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Pensions Bill

moved Amendment No. 38: 38: After Clause 8, insert the following new Clause— ““Workers without qualifying earnings: employer contributions Where a jobholder elects to make pension contributions on that proportion of earnings which are £5,035 or less, the employer shall contribute in the same proportion as for earnings above £5,035.”” The noble Baroness said: The amendment standing in my name and that of my noble friend Lady Dean is a probing amendment. I am confident that it is virtuous; I am equally confident that it is technically deficient, but as it is probing, the second problem may matter less than the first. This amendment is about the £5,000 range of earnings that is not taken into account in personal accounts, which have been mentioned several times today. They will raise 8 per cent— that is, 4 per cent from the employee, 3 per cent from the employer and 1 per cent from tax relief—on all earnings, broadly speaking, within the income bands of the lower earnings limit—LEL—at just over £5,000, and an upper earnings limit, which was originally judged to be aligned with UEL, although that has now become more complicated. That has the advantage of aligning personal accounts with basic state pension, unlike the standard defined contribution schemes—money purchase schemes—that, as far as I am aware, cover all earnings from the first pound onwards, although they may cap in some cases at the top. We can understand why that de minimis of the LEL was introduced for personal accounts because the main beneficiaries are likely to be low-paid, part-time women often in several micro jobs. It did not make sense for them to contribute to a personal account while being disqualified from access to a basic state pension, which would then have meant that their BSP was incomplete, and they could have lost their personal account pound for pound under some scenarios. With the help of your Lordships on Report, I hope to persuade the Government, if they are not already persuaded, that we must reverse that situation on buying back missing years of BSP. Because of the alignment with BSP, the first £5,000 of earnings in personal accounts are not covered for pension purposes. It makes sense, given BSP rules, for some women where all of their jobs are below the LEL, even though they may find themselves in a hard-luck position. I understand the administrative complexity. Given the 30-year rule, after April 2010 and, I hope with the support of the House, a change in buy-back rules, this would matter less as more women will have a full basic state pension. Of course, it seldom matters for men, who will have a basic state pension of 30 years, because most of them expect to work for 40 or even 44 years and beyond. That is why the Government sensibly permitted people—particularly women—to make voluntary contributions into personal accounts to cover the first £5,000 of earnings. This is particularly useful for women who have built up a decent pot through working full-time, but who then, because of their caring responsibilities, need to cut their hours and their pay, while wishing, perfectly sensibly, to protect their pension. However, no employers are required to match those voluntary contributions on the first £5,000. Again, this makes sense if a woman has several microjobs, none of which takes her above the LEL. How employers would sort that out, I do not know. This amendment does not seek to help those employees, but applies only to those whose job or jobs take them above the LEL. When a woman is on half median earnings—£11,000 a year—only half her pay qualifies for pension contributions as of right. Effectively, her employer is not contributing at 3 per cent, but pro rata at 1.5 per cent—unlike the average 7 per cent in a conventional DC workplace pension. Even worse is the situation of a woman with multiple jobs. I gather that 350,000 people have multiple jobs over the LEL and are not in pensions. Who are they? They are highly likely to be women putting together a portfolio around childcare or elder care, with two modest jobs, one of them while the children are at school, the other perhaps later in the evenings or at weekends when their partner is around to help with the children. Equally, they may be younger people—writers, musicians, actors—fitting in shorter-hour jobs around their primary passion. If one of those young people, or a woman with childcare or elder care responsibilities, had two £6,000 jobs, she would get a pension contribution of only £1,000 on each of those jobs—£2,000 in total contributing to her pension fund. If she had one job at £12,000, the employer and she would be contributing on £7,000 in a personal account; or, if she was in a DC scheme, they would both be contributing on £12,000 in a personal account. So, it is £2,000 if you are in two £6,000 jobs; £7,000 if you are in one £12,000 job with a personal account; £12,000 if you are in a DC workplace scheme. This amendment says that where an employee with a personal account over the LEL wishes to contribute a percentage of her pay to cover the first £5,000, the employer must likewise contribute his 3 per cent. The noble Lord, Lord Skelmersdale, was exceedingly helpful earlier when he reminded the House that pensions are deferred pay. However, women on half median income with personal accounts are only going to get half their deferred pay reflected in pension contributions. Why do I hope that your Lordships will support the principle of this amendment? First, we already accept the principle that the employer, if he has a scheme, must contribute to a pension if the employee is aged between 16 and 22. We have teased that out already. The principle that an employee’s voluntary contribution must be matched by the employer is not new. That is in the Bill and we discussed it earlier. Secondly, the employer already does this in his own DC scheme. He expects to cover the full range of earnings; from £1, not from £5,036. The amendment would establish a more level playing field between the two and might even discourage him from levelling down. After all, in his own workplace pension scheme, he not only covers the full £12,000, but also puts in a higher contribution of 7 per cent on the whole of that £12,000, rather than the 3 per cent on half of that £12,000. Thirdly, no one is talking about large sums. They will not represent a burden on business or bankrupt small employers. I calculate that it would cost up to £150 a year extra for employers—£3 a week—and £200 a year extra for employees. However, it could make all the difference in terms of outcomes, because it would effectively double the pension pot. For example, with 10 years’ savings in a personal account at 8 per cent and on half median earnings of £11,000, the woman’s pot would be £10,000 and not £5,000 after 10 years. After 20 years, she would have a pot of £27,000 instead of £14,000. After 30 years, she would have a pot of £53,000 and not £27,000. After 40 years, she would have a pot of £93,000 and not £48,000. Even 10 years’ worth of savings produces capital of £10,000 to take into retirement and, at 30 years, an additional weekly income of nearly £80 to add to a full state pension and S2P would mean that someone on half median earnings would go into retirement with a replacement income of 100 per cent of their working life income. Therefore, there would be no problems with IRBs or means-tested benefits, and probably without the pressure of children and possibly with the mortgage sorted, she would be more comfortably off than ever before. I think that the proposal is a price worth paying. We have established the principle; the cost would be modest; and the long-term investment roll-up for employees, particularly for women in poorer paid jobs, would be immense. It would not be onerous to employers; they already expect to do that in their own DC schemes at double the contribution rate for the full range of earnings. Therefore, I hope that my noble friend will think seriously about what we are saying to women. One of the biggest risks to women of taking on personal accounts is the fact that very little of their earnings may be covered by pension contributions and, as a result, they will have false expectations of safety and security in retirement. That could be avoided if my noble friend were minded to follow through on the principle of the amendment. I beg to move.