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Pensions Bill

My Lords, I am very grateful to the noble Lord, Lord Skelmersdale, because he has given me an opportunity, as it may have occurred to other noble Lords to do, to add things to the shopping list of items under review. This is a splendid opportunity, although I do not doubt that this really should have been moved as an amendment to an amendment. I want to raise an issue that I raised in Committee. I have done further work on it and have had further discussions. In most DC schemes, employers are contributing around 6 per cent to 7 per cent on the whole range of earnings from zero to the higher rate of tax or some agreed ceiling. In personal accounts, the employer is contributing half of that, only 3 per cent; I am not arguing with that and I understand where we are coming from on that. It is only contributing 3 per cent if someone is on half median earnings of £11,000—my putative hairdresser—because the first £5,000 or so is exempt because it is below the LEL. Effectively, the employer is contributing, on average, only 1.5 per cent at half median earnings for a woman compared to the 6 per cent or 7 per cent it is on average contributing if that person were working, for example, for a major company where they were possibly doing the same job. I raised that issue in Committee, and there was some sympathy for what I was trying to achieve. The people who most need these pensions—low paid women—are going to have quite small pots with low levels of contribution, which means that they will remain entangled for much longer than we would wish in judgments about the benefits system, whether it pays to save and the like. The easiest way to spring women—particularly women who enter the scheme before the age of 50 or so—out of the income-related benefit trap is for their pot to be sufficiently large that it springs them out of the pension credit savings element, so that they enjoy a 100 per cent return on their annuity or their pension, rather than, say, 60 per cent, which would otherwise be the case. The question is whether this is feasible at this time. I was challenged by my noble friend and by the previous Minister for Pensions, Mike O’Brien—to whom I pay tribute; I am sure that Rosie Winterton will do a splendid job but Mike will be much missed—to see what the view of industry was on this. I talked to the Federation of Small Businesses and the EEF and, through e-mail, with the CBI, which was less interested as this is essentially a small employers’ issue. They were concerned that small businesses would not be ready to go for an arrangement in which if someone who is already in the pension scheme chose to contribute for the first element below LEL the employer must match it. That is similar to the arrangement that has been devised for young people between 16 and 22; if they choose to contribute, the employer must match it. I was seeking to do something similar. For many women, that may not be necessary, because they may have a husband or partner whose financial arrangements are such that they would not wish to make that contribution. But—particularly for single women, or those who possibly are cohabiting but who have independent financial arrangements, who are on very modest earnings—the only way, if they enter a personal account fairly late in life, to spring them free of benefit is to increase the size of the pot. The best way of doing that is, if they choose, for them to contribute below the first £5,000, below the LEL, if they are already in the scheme, and the employer then must match it. The Federation of Small Businesses and the EEF were entirely sympathetic with what I was seeking to achieve. They were obviously worried about putting too much burden on business in the early days of establishing a scheme. I hope that I am not attributing views to them that they would not accept, but they agreed that it would be perfectly acceptable to ask that this be considered as part of the review five years after the scheme was established to see whether, at that point, such a move would be acceptable to business and industry. In the meanwhile, they would encourage small employers to go down that route on a voluntary basis. I thought that this was a perfectly reasonable way forward, but I would like my noble friend to acknowledge that when we have that review in, we hope, 2017, such a proposal will indeed be one of the items on the agenda, to give lower paid people, particularly women, the best possible chance of springing themselves free of IRB and having an option to build a decent enough pot with consent. I thank the noble Lord, Lord Skelmersdale, for giving me this opportunity and I hope that a proposal that the review should include consideration of this issue, in consultation with the industry—by which time the scheme will have bedded down and so on—will be a way forward to help women escape the benefits trap.