3rd reading in the Lords
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- My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Pensions Bill, has consented to place her Prerogative and Interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill. Before the House begins Third Reading on the Pensions Bill, it may be helpful for me to say a few words about the Third Reading amendments. In line with the guidance recommended by the Procedure Committee and agreed by the House, the Public Bill Office has advised the usual channels that one amendment on the Marshalled List for Third Reading today falls outside the guidance given in the Companion and set out by the Procedure Committee. This is Amendment No. 17 in the names of the noble Lords, Lord Judd and Lord Joffe. On the basis of the Public Bill Office’s advice, the usual channels have agreed to recommend to the House that the amendment should not be moved. As ever, this is ultimately a matter for the House as a whole to decide.
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Lord Oakeshott of Seagrove BayNon-affiliated- Quote
- My Lords, that is helpful, but it would help us if the noble Baroness were to explain the reason for that.
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Baroness Royall of BlaisdonLabour- Quote
- My Lords, the subject of the amendment has already been dealt with on the Floor of the House twice and, therefore, it is not appropriate for it to be debated again today. Bill read a third time.
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)Labour- Quote
- moved Amendment No. 1:
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Lord SkelmersdaleConservative- Quote
- My Lords, silence breeds consent.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, we are generally happier with these amendments today. The way in which the Minister and the department have tidied up and brought forward the amendments is a credit to them. We had vigorous discussions at earlier stages of the Bill, and on these amendments today the noble Lord has generally shown himself to be a listening Minister, which is not something that I would say about every Minister in this Government. On Question, amendment agreed to. Clause 22 [Test scheme standard]:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 2 and 3:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 4:
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Baroness NoakesConservative- Quote
- moved, as an amendment to Amendment No. 4, Amendment No. 5:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, inevitably we cannot be sure how this will work in practice, but it seems to us on these Benches a sensible compromise, following the discussions which we had on Report. As the Pensions Policy Institute, in its characteristically helpful and thorough note, said, there has to be a trade-off. A trade-off has to be made between a lower burden on employers with a small minority of individuals receiving less than the minimum but the majority of individuals receiving the minimum and higher, and ensuring that every individual receives at least the minimum but, as we know, with a potentially much higher administrative burden on employers. From the discussions I have had—I particularly pay tribute to Tim Breedon and his colleagues at Legal & General, who took me through it very carefully and discussed how their discussions with the ministry were going—I am satisfied that this is a sensible compromise. The right trade-off has been made, and we look forward to seeing how it works in practice.
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- Lord McKenzie of LutonLabour
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- My Lords, I am grateful to both noble Lords for their support for the thrust of this amendment. I am particularly grateful to the noble Baroness for providing me with an opportunity to explain the significance of subsection (2) of the government amendment, which sets out what the certificate must state. Subsection (2) requires a certificate to state that in the opinion of the person giving the certificate the scheme is able to meet the minimum contributions standard for all its active members throughout the certification period. This subsection effectively achieves in the legislation the first of the policy principles I set out earlier; namely, that an employer must be confident at the point of certification that the scheme will provide minimum contributions for everyone participating under the duty. This is crucial if we are to ensure that certification may be used by employers with good schemes only. We do not want to leave open a risk that some individuals could be enrolled in schemes where it was clear that from the outset they would persistently save below the minimum level. I am sure we have common cause on that issue. The noble Baroness indicated—I accept that her amendment is a probing amendment—some concern that subsection (2) could drive employers to undertake individualised checks of their membership in the same way as they would under the existing test. Let me reassure her on this matter. Certification enables an employer to look at its scheme once a year and, provided it is confident that it meets the minimum standard at that point, to proceed for the coming year in the knowledge that it will remain compliant even if individuals go on to experience minor or sporadic shortfalls. In that sense, certification reduces the need for an employer to