are talking about an information flow; I do not think that there is anything more profound or sinister about it, but I might recap on my briefings and write to him if there is anything further with which I can reassure him on that point.
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- Lord SkelmersdaleConservative
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- I am grateful. For once I was not suggesting that there was anything sinister here, although I suggested a sinister intention earlier this afternoon. I was trying to get at the fact that the employer could be the originator of the information given to the employee in certain circumstances, but that in other circumstances there would be other instigators and the employer would be what I described as a postbox. I hope that that reaffirmation of what I said will help the Minister when he comes to produce one of his welcome letters.
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- Lord McKenzie of LutonLabour
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- I confirm that the employer will be the instigator of some information—it will have to be, because it will be its decision into which scheme the individual will be auto-enrolled. The information on that choice will certainly have to be communicated. On Question, amendment agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 16 to 18:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 20:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 21:
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- Lord SkelmersdaleConservative
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- moved Amendment No. 22:
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- Lord TunnicliffeLabour
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- I am not prepared for such a change in position, so I will have to improvise. I rise to speak to government Amendments Nos. 137, 138 and 139. I understand that Amendments Nos. 22, 36 and 52 will not be pressed.
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- Baroness Hollis of HeighamLabour
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- My list says only Amendments Nos. 137 and 139. It may be that the Marshalled List is changing by the half hour.
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- Lord TunnicliffeLabour
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- My notes cover Amendment No. 138. I believe it has simply been omitted from the Marshalled List. I will speak to Amendment No. 138 and see what happens. We have come straightforwardly to the Delegated Powers and Regulatory Reform Committee, which recommended that the powers covered by our amendments should be subject to affirmative procedure on first exercise. We accept its recommendations. Amendments Nos. 137, 138 and 139 will make the powers subject to affirmative procedures. These amendments also address the Delegated Powers and Regulatory Reform Committee’s recommendation on the powers of Clause 15 and Clause 85. It will be helpful if I explain briefly what each of these powers does. The power in Clause 15(2)(c), which relates to average salary schemes, is there to safeguard members’ private pension savings. It is a precautionary reserve power that could be used if there are schemes that do not revalue appropriately the earnings on which benefits are calculated, meaning that benefits do not, therefore, maintain their value in retirement. Amendment No. 51 would remove the power to disqualify such average salary schemes. I emphasise that we believe the number of schemes operating in this way to be negligible. The power is a precautionary measure to prevent members saving in schemes where the value of their benefits may be eroded over time. It is our intention to consult our stakeholders before the power is exercised. Turning to Clause 85, the majority of the workforce is already within the scope of the Bill. However, Clause 85 provides the Government with the flexibility to extend the scope of employer duty to individuals who do not fall within the “worker” definition. It will also enable the Government to bring a new group within its scope, should one be created that does not automatically fall within the core definitions in this Bill. We recognise that, as drafted, the powers of Clause 52(2)(c) and Clause 84 are wide-ranging and that it is appropriate that they be subject to parliamentary scrutiny and exercised by the affirmative procedure. Finally, for the same reason, these amendments also make the new power in Clause 16(1)(c), which allows for additional criteria to be prescribed for automatic enrolment schemes, subject to the affirmative procedure. I reassure the Committee that the Government will share their plans for the process and notices to be regulated under Chapters 1 and 2 of the Bill. We aim to share these plans in the autumn before going on to publish draft regulations in spring 2009, which will then be followed by a technical consultation in the usual way. I am pleased that the noble Lord, Lord Skelmersdale, will not be pressing Amendments Nos. 22, 36 and 52. However, I hope that the noble Lord is reassured by our intention of modifying the Bill to meet these recommendations. I reiterate that we will be addressing all the Delegated Powers and Regulatory Reform Committee’s recommendations, and amendments have been—or will be—tabled to that effect. I therefore urge the noble Lord to withdraw his amendment and beg to move government Amendments Nos. 137, 138 and 139. I am sorry; I will speak to them, and move them in their place.
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- Lord SkelmersdaleConservative
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- I was not going to comment on that House of Lords faux pas, but I point out that towards the end of my few words I asked the Minister who the stakeholders are in this case. In other words, who are the Government holding discussions with? Which option currently looks more likely? In other words, will the Government remove the clause from the Bill, or make the order affirmative? Whichever they decide, do they expect to be ready by Report stage? I understand that Report stage is currently planned for some time after the Summer Recess. I have not had confirmation, but that is the rumour. The Minister might be able to confirm that.
