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Pensions Bill

It is a great pleasure to be debating the Pensions Bill again as it moves majestically towards the statute book. As the Minister kindly said, it is good to see the hon. and learned Member for North Warwickshire (Mr. O'Brien) in his place. He is clearly a sad person because he cannot keep away from pensions, despite his huge new responsibilities in the energy field. I suppose we will have him to thank if the lights do not start going out in a few years' time. I join the Minister in thanking all the stakeholders that have been part of the process. She listed some organisations, and even more have been involved. For the real enthusiast, there have been any number of seminars, get-togethers, conferences and events to try to get the thing right. The Opposition are not wholly convinced that there is not a series of unanswered questions, but those questions are for another day. It is interesting that the Government still have what I might describe as a schizophrenic approach to saving for retirement. Only yesterday they announced—well, they quietly slipped through—a further £2.3 billion stealth tax on private pension pots. Of course, at the moment they are trying to give people in this country two different messages. One is that the problems that have got us here have included borrowing too much and saving too little. The other is that they are to provide a fiscal stimulus that they would like us all to take down to the shops immediately and spend. We face a huge number of amendments from the Government and just a sprinkling from the Opposition—ones on which the Government were defeated in the Lords or that the Government were good enough to accept. To that extent, there will be a reasonably pre-festive season air about this evening. Having said that, the Bill is not in the same league as the Pensions Act 2004, to which there were more than 1,000 amendments, so perhaps things are getting better—even though we still have an awful lot of amendments on our plate this evening. I pay tribute to my colleagues in the House of Lords. Lord Skelmersdale and Baroness Noakes made a huge contribution to improving the Bill in the Lords, sometimes with the co-operation of Lord McKenzie, the Minister in the Lords, and sometimes without. They have made some major changes and a lot of minor ones, some of which I will not necessarily have time to touch on this evening, but on the whole considerable improvements were made to the Bill. I also pay tribute to those who served on the Committee in this House. It was a model of amity, co-operation and consensus, as far as that goes. It is worth mentioning a couple of issues before I go into the detail of the first group of amendments. We have been allocated three hours for five groups of many amendments. Life being what it is, the fifth group relates almost entirely to an issue that has not yet arisen in the House—regulation of buy-outs of pension funds. It would be a huge tragedy if we did not reach that group in the time that the Government have allocated to us this evening. On the first group, I intend to be even more selective than the Minister in the amendments that I want to speak to. As she rightly said, there are many technical and minor amendments and I do not see any purpose in labouring them in any detail. The central issues are clear. They are mainly concerned with the concept of automatic enrolment. My party has been convinced on that matter in the pensions field for longer than any other party. Indeed, it was our policy before the last election. It is important to recognise that in many ways we are all slightly mesmerised by the architecture—the design—of personal accounts, but the more important issue is auto-enrolment. The top prize is to auto-enrol people into existing pension schemes that have much more generous provision than the overall 8 per cent. contribution envisaged for personal accounts. It is important to remind ourselves of that as we get into the detail of the amendments. As I said, many of the amendments bring simplification, clarification or rationalisation to the original draft of the Bill, and I want to make some observations on some of the amendments before I talk to our amendment (a) to Lords amendment No. 57. The first issue principally revolves around Lords amendments Nos. 23, 24 and 25, which the Minister touched on. They were moved by Baroness Noakes and are designed to ensure that the Secretary of State does not in future let the value of the earnings threshold for personal accounts fall behind increases in the level of earnings generally. There was one of those bizarre exchanges in the Lords in which the Minister, Lord McKenzie, was clear that it is, and was, the Government's policy to uprate the earnings band in line with earnings. However, that was not in the Bill. As originally drafted, it appeared to give the Secretary of State carte blanche to decide how and when to revalue the band. Lord McKenzie talked about needing flexibility. He said:"““We always have this dilemma where we have a clear policy and objective and believe that uprating by earnings is the right way forward. However, given that we are setting down reforms for decades to come, there must be a strong argument in favour of flexibility.””