consider whether to future-proof an existing scheme in case of unexpected changes to an individual’s pay. While the standard that must be met at the start of each certification period relates to all members, we envisage the process in part being a matter for regulations. I accept that some of the important detail is yet to come through in those regulations, particularly what de minimis will mean in this context. We anticipate that the process will include scope for discretion on the part of the employer or connected person; for example, in relation to the extent of the analysis he must undertake before signing a certificate. In that way, employers or connected persons who are confident of the quality of the scheme could elect not to conduct fully individualised checks. It will depend on the circumstances of the individual scheme and in part on the level of contributions that are paid under the existing scheme and on the number of employees whose pay is comprised of components that are not covered by the existing scheme arrangements and perhaps on how sensitive outturn pay is to the varying business levels that are undertaken. Although there will probably be a degree of prescription in the regulations, it will be important for employers to have discretion about the extent of the work they need to do to gain the assurance that they believe is necessary to go through that certification process. I hope that on that basis the noble Baroness will feel that she need not press her amendment. There is still some detail to be worked out. We want continued engagement with stakeholders. It has been important in taking us from where we were to where we are. In relation to subsection (9) and the opportunity to repeal, it was put in place, at least in part, because we believe that there is a reasonable prospect that, once auto-enrolment gets under way, employers will be less inclined to follow this route, and it will be easier for them down the track to establish that their schemes are compliant. From another point of view, if, in the event, the certification process is not working satisfactorily and is throwing up persistent undersaving by people, we would not want to proceed with it, but we want to give it a fair wind and work with stakeholders to see whether we can complete the detail. As the noble Lord, Lord Oakeshott, said, it is important to strike the right balance. This is part of the arrangement that we are putting in place to avoid levelling down, which is crucial, especially at the current time.
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- Baroness NoakesConservative
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- My Lords, I thank the Minister for that reply and I shall not prolong the debate. We share the same aims. From our perspective, some of the language in the subsection could be used in a way that does not achieve the right result; that is the point that I was trying to make. Much will depend on how the Government implement this in practice in whether they achieve the agreed outcome, which is to maintain private provision at a higher level than the basic required under the Bill. As we share that aim, we will just have to see how things turn out, but I just record that if the Government do not implement it with sensitivity, levelling down will follow. I beg leave to withdraw the amendment. Amendment No. 5, as an amendment to Amendment No. 4, by leave, withdrawn. On Question, Amendment No. 4 agreed to. Clause 37 [Calculation and payment of contributions]:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 6:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 7 to 9:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 10:
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- Baroness NoakesConservative
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- My Lords, taking it on trust that the effect of the amendments is what the noble Lord says, we have no objection to them. On Question, amendment agreed to. Clause 67 [Scheme orders: general]:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 11 to 15:
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Lord TunnicliffeLabour- Quote
- moved Amendment No. 16:
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- Lord SkelmersdaleConservative
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- My Lords, I must first express my gratitude to Ministers for accepting that it would be right to put the review into a formal setting in the Bill. However, the amendment is a lot more definite than mine was. For one thing, the word “must” appears four times in it. I have never, in all my time in your Lordships’ House, seen any Act of Parliament, which this Bill will become, with the word “must” in it four times. The Government are still maintaining what my noble friend and I believe is a fiction—that personal accounts will start on or about 1 January 2012. I do not think that they will, so I was surprised to see in proposed new subsection (2) that the appointment of the individual to conduct the review, and the review itself, “must be made on or after the later of (a) 1 January 2017”— in other words, five years after the beginning of personal accounts—or at, “(b) the end of five years beginning with the first day on which contributions are paid”. I suggest that proposed new paragraph (b) is a lot more likely than (a). However, having teased the Government slightly on this, I must say that I am more than content with the amendment.
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Baroness Hollis of HeighamLabour- Quote
- My Lords, I obviously welcome this amendment. I, too, am puzzled at the use of the word “must” rather than “shall”, which is conventional parliamentary counsel language, but no doubt it is desirable if it adds extra emphasis. Subsection (1)(b) of the proposed new clause refers to, “the effect of any restrictions on rights to transfer into the scheme or transfer out to another pension scheme”. Does that mean that, despite my understanding of the assurances from the Minister about the department’s approach to stranded pots, nothing will be done before 2017 and only then will it be reviewed; therefore, any action may take until one or two years after that? People may find that any money they put into a personal account between 2012 and 2017 could end up being a stranded pot because they cannot move it into another pot that they already hold. I should like some assurances that stranded pots will be dealt with as of now and not postponed to 2017. It is an injustice. It is institutional theft of money and should not happen. All this is on the accountability of the Secretary of State to Parliament once the report has been completed. Will my noble friend assure me that, as regards the scope of such a report, there will be either a letter to which we can respond or, better still, a debate or some other format so that Members of your Lordships’ House can add to the shopping list of issues to be reviewed in the report and not merely depend on such other matters as the Secretary of State may direct? I could conceive that the views of the Secretary of State as to what should be reviewed could be at odds with what many of your Lordships might wish to see reviewed. I do not want to see those issues missed because the power lies exclusively with the Secretary of State to determine the report’s content. I ask my noble friend to assure us that vehicles will be devised, of whatever form, for this House and, no doubt, the other place, as well as other stakeholders and players in the field of pensions, to have input on the issues of concern to the person handling this report, back to the Secretary of State and then on to Parliament.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, I shall, rather than must, speak on this amendment, which we on these Benches support, as we supported with our votes the original amendment tabled by the noble Lord, Lord Skelmersdale. I also strongly support what the noble Baroness, Lady Hollis, has just said about stranded pots. That has been one of the cop-outs—I hope that I can put it that way—in this Bill. It is very unsatisfactory that it has not been dealt with and I hope that we do not have to wait for five years or, if the crystal ball of the noble Lord, Lord Skelmersdale, is right, even longer, before action is taken to rectify this, as the noble Baroness puts it, serious injustice.
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- Lord TunnicliffeLabour
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- My Lords, I thank the noble Lord, Lord Skelmersdale, for counting the “musts”. Apparently we are at a watershed and parliamentary counsel has changed its general view from the word “shall” to “must”. Noble Lords here are the first to note it. I hope that I do not have to withdraw any of these words, but that is what my note says. I understand that our commitment is not to 1 January 2012 but to “during” 2012. We continue with confidence that we will achieve that. We have given a series of assurances during the passage of this Bill on stranded pots and other matters. This amendment in no way modifies those assurances. This is an enabling amendment and does not in any way limit the commitments we have already given. I am not willing to give a specific assurance about how we will handle the scope. That will be for 2017. But our record to date, and I believe any Government’s record on this important issue, will inevitably and quite properly involve close liaison with stakeholders and all groups in establishing the scope. It is inconceivable that there will not be a process by which the House will be able to express its views. On Question, amendment agreed to. [Amendment No. 17 not moved.]
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 18:
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- Baroness NoakesConservative
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- My Lords, I thank the Minister for bringing forward these amendments, and in particular for clarifying the basis on which loans should be made, which follows in part a suggestion I made in one of my amendments on Report. The Bill still allows non-commercial terms to grants to be made to either the delivery authority or the trustee corporation when that is up and running. I simply note for the record that we on these Benches do not accept the concept of a universal service obligation necessitating long-term subsidy for the personal accounts scheme, but we are grateful for these amendments.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, we are happy with the amendments.
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- Lord McKenzie of LutonLabour
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- My Lords, I am grateful for that support. I note that the noble Baroness has not changed her position on the universal service obligation that we believe these provisions imply, but that is a debate that will doubtless continue. On Question, amendment agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 19:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 20:
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- Baroness NoakesConservative
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- moved Amendment No. 21:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, this allows what seems to be a reasonable time to elapse before the review is carried out, and when all is sweetness and light in this way between the Government and the Official Opposition Front Bench, far be it from us to interfere.