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- Lord Kirkwood of KirkhopeLiberal Democrat
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- Perhaps I may add a pedantic word here. I generally support what the noble Lord, Lord Skelmersdale, has just said. It is offensive to have in parliamentary procedures affirmative orders on first use. In my view, orders should either be affirmative or negative. Governments now, as a matter of course, hybridise statutory instruments and go for a halfway house of “on first use”. It confuses the picture. Can the Minister explain why they are restricted in this way and why they are not simply affirmative orders—with a capital “A”—from start to finish?
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- Baroness Hollis of HeighamLabour
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- I disagree with that point of view as someone who has been in a similar position. Time and again, there will be concerns raised in the House about the use of a statutory instrument or order that the Ministerial Bench may feel is misplaced. Ministers might, nonetheless, wish to help the Opposition, so when that order first comes up there is a commitment to proper parliamentary review. After that, it is assumed that those concerns and fears have been addressed and we do not need to continue. Should the Opposition feel that issues remain, they can raise them through the negative procedure. We should not litter dinner hour business or Moses Room procedures with unnecessary affirmative orders about which there is no concern, around which there has been consensus and, where—after the original parliamentary debate—there has been at least one debate on the Floor of the House or in Committee. That is a sensible way of ensuring initial parliamentary scrutiny but then clearing the decks so that it does not become permanent graffiti on the shoulders of opposition spokesmen at ungodly hours in this Chamber.
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- Lord SkelmersdaleConservative
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- I strongly agree with the noble Baroness, Lady Hollis—she may think “for once”, but in fact I have agreed with her on numerous occasions. The noble Lord, Lord McKenzie, will remember that I requested in, I think, the CMEC legislation, although it might have been the Welfare Reform Bill, that we should have orders debated in the affirmative manner the first time around and thereafter slipping down to the negative resolution procedure precisely for the reasons given by the noble Baroness. I am afraid that for once the noble Lord, Lord Kirkwood, is not on to a winner.
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- Lord TunnicliffeLabour
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- The last thing I want to do is offend the Committee in any way. Taking the simple position, we are doing what the wise Delegated Powers and Regulatory Reform Committee recommended, and that seemed to be a good thing. We agree with the summary of my noble friend Lady Hollis that using the affirmative procedure the first time works well. I can confirm that we have consulted the actuarial profession and scheme representatives. We see the whole issue of average salary benefit schemes as an entirely precautionary power. In 2006 some 2 million members in average salary schemes were revalued with the prices index. There are no statistical data for those that revalue in line with earnings, but we believe that is because the numbers are insignificant. Indeed, there are no statistical data on such schemes because we do not believe that there are any being run in that way. We will lay regulations only if it emerges that workers are at risk of seeing their savings being kept at below the reform minima. Therefore we have decided to go for the affirmative option.
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- Lord SkelmersdaleConservative
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- I am still trying to discover when these changes, if necessary, will actually be laid; that is, whether at the Report stage or not.
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- Lord TunnicliffeLabour
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- I am terribly sorry, but as I understand it, the option is in front of us. Either we set criteria about average salary schemes to go into the Bill or we will have a wide-ranging reserve power to be exercised only through the affirmative procedure. Our view is that because they are so unlikely to be used, we would like to stick with the powers in the Bill, but on the condition that the affirmative procedure is used.
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- Lord SkelmersdaleConservative
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- But the affirmative procedure would entail a change to the Bill as, indeed, would removing the power. Whichever way we go, an amendment will be required. My question is: when is it to be tabled?
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- Lord TunnicliffeLabour
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- We are confused. I will send the noble Lord a letter.
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- Lord SkelmersdaleConservative
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- On that basis, I really have no option but to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 23:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 24:
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The Deputy Chairman of Committees (Viscount Ullswater)Conservative- Quote
- I must advise the Committee that, if the amendment is agreed to, I will not be able to call Amendments Nos. 28 to 31 inclusive because of pre-emption.
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- Baroness NoakesConservative
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- moved, as an amendment to Amendment No. 24, Amendment No. 25:
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- Baroness Turner of CamdenLabour
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- I realise, of course, that my amendment has been ruled out by the Minister’s amendment. It is not my intention to move Amendment No. 28.