—[Official Report, House of Lords, 23 June 2008; Vol. 702, c. 1267.]" I do not regard that as a dilemma. If the policy is clear, why does the legislation not follow it? In the event, that argument did not persuade Baroness Noakes or, indeed, their lordships, because it went to a vote and the Government were defeated. I thank the Minister of State for graciously accepting that the amendment should stand. The main issue—and it is very important, for reasons that I shall describe—revolves around Lords amendment No. 57 and amendment (a). Amendment No. 57 allows for what is called self-certification in respect of the qualifying earnings rule. That is a complex but important matter. It is clear from the design of personal accounts—we accept this as a principle—that if one is introducing auto-enrolment either into an existing scheme or to personal accounts, there has to be a mechanism whereby it is proven that the terms of the existing scheme are at least as beneficial to the employees as personal accounts would be. All the evidence from organisations such as the National Association of Pension Funds is that existing schemes will overwhelmingly be much more generous in terms of the employer contribution than will personal accounts. Perhaps this is more of a theoretical than a practical problem. However, it is clear that there has to be a test of some sort—the qualifying earnings test—and it has to strike a balance between two different things. One is, of course, to protect employees' rights. That must be clear. The other is the real need for the test to be as easy, cheap and straightforward as possible for employers to operate. We do not need another complex regime—a third regime—sitting alongside PAYE and national insurance as an extra burden on employers. I pay tribute to the industry's working group, whose views I shall come to in a minute, because it has worked so hard with officials over many months to get the right answer. Indeed, I think that it is still working with them. The group includes organisations such as the Association of British Insurers, the CBI, the Institute of Chartered Accountants, the Society of Pension Consultants and the National Association of Pension Funds. Its concern, which is the same as ours, is that if the test is not simple, cheap and straightforward to operate, it could encourage the process of levelling down, whereby the introduction of personal accounts—apparently in 2012, which we might discuss that later—would give an extra impetus to employers to close their existing defined benefit schemes and point their employees in the direction of the Government-backed personal accounts. We strongly believe that every possible measure should be taken to try to discourage that process, because otherwise there could be the nightmare scenario in which many people are disadvantaged by ending up with personal accounts rather than existing, and much more generous, company schemes. We share the concern that the test, as applied in practice, could assist the process of levelling down. I shall come to the views of those key stakeholders. The current position could fairly be described as a work in progress. There have been discussions, and there were more discussions with the industry working group over the summer. The Government have moved somewhat by accepting some of the principles that would make the process simpler but, in fairness, there is still some way to go on the detail. The next step, as I understand it, is the publication of detailed regulations on the qualifying earnings test. We and, indeed, the industry will look very closely at just how the regulations are drafted, and if we do not get the drafting right at the next attempt, an incoming Conservative Government would certainly wish to revisit it as a matter of urgency. I turn to the concessions that the Government made on the subject in the House of Lords in early November. In a letter, Lord McKenzie cited the efforts of the stakeholder group led by the ABI, conceded that there should be a self-certification procedure, which we welcome, and said that"““employers will not be required to make retrospective reconciliation payments if contributions unexpectedly fall short, unless the detriment to an individual exceeds certain de-minimis levels””," and that the levels will be set in a way to stop detriment to particular individuals. That was a major step forward, because the Government undertook what Lord McKenzie described in his letter as"““a departure from the policy of an individualised test””." He said:"““In developing this approach we have sought ways to increase clarity and certainty for employers going forward, without opening up the risk that some individuals find themselves regularly or materially losing out””" and he talked about getting the balance right. The Opposition still think that, despite all the best efforts, the balance is not quite right, but I am prepared to concede that everyone is doing their best to try to reach the right answer. In its briefing for this debate, the CBI expressed the concern to which I have referred: that the original test, as drafted, could contribute to levelling down. It also said how important self-certification is. The self-certification point has now been conceded, and that is important. However, the CBI goes on to say that"““employers and pensions industry professionals alike were very concerned about maintaining high quality existing provision in the face of an impractical qualifying test that defines pay in a way that does not meet the current market standard. The costs associated with complying with this definition would provide an incentive to level down into Personal Accounts.””" That is the nub of the issue. What was originally proposed departed from the standard current industry practice, so it needed to be tackled urgently. The CBI continues:"““The self-certification approach ensures firms need not take on significant administrative costs, without affecting the levels of contribution made to their scheme…We strongly support amendments to introduce self-certification, which is a robust but less burdensome approach.""In addition, we acknowledge the move to annual reconciliation as a major—and very welcome—step toward simplification.””" The Association of British Insurers, which has been leading on all the issues relating to the earnings