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Pensions Bill

I thank the noble Lord, Lord Skelmersdale, for this amendment. I understand that it is by way of a probing operation. He has raised issues about the penalty provisions in Clauses 35, 36 and 51. I shall also respond to his request for a clause stand part debate on the escalating penalty provision in Clause 36. These are important provisions, and I thank the noble Lord for giving the Committee the opportunity to examine them more closely today. It may assist our consideration of these amendments if I begin with an overview of the compliance regime and the role of penalties within that regime. While we are confident that the majority of employers will meet their new duties, we need an efficient and effective compliance regime to maximise compliance. The proposed approach comprises three stages: educating, enabling and enforcing. The emphasis is on educating and enabling employers to meet their duties; only when that fails will the pensions regulator take proportionate, graduated enforcement action. That action will start with statutory notices, moving to fixed and escalating penalties if non-compliance persists. The availability of financial penalties will therefore play a small but significant role in securing compliance and enabling jobholders to access pension saving. I understand that the noble Lord has tabled some of these amendments to explore why we have not adopted the same legislative approach and penalty structure as in the revised national minimum wage regime set out in the Employment Bill. Before addressing each of his amendments, it may be helpful to set out why our approach differs to the proposals for the minimum wage. I reassure noble Lords that the compliance regime for the reforms in this Bill will accord with good practice and available evidence. We are building on analysis of other regulatory regimes, not only the minimum wage regime but also the compliance approach for PAYE requirements; the Companies House regime for ensuring that corporations file their accounts; and, internationally, the approach taken for the superannuation scheme in Australia. We are further developing the penalty regime in line with the recommendations of the Macrory review and with regard to the regulatory principles of transparency, accountability, proportionality and consistency. There is no doubt that we are at a different stage from the national minimum wage regime, which is now in a position to place more specific provisions in the Bill in the light of practical experience and the data accumulated on the enforcement approach. That approach cannot be replicated for an entirely new regime. We have been clear on the maximum penalty levels, which are set out in the Bill and have broad stakeholder support, but the actual penalty levels should be set out in regulations. That will enable adjustments to be made below the maximum level in the Bill when it becomes clearer which approach is most effective. It will enable detailed consultation with the regulated community, and other stakeholders, on the structure of the penalty. On the specific amendments tabled by the noble Lord to Clauses 35 and 51, since the provisions of the Employment Bill were carefully tailored to meet the needs of the national minimum wage regime, some problems arise when they are translated into the context of our new regime. For example, reducing the £50,000 fixed-penalty ceiling to £5,000 in Clauses 35 and 51 would make the regime out of step with the regulator’s current powers. Under Section 10 of the Pensions Act 1995, the regulator has the power to impose fines of up to £50,000. We believe that it is important to ensure that complying with the new duty is seen to be as important as complying with existing legislation. Several stakeholder groups, including the CBI, have indicated their broad support for this decision. Secondly, the noble Lord’s amendment to Clause 35 would calculate penalties associated with unpaid contributions based on the amount unpaid, just as the Employment Bill calculates penalties based on the amount of underpaid wages. However, in the pensions context, we have a series of related duties, and there are practical implications of different breaches carrying different penalties. For example, an employer who does not automatically enrol one of their workers into a qualifying scheme inflicts much the same harm as an employer who does not pay over the relevant contributions to a scheme. It is therefore unclear why they should be treated differently. We are not ruling out the possibility of tying penalties in certain circumstances to the nature of the contravention. However, we would like the opportunity to conduct full preparatory research and engage in formal consultation first. Thirdly, the noble Lord’s amendments to Clauses 35 and 51 place an early-payment discount in the Bill. Such a discount is a common feature of penalty-based regimes, and is a strong candidate for inclusion among the options to be brought forward in our consultation and regulations. Early-payment discounts promote rapid compliance, which is why the Government felt that it was crucial to place this in the Bill in the national minimum wage context. Time is of the essence when we are talking about remedying shortfalls in the pay packets of some of the most vulnerable workers in our society. The implications are not identical with reference to late payment of pension contributions—but, again, this is a strong candidate for inclusion in our regulations. I hope that I have reassured the noble Lord with regard to the amendments tabled to Clauses 35 and 51. On the amendments to Clause 36, a similar question of penalty caps is raised in relation to escalating penalty notices. The amendment would cap the total amount payable for a single breach at £50,000. I shall explain why we chose to cap the amount of the daily escalating rate at £10,000 but not to cap the total amount payable under these notices. The essence of an escalating penalty is that its value directly reflects how long an employer continues not to comply. Such penalties will be applied only in cases of very persistent non-compliance. We are not alone in recognising the benefits of including escalating penalties in our toolkit; other regimes such as HMRC PAYE also have the option to issue them. I share the noble Lord’s concern that penalty levels should be proportionate and fair, but am concerned to maintain the intention that escalating penalties directly reflect the extent to which an employer delays meeting their responsibilities. A cap on the escalating penalty would effectively cap the period within which employers are deterred from continuing to breach their duties. As for the noble Lord’s second amendment to Clause 36, the intention is to ensure that daily escalating penalties are issued only if an employer effectively ignores a preceding fixed penalty. I assure him that we have always envisaged a sequential issue of penalties as part of the wider graduated approach. However, there may be cases where the recipient of a fixed penalty notice may pay the penalty but does not put right the situation that caused it. In these circumstances, the regulator will require the option of issuing escalating penalties to ensure compliance. I hope that I have reassured the noble Lord, and that he will withdraw these amendments, which I understand are probing in nature. I have set out the background to why these provisions are in the Bill in this form.