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- Lord SkelmersdaleConservative
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- I suppose, technically and formally, we ought to withdraw the first amendment to the amendment before we get cracking on the second amendment to the amendment, but it will be for the convenience of the Committee if I speak now. Unlike the situation in which my noble friend Lady Noakes found herself a few minutes ago, in this case the Minister has not quite shot my fox. Indeed, it is not even wounded. I said on Second Reading that I assumed that when an employee opted out of automatic enrolment within the permitted period the money would have been put into some kind of escrow account. The Minister did not correct me then; he has not done so since in one of his now famous letters; and he did not just now when he succeeded in pre-empting my noble friend. I can only assume that I was right. The Minister said that it is too soon to state how this will operate in terms of who will control the money and take responsibility for repayment and how it will be refunded. I certainly accept that. However, it is not too early to say to whom it will be refunded: in other words, who will get the money. There must be a policy on this somewhere; without one, you can hardly start discussions with stakeholders. Will the employee get only his input back and the employer get his whack, or will the employee get the lot? I said on Second Reading that I doubted that interest would be paid to anyone and I assume that this is still the Government’s intention. I have already expressed my concern about the amount of information flying around with regard to Clause 5 and automatic re-enrolment. Clause 7 concerns the jobholder’s right to opt out. Subsection (7) tries to specify the content, or at least some of it, that must be sent to the jobholder. We know that the jobholder must give notice of his intention to opt out in a prescribed form as specified in subsection (6), which Amendment No. 24 will not amend. That subsection, together with subsection (7), remains as it is printed in the Bill. They both, however, will refer to new subsections (4) and (5), inserted by Amendment No. 24. I am sorry that this is all so complicated, but the complication is not of my making. The purpose of my amendment is to establish just how much information the notice in subsections (4) and (5) in government Amendment No. 24 will consist of and to find out how the jobholder is expected to know what the Bill calls “the effect” that the notice will have on him and his further actions. Obviously, one effect is that he will lose the pension savings that he would have had had he remained in the scheme; the other is that he will get his money back. Will the information in the notice be as basic as that, or does the Secretary of State intend to prescribe something more complicated?
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- Lord McKenzie of LutonLabour
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- Let me see whether I can deal with the residual matters that I did not cover when I moved the amendment. The noble Baroness, Lady Noakes, raised some issues about circumstances in which a longer opt-out period might be appropriate. An interesting issue is the extent to which jobholders seeing a wages or salary slip with the deduction is an important component of this. I do not say that it is not, but let me reiterate that the Bill does not place a limit on the opt-out period in any way, nor does it stipulate that it must be the same for all jobholders. The point that the noble Baroness has raised ought to be taken into consideration in our deliberations on that. I hope that that deals with that point. The noble Lord, Lord Skelmersdale, asked about refunds and who would get their money back. I thought that it was clear that the employer’s contribution would go back to the employer and the employee’s contribution would go back to the employee, subject to whether the employee has had a tax deduction in the first instance, in which case we go back to how that relief is to be generated. It would likely follow—again, this is still the subject of detailed consideration—that the contribution coming back would have to be taxed. If you deduct it from what is taxed in the first instance and it comes back, that would somehow need to be put into reverse. However, the principle is clear. The employer’s contribution comes back to the employer and the employee’s contribution comes back to the employee. The noble Lord asked whether the funding would go into some sort of escrow. Again, that depends a little on the timing and mechanics of the opt-out. This is still under consideration. Whether we opt out at a point in time when the payment has been made into the scheme or while it is still in transit into the scheme is a detail that we need to work through as we develop this policy, but I would hang on to the point that the employer’s contribution goes back to the employer and the employee’s to the employee. I hope that that has addressed the issue.
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- Lord SkelmersdaleConservative
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- If the money has been taken from the employee’s salary, it must go somewhere. It does not matter whether it is in transit or not. If the employee opts out within the prescribed period—Ministers were, I know, thinking of a month for that, but we will see what transpires—there will be an amount of money floating around that is going back, as the noble Lord has now said to me but which I did not understand before, to the employee or the employer as appropriate. I wonder whether the employer is appropriate, because pensions are deferred wages. Even in the arrangements for personal accounts, they will turn out to be deferred wages. Wages are owed to the employee, surely. I leave the noble Lord to chew that over because it is a slightly extreme thought.
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- Lord McKenzie of LutonLabour
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- I shall try to tidy up one or two points. In terms of where the money is, it depends on the arrangements by which payments are made from the employer into the scheme and at what point in that process the opt-out is exercised. If the money has reached the scheme, there will need to be a process for the money to come back out of the scheme. If the money has not yet reached the scheme, it will be somewhere with the employer or in transit, in escrow or not, but probably not. Those processes need to be worked through. As to who the direct recipient should be, it depends in part on the process by which tax relief is obtained, because it may well be that the employer has to tax that refund. It depends a little on what arrangements are entered into. We cannot be prescriptive until we have worked through some of that detail.