test, had this to say in its press release of 6 November:"““we, along with other industry groups, remain concerned that the wording of the key amendment to the Pensions Bill on self-certification may not achieve these aims””—" that is, the aims of simplicity and so on. The association goes on:"““The current drafting of the amendment adds considerably to the administrative burden for employers and risks discouraging them from continuing to provide pensions to their employees that have higher contributions than the level set for personal accounts.””" It says that it hopes that the issue can be resolved and makes it clear that it is prepared to carry on working with the Government on these matters. That is encouraging. I look to the Minister for an absolute assurance that, just because the Bill is passing into law any time soon, she and her Department will not lose interest in the nitty-gritty work that still needs to be done on the qualifying earnings test. As the Minister pointed out, my amendment (a) would remove subsection (9) of the new clause in Lords amendment No. 57. It is important that we make that stand, because it seems to me that the current position is as follows. By dint of a lot of hard work by officials and stakeholders, we have made significant progress. Further progress needs to be made on the regulations, and I hope that it will build on the discussions that have already happened. I am totally bemused by why the Government now want to put into the legislation what is effectively a proposal to go back to square one some time in the future. We are deeply suspicious of that proposal. We see no need for the power in subsection (9), which enables the Secretary of State to repeal the whole new clause by order. We will talk at some point about the question of a review after five years of personal accounts, but if something cataclysmic occurred in the context of personal accounts and of the qualifying earnings test and how it applies, I am sure that the Government of the day would wish to get to the bottom of the problem through primary legislation. That would be fair enough. I commend amendment (a) to the House, and subject to any further comments from the Minister on the issue, we will press it to a Division. The final issue—I appreciate that to some extent I am cherry-picking the really important issues from this huge number of amendments, which are not of our making, as I explained—is one that the Minister has already touched on, which concerns auto-enrolment into workplace personal pensions, or WPPs. That was a major concern during the passage of the Bill in our House and is a matter of huge worry to organisations such as the ABI. In fairness, there is a great deal of consensus about it. I remember having private discussions with the then Minister, the hon. and learned Member for North Warwickshire, on how it could be sorted out. Lord McKenzie recently emphasised the importance of doing so:"““Workplace personal pensions are an important and growing part of the pensions market. Membership of workplace personal pensions is around 47 per cent of current private sector pension membership, which represents about 3.3 million employees, involving total contributions of £6.7 billion a year.””—[Official Report, House of Lords, 17 June 2008; Vol. 702, c. 957.]" He said that it had always been the Government's intention to include WPPs within the scope of this legislation, but there were concerns from a legal point of view that they would fall foul of the European directives on distance marketing and unfair commercial practices. In our discussions with bodies such as the ABI—I am sure that there were similar parallel discussions with Ministers—they were very worried that if some clarity were not sought and obtained as a matter of urgency, that could stop in its tracks the healthy growth in WPPs throughout the British workplace. The good news is that the European Commission has now confirmed in writing that it takes the same view as the Government, and this group of amendments reflects that positive outcome. Let us hope that that exchange of letters with the Commission is enough to ensure that there is no future legal challenge on this issue. As far it goes, it is good news for those who were concerned about the Bill's unintended effect on WPPs. It now seems clear that WPPs can be used to discharge the duty on employers to operate an automatic enrolment system. I very much welcome that, as does, I am sure, everybody involved. Those are our concerns arising out of this group of amendments. I have argued for amendment (a). Let me leave the House with this thought, which is again to emphasise the huge importance of automatic enrolment in this legislation and for the future of British pensions. That is so much the case that a few days ago the ABI issued a statement asking for it to be dealt with in the pre-Budget report; I am afraid that it was disappointed. It says in its press release:"““Automatic enrolment into workplace pensions, which is due to begin in 2013, should be brought forward and introduced as soon as possible. If it were to start in 2010, it could lead to additional long-term savings in excess of £500 million by 2012.””" Earlier today, I spoke at the ABI's savers conference, where that proposal was again made. At the end of its press release, it says:"““The Government has a golden opportunity to boost workplace pension saving by enabling automatic enrolment now. The pensions industry, employers and the rest of the private sector is ready to deliver auto-enrolment as soon as the green light is given.””" It would be interesting to have some indication from the Minister as to whether that forms any part of the Government's thinking. Beyond that, I have nothing to add, and I look forward to any further comments that the Minister might have.