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Pensions Bill [HL]

My Lords, I shall also speak to Amendment 21. The new pension arrangements that are to apply from 2012 provide a minimum level of pension contributions, based on a band of qualifying earnings, of 8 per cent, of which at least 3 per cent must be met by the employer and the rest from the employee contribution and tax relief or credit. The required minimum contribution levels are set as a quality requirement for a qualifying pension scheme. Some employers who already operate good workplace pensions base their pension contribution calculations not on earnings but on other definitions of pay such as basic pay. It has been argued that the regulation should be set so as to encourage employers with good-quality schemes to stay with them. Clause 10 seeks to recognise this by introducing an additional provision to the powers in the Pensions Act 2008 that allows the Secretary of State to set an alternative process of certification known as the alternative requirement. That will allow employers to certify that overall their schemes satisfy the quality criterion for pension contributions. This process involves setting a regulatory test which, if met, will allow employers so to certify. Although the Government have published the test that they intend to set in regulations, the regulations are still subject to consultation, so we do not know what they will finally look like or how they may change over time. The Johnson review asserts that under the regulatory test that is proposed, 92 per cent of workers would still match the statutory quality criterion on contributions under the qualifying band of earnings. This assertion is based on the ONS survey of hours and earnings. The assertion of 92 per cent is based also on the pattern of earnings before auto-enrolment. Our concern is that after the onset of auto-enrolment, an incentive may have been created that will encourage bad employers to arbitrage between the statutory quality criterion of an 8 per cent contribution on a band of earnings and the alternative requirement, to the detriment of some workers. In a nutshell, our concern is that while trying to accommodate good employers, a compliance loophole is created for bad employers. The purpose of the amendments is to strengthen the protection afforded to jobholders under the alternative requirement. For the purposes of the amendments, I do not seek to debate the detail of the proposed regulatory test for the alternative requirement, or even whether there should be such a requirement. I want to focus on the powers that are enshrined in Clause 10 and what must be satisfied before the Secretary of State can set the alternative requirement. The Delegated Powers and Regulatory Reform Committee refers to the Secretary of State's power to set an alternative requirement as ““significant””, as indeed it is. Clause 10 prescribes the power of the Secretary of State in setting an alternative requirement, but it does not go far enough for the following reasons. In Clause 10, the Secretary of State must, for most schemes, ensure that, for all jobholders or a cohort of the relevant jobholders, the contributions paid into the pension scheme satisfy the quality criterion. However, the clause requires this to be the case only for a majority of the individual relevant jobholders—a majority being 50 per cent plus one. We are concerned that this could lead to a significant number of individual jobholders missing out on what should be their statutory entitlement. In effect, the aggregate requirement could be met by more generous contributions for some jobholders, with less than qualifying amounts, or potentially even none, for others. The intent of Amendments 20 and 21 is to strengthen Clause 10 such that in all cases—not just most—schemes will be able to satisfy the alternative requirement only if, for no less than 90 per cent of the individual relevant jobholders as distinct from a simple majority, the amount of contributions paid under the pension scheme meets the qualifying amount. As my noble friend Lord McKenzie said in Committee, it is not acceptable that, "““an alternative requirement could allow nearly half of all jobholders””—" with a particular employer— "““to be short-changed””.—[Official Report, 15/3/11; col. GC 2.]" I beg to move.