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- Lord McKenzie of LutonLabour
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- My Lords, I thank the noble Baroness for tabling the amendment and I thank the noble Lord, Lord Oakeshott, for his support. I shall start by saying that the Government accept the principle that the operation of new Sections 38A and 38B should be kept under review. These are new provisions and we want to ensure that they operate as intended, which is to provide adequate protection for members and the PPF, and that they do not have unforeseen consequences for business. Under current arrangements, these provisions will be monitored by the regulator and the department. The regulator will want to keep the operation of the anti-avoidance measures under regular review, as they have an important role in encouraging appropriate behaviours. These powers will also be overseen and evaluated by the department as part of the regular liaison between the department’s officials and the regulator. This regular review will assess and evaluate the operation of policy and legislation alongside formal performance reviews and liaison at senior official and ministerial levels. The Government recognise that stakeholders and the Opposition have raised a number of concerns about the operation of these provisions. Unless the noble Baroness presses me to do so, I will not go back through them, as they are on the record, but I would be happy to try again if she so wishes. However, concerns have been raised about the operation of these provisions in respect of whether there will be any unintended consequences, in particular that, while deterring what we would all agree is bad practice, they should not operate unreasonably to deter genuine and desirable corporate activity. I appreciate that there may be a desire for a commitment in the Bill for the department to carry out a review to ensure that the policy is operating as intended. Therefore, we are content to agree to the noble Baroness’s amendment seeking a formal review with a report to Parliament. This will put beyond doubt our commitment to evaluate the operation of these provisions. On the time period, two years is too short; four years is a more realistic and appropriate timeframe for a review. It is important to allow time for the legislation, the regulator’s code of practice and its guidance to bed in and for these to be tested in operation. A period of four years will provide the regulator with an opportunity to properly implement the amended powers and for employers and those who advise them to become more familiar with the regulator’s approach. A four-year timeframe will ensure that the immediate and longer-term impacts can be properly considered, based on a robust and substantial body of evidence. Following the introduction of the 2004 Act moral hazard provisions, there was a period during which the market adapted to the legislation. It is important to note that the regulator experienced an initial high volume of clearance inquiries as the market responded to the 2004 Act changes. This has since stabilised and there has been a decline in clearance inquiries since 2005. Similarly, there may be an initial increase in inquiries relating to the amended powers, but we expect that this will decline over the longer term. We therefore believe that a review after four years would better ensure that the business community has had sufficient opportunity to understand the new powers and that we are past any initial learning curve as experienced in 2004. We are pleased to accept the amendment and thank the noble Baroness for tabling it.
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- Baroness NoakesConservative
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- My Lords, I thank the Minister for his response. On Question, amendment agreed to. Clause 130 [Delegation of powers by the Regulator]:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 22:
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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 Amendments Nos. 24 to 26:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 27 to 29:
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 30 and 31:
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 32:
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- Lord TunnicliffeLabour
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- moved Amendment No. 33:
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- Baroness NoakesConservative
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- My Lords, I am grateful to the Government for bringing this back to respond to an issue that we raised.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- So am I, my Lords. On Question, amendment agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendments Nos. 34 and 35:
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- Baroness NoakesConservative
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- moved Amendment No. 36:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, the noble Baroness, Lady Noakes, has been more resourceful than I have, as I have not yet got hold of a copy of the document. However, I have been rather puzzled by the purpose and the timing of the consultation, as it seems that the right honourable Rosie Winterton had hardly got her feet under the desk before it was issued. I wonder whether it is in some way to do with the arrival of the noble Lord, Lord Mandelson, and whether it is all part of a great deregulatory agenda. However, it is surprising that the consultation has suddenly been announced and not made public. A number of individuals, including people in the pensions regulatory area, have expressed serious concerns to me about what is going on. At the very least, will the Minister send noble Lords a copy of the document—and if not, why not? Will he please put a copy in the Libraries of the Houses? Is there any secrecy or problem about it, given that a very short timescale is involved? I would welcome reassurances on those points.
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- Lord McKenzie of LutonLabour
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- My Lords, I was not sure that our discussion would go in this direction, but I am happy to try to deal with the points raised in relation to Section 75. I stress that an informal consultation is under way in advance of what might be the usual formal consultation. It has been driven because the Section 75 issue has been around for a little while. I am certain from the meetings that I have attended that the CBI would maintain that it is the number one issue for it so far as pension provision is concerned. That is why we have gone down the path of kick-starting the informal consultation, with the intent, depending on where that heads, to go through the more formal consultation processes in due course. There is absolutely no reason why noble Lords should not see a copy of the consultation document; I shall make sure that they are sent one straightaway. Indeed, noble Lords’ input would be welcome. I attended the first stakeholder group meeting, which began to exchange hints and views on this matter. We need to see where it goes and whether the various propositions set down in this informal consultation are the right way forward. There were four propositions, one of which was to have no change. Another was to switch the process of triggering the debt and apportionment, so that apportionment goes first and the trigger of the debt follows that.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, I thank the Minister for that assurance. However, it makes me wonder when a consultation is not a consultation. How many people or bodies are being informally consulted at the moment?