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- Lord SkelmersdaleConservative
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- The Minister could have saved an awful lot of time if he had said, “I will tell you when I know”.
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- Baroness NoakesConservative
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- To reiterate what my noble friend said, the Minister has demonstrated that the Government have very little idea how this is going to work in practice. We will need to consider carefully between now and Report whether we need to see more definition before letting this Bill go forward. For now, I beg leave to withdraw Amendment No. 25. Amendment No. 25, as an amendment to Amendment No. 24, by leave, withdrawn. [Amendments Nos. 26 and 27, as amendments to Amendment No. 24, not moved.] On Question, Amendment No. 24 agreed to. [Amendments Nos. 28 to 32 not moved.]
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 33:
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- Lord SkelmersdaleConservative
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- moved Amendment No. 34:
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- Lord McKenzie of LutonLabour
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- Clause 7 is essential to the reforms, as it enables jobholders to opt out. We are keen to ensure that jobholders are aware of the effect of opting out before they take such a step. An individual cannot opt out of pension saving until they are in pension saving in the first place. People’s circumstances change. The opt-out decision must be a considered one. We do not want people to rush for the exit just because pension saving might be new for them or because they have at some time in the past made a decision not to save for a pension. I am concerned that the amendment would subvert the reforms. It would encourage premature and hasty decisions and increase the risk of employer coercion. It would allow a jobholder effectively to halt any attempts to enrol them into pension saving, and they would thereby lose the benefit of an employer contribution. We recognise that individuals will need access to relevant and accurate information when they are auto-enrolled, as in any other circumstances when they are making decisions about their retirement, and Clause 9 reflects that. However, we must avoid subverting the central objective of the reforms. I hope that the noble Lord understands why I am unable to accept the amendment. I urge him to withdraw it.
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- Lord SkelmersdaleConservative
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- There are some moments when I get the idea that I am being dropped on from a great height. This is one of those moments. I am surprised that the Minister thought so little of this idea, because there would be an enormous saving in administration. One of the things on which we are all agreed is that the scheme must be kept as simple and as cheap as possible. This was one way to achieve that. Clearly, however, we will not get any further tonight, so I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 7, as amended, agreed to.
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- Baroness NoakesConservative
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- moved Amendment No. 35:
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- Lord McKenzie of LutonLabour
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- I thank the noble Baroness for her amendment. I suspect she has probably anticipated my response. Clause 7 completely undoes scheme membership and guarantees a refund to those jobholders who opt out. Active members of a workplace pension scheme may stop contributing at any time. I assure the Committee that Section 160 of the Pension Schemes Act 1993 will remain in force and that, when these reforms are in place, individuals will still be able to cancel active membership after the opt-out period ends. The noble Baroness’s proposition to put a separate process in the Bill is therefore unnecessary. It also adds to administration, which her noble friend is keen to avoid. There will be the ongoing right, embedded in existing pension scheme legislation, for people to withdraw from a pension scheme in accordance with that legislation and the rules of the scheme.
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- Baroness NoakesConservative
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- I am disappointed in the Minister. The Government seem quite prepared to heap unnecessary burdens on employers, whom they view largely as “coercive” and “abusive”, words that have recurred today. Here I am trying to impose a small burden on employers—not my normal wont—in order that employees are reminded of their rights and obligations in relation to pensions. I urge the Minister to think again on this. While I accept that an employee can opt out under existing pension legislation in the context of the Bill, which is trying to draw people back in all the time to ensure that they understand what their rights and obligations are, it is right to specify the terms on which they can opt out, to remind them of the consequences of opting out and to remind them of the automatic re-enrolment process that will come and hit them within three years in any event. It is not enough just to say that they can opt out at any time and good luck to them; that is not the tenor of the approach to employees throughout the rest of the Bill, which is to try to keep them drawn into the scheme and to make it difficult for them to stop saving. For today, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 8 [Workers without qualifying earnings]: [Amendment No. 36 not moved.]
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 37:
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Baroness Royall of BlaisdonLabour- Quote
- I beg to move that the House do now resume. In moving this Motion, I suggest that the Committee stage begins again not before 8.20 pm. Moved accordingly, and, on Question, Motion agreed to. House resumed.
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