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Pensions Bill

I find myself in no difficulty, for once. This is genuinely work in progress for the Government. I hope that we will have a chance for a wider debate, but perhaps I may just deal with the script that I have. Clause 12 establishes both the qualifying earnings band and the range of reckonable pay components making up those earnings. Qualifying earnings underpin the calculation of contributions for money purchase pension arrangements and are also part of the criteria to determine whether a jobholder is to be automatically enrolled. Establishing a new minimum level of savings is vital if we are to realise our ambition of increasing pension savings, especially among moderate and low earners. Contributions need to be calculated at 8 per cent on a band of earnings as proposed by the Pensions Commission if they are to set a median earner with solid state entitlement on course to achieve an income in retirement of about 45 per cent of those median earnings. The commission proposed savings calculated on gross earnings. Reducing that drastically would affect the premise of the entire reform. We want to ensure that contributions are calculated on a wide definition of earnings. We are aware that about 65 per cent of those currently saving in defined contribution schemes have their contributions calculated on at least their basic pay. However, a narrower definition than planned would reduce the value of contributions, especially for workers with a low or no basic pay—especially people who work in, retail, telesales and, as my noble friend referred to earlier, parts of the motor industry, for whom commission payments are a significant proportion of overall income. Reducing pay components could mean fewer workers reaching the point at which qualifying earnings trigger automatic enrolment. It would also open up a possible loophole that could be used for avoidance by enabling employers to reclassify their workers’ earnings, thereby reducing the level of contributions they are required to pay. I emphasise again that employers do not have to use those components. The requirement is to make contributions that would be equivalent or better than payments predicated on them. In addition, we do not want to include all earnings—for example emoluments such as non-cash benefits. We do not consider that appropriate for the purposes of pension saving. Following discussion with stakeholders, we are amending Clause 28 to help and we will continue to listen to options which do not reduce the integrity of the policy. I stress that our focus is on the amount of money going into the schemes, not the method of calculation, and we are not asking schemes to change their arrangements. As stakeholders have highlighted, that may cause difficulties for both employers and their schemes. We continue to listen to their concerns and will consider reasonable options about how the test may be applied. We have already proposed an amendment to Clause 28, as I said. Some stakeholders have suggested transitional protection or grandfathering for existing schemes. However, we do not consider that to be a sustainable solution, as it will become increasingly complex over time and may undermine the new minimum level of saving for some workers. I know that others have suggested that there should be an annual reconciliation. I end by quoting from a statement by my honourable friend the Minister for pensions, Mike O'Brien: "““We must minimise any disruption to current pension arrangements, which is why the qualifying test must be designed in as simple a way as possible. I have listened to stakeholders and remain open to reasonable suggestions about how the test may be applied. We must strike a balance—maximising new savers and saving, and supporting existing pension arrangements—that's the key objective””." I hope that, on that basis, the noble Lord will feel able to withdraw his amendment, but I am sure that we will have another go at this next week, when we meet again.