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- Lord McKenzie of LutonLabour
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- My Lords, on the number of bodies being informally consulted, I think that the interests around the table included the Pensions Regulator—this is not a state secret—as well as the CBI, the Association of Pension Lawyers and the actuaries.
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- Baroness NoakesConservative
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- In other words, my Lords, the usual suspects.
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- Lord McKenzie of LutonLabour
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- Indeed, my Lords—a nice summary. But I shall resist trying to give a definition as to when an informal consultation becomes a formal one.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- Was the TUC there?
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- Lord McKenzie of LutonLabour
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- My Lords, indeed, it was. There is nothing sinister about this. The issue is a serious one; we are trying to understand the scale of the issue and how it might be addressed, if it warrants a change in the current position. I stress that there is no shift in relation to the position so far as we have discussed the material detriment test and the code of practice. As for the consultation on the code that we refer to here, it cannot start until Royal Assent, which we hope will be imminent. We hope that the code will be in place in the first half of 2009—obviously, after being laid before Parliament. Noble Lords will recall that, as part of the package of amendments on the Pensions Regulator’s anti-avoidance powers, we introduced a requirement on the regulator to publish a code of practice. This code would set out the circumstances in which the regulator expects to issue a contribution notice under the material detriment test, as the noble Baroness explained. The Government concluded, in consultation with key stakeholders, including the CBI, that setting out these circumstances in a code was the most appropriate approach. This approach would allow the regulator, in consultation with stakeholders, to update the code in light of its operation while giving employers and trustees a degree of certainty on the application of the law. Section 91 of the 2004 Act allows for codes of practice to be updated, but such changes have to be consulted on and are subject to the Secretary of State’s approval. The Secretary of State is required to lay the draft code in Parliament for a period of 40 days and either House may resolve that no further proceedings be taken on the draft code. Amendment No. 36 would remove the regulator’s discretion to modify the code of practice in the light of its operation during the first two years of its introduction. It would not be right to prevent the regulator being able to update the code to deal with new risks to members’ benefits in this fast-developing and innovative market. We cannot rule out that certain parties may see the definitions in the code as a challenge to design structures not falling within these definitions, which may still cause unacceptable risks to pension scheme members and the PPF. However, I understand that employers and the pensions industry require as much certainty as possible. As I said at Report, officials worked closely with the regulator and key stakeholders during the summer to prepare the contents of the draft code, which was published on 20 October. In drafting the code, the regulator and stakeholders started from a consideration of new business models and the risks that these represented to members’ benefits. They considered a range of circumstances where it could be appropriate to use the material detriment test. For example, most routine corporate activities, such as routine dividend payments, are excluded from the code; whereas other non-routine events, such as the severance of the operating company from its pension scheme which may substantially increase risk to members benefits, would be in scope. Following this development work, the regulator is confident that the draft code sets out the right circumstances. Therefore, I should like to offer my assurance that the regulator cannot currently envisage any other circumstances which it would need to add to the code in the next two years. As a precautionary measure, however, we could not preclude that if circumstances arose. On that basis, I ask the noble Baroness not to press the amendment.
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- My Lords, I thank the Minister for that reply and for confirming that there is currently no intention shortly to change the code and that, in particular, the Section 75 consultation document does not imply any change of view at this stage. I am grateful for those assurances. I apologise to the Minister for bowling a fast ball on the Section 75 consultation but I could not resist as this is the last amendment that we will be debating on this Bill. However, the Minister showed his usual, excellent skill and batted my ball away. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord McKenzie of LutonLabour
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- My Lords, I beg to move that this Bill do now pass. Although I would like to say a few words to reflect on the progress made, perhaps I can simply thank all noble Lords who engaged with the Bill and, in particular, the Bill team for their excellent work. Moved accordingly, and, on Question, Bill passed, and returned to the Commons with amendments.
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