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Pensions Bill [HL]

My Lords, my noble friend Lady Turner is not here but as my amendments, which are grouped with this, would effectively achieve the same thing, perhaps the Committee might allow me to formally move on her behalf, if that is in order. I will also speak to Amendment 19 in this group, which should strictly have had attached to it a current year date of 2010-11, because without that it obviously has other ramifications. All these amendments are, to all intents and purposes, identical, although they have to be considered in the context of the review provisions of Clause 8, which my noble friend Lady Drake will deal with shortly. These amendments would reduce the trigger to the current primary threshold for national insurance purposes, so effectively this equates the trigger with the starting point of qualifying earnings. We consider this the right place to be. The pensions commission originally recommended that individuals would be automatically enrolled when they had earned, in 2006-07 terms, £5,035, which was the national insurance primary threshold at that time. However, it also recommended that this threshold should be uprated by earnings. Indeed, that is what the legislation said. I remember that when we were debating the Bill, we as a Government tried to get a little bit of wriggle room on that uprating, and a combination of Liberal Democrats and Conservatives, led by the noble Baroness, Lady Noakes, pressed an amendment that locked us into what the legislation currently says. They were the early actions of the coalition and I still bear the scars. One of the lessons learnt is that it is better to insert a figure in the legislation and have rules for reviewing it rather than link the threshold to a particular measure—be it the personal allowance for income tax or the primary threshold for national insurance purposes—the reason being that it can move for policy reasons in a way that does not have any particular regard to the impact on the auto-enrolment analysis. We know that the coalition Government have an ambition to move the personal tax allowance to £10,000. Should a trigger threshold or a qualifying earnings threshold be tied to that, it would have devastating consequences for auto-enrolment. It would leave 1.4 million people, three-quarters of them women, outside auto-enrolment. Changes to national insurance—part of the coalition Government’s approach to tackling the deficit—mean that the primary threshold increases from April this year, as does the rate, to £7,200, nearly closing the gap with the personal allowance. There have, from time to time, been ambitions to align the personal allowance with the primary threshold. We hold to the view that realigning the start of qualifying earnings with the current primary threshold level, with clear caps on its uprating, is the right place to be. This holds good to the pensions commission analysis that the crucial issue was the level of replacement income in retirement—a point to which the noble Lord referred a moment ago. In our view, the case for the trigger at £7,475 is not made. On the basis of the Johnson report, it would exclude some 600,000 people from auto-enrolment and would save only some £3 million a year in administration costs for employers. Indeed, one wonders whether it would have some impact on opt-in arrangements, which would be likely to be more costly. This takes us back to the question of whether people on low earnings benefit from savings, although I believe that the Johnson report dealt with that very clearly. It made the point that earnings are highly dynamic and that relatively few people have low earnings throughout their lives. Also, most of those on low earnings within family units have a working partner with significant earnings and so should benefit from pension savings. There is also the risk of missing out on employer contributions and the favourable interaction with tax credits. Perhaps the noble Lord would comment on that favourable interaction in relation to universal credit. Given the acceptance of the appropriateness of savings from the start of a band of qualifying earnings, which we can agree for the current year, the argument advanced for a higher trigger is a bit thin. Essentially, it is that it will reduce the number of small pots of pension savings—that is, those that would accrue to people earning between approximately £5,700 and £7,300—because that creates a cliff edge and does not necessarily equate with consistency of savings. In any event, NEST is geared up to deal with just that sort of situation. Therefore, the introduction of a trigger that is different from the start of the qualifying earnings band is something that we strongly oppose.