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Pensions Bill [Lords] (Programme) (No. 2)

I welcome new clause 2, but I speak in favour of new clauses 9 and 10, and amendments 18, 19 and 20. I shall also respond to some of the points that the Minister has just made. I shall begin by endorsing the tribute the Minister paid to Evelyn Arnold, who is retiring from his Department this week. I very much valued her advice and the way in which it was delivered. I welcome the fact that the Government have maintained the all-party consensus on the principle of auto-enrolment, based on the work of Lord Turner's commission on behalf of the previous Government. I worked closely with Adair Turner in that period, and I pay tribute to him, and to his fellow commissioners—Jeannie Drake, now Baroness Drake of Shene in the other place, and John Hills—for their very important achievement in the commission's report. I say ““all-party consensus”” about auto-enrolment, but—as I suggested in my recent intervention—there has been some discussion in the last few days about the extent of that consensus. I notice that David Prosser, who knows something about all this, wrote in The Independent on Saturday:"““There is a growing fear that the Government is about to announce a postponement of auto-enrolment…every delay in pension reform will mean a more miserable old age for millions.””" I am glad, therefore, that the Minister has reaffirmed that the Government intend to go ahead with auto-enrolment on the timetable that has been announced. It has been reported that Adrian Beecroft, who has given more than £500,000 to the Conservative party in the past five years and has, coincidentally, been asked to advise the Government on cutting burdens on business, has recommended in an interim report that auto-enrolment should be put on hold and scrapped entirely for small businesses. No doubt there has been some lively discussion within the coalition about this issue, and it is encouraging to see the Secretary of State in his place on the Front Bench and agreeing with the Minister. The Financial Times quotes a Liberal Democrat official this morning as saying of Mr Beecroft:"““He is an ideological Tory donor recruited to give voice to deeply held prejudices in the Tory party. His report has no evidence base.””" I also noticed that the Liberal Democrat Equalities Minister told The Observer on Sunday that Mr Beecroft's ideas would be ““swept away””. We perhaps heard some sweeping away from the Minister this evening. I am pleased to hear his confirmation—endorsed by the Secretary of State—that there will be no delay in auto-enrolment and that small businesses will not be missed out. I welcome, therefore, the maintaining of the previous consensus on auto-enrolment, and I hope that the position that Ministers have put to the House this evening will stand. However, I regret the dilution of the previous proposals in the Bill. Our amendments seek to address the watering down of the principle of auto-enrolment that the Government have proposed. The amendments would reduce the proposed three-month waiting period to one month. They would also limit increases to the earnings trigger for auto-enrolment to no more than the increase in either the general level of earnings or the national insurance lower earnings limit. That is to address the concern explained by my hon. Friend the Chair of the Select Committee in her intervention a few moments ago. The new clauses would put a duty on the Secretary of State to establish within two years a review into allowing transfers into NEST, and to review any order he makes on contribution limits in the scheme. The Labour Government were determined to build cross-party consensus on pensions reform, and, thanks to Lord Turner's commission, we succeeded. That was very important. We know that people have been under-saving for their retirement. It is estimated that 7 million people in the UK were not saving enough to provide an adequate retirement income. According to Scottish Widows, 20% of people were not saving at all for retirement. Overcoming that problem requires the establishment of a system that people can be confident will endure beyond a future change of Government. I welcome the fact that the principles have indeed survived a change of Government. The levels of saving among people on low incomes are a particular cause for concern. While 77% of people earning £31,000 a year have savings, that applies to only 56% of people on average earnings and 44% of people on £18,000. The Office for National Statistics has reported that, thanks to the global financial crisis, pension savings fell by £2 billion in 2009-2010. The importance of tackling under-saving has risen even since auto-enrolment was first proposed. The final report of the pensions commission in 2006 recommended three steps to tackle under-saving: a higher state pension age, restoration of the earnings link for the state pension and the introduction of automatic enrolment—the subject of these amendments. For a long time, inertia had acted against people building up sufficient savings for retirement. My hon. Friend the Member for Hampstead and Kilburn (Glenda Jackson) has commented on the effect of complex products on people's understanding of the cost of products. Other demands on people's income mean that people do not get around to saving. Auto-enrolment will harness inertia to the opposite effect by making saving, rather than not saving, the default option. We continue to support auto-enrolment into workplace pensions, and we are keen to maintain the consensus established for it. Partly for that reason, however, we cannot support the watering down proposed in the Bill. Amendment 18 would, as I said, reduce to one month the optional waiting period before an employee is enrolled into a pension scheme. As the Minister explained, the Bill proposes to give employers the option of not enrolling their employees for the first three months of their employment. For the employee, in many cases, that will mean the loss of three months' employer contributions to their pension pot each time they start a new job. Recent research for his Department has shown that people have, on average, 11 jobs in their working lives, and all the indications are that that number is likely to rise. For an average employee, therefore, the three-month window could mean the loss of 33 months' contributions over their working lives. That is no small sum, amounting, it is estimated, to a 7% reduction in final pension funds. The effect on some groups will be far greater than on others. Agency workers, for instance, who change jobs more regularly will lose even more months of contributions. They do not save as much as the rest of the population, and a three-month threshold would put them at a significant disadvantage. As well as the cost to employees in lost employer contributions, the principle of auto-enrolment would bear a cost from this change. If an employee receives their full wage—without pension contributions being deducted—for the first three months of their employment, they might be less willing to sacrifice their salary when the three months are up and so be more likely to opt out when auto-enrolment is applied to them. According to the DWP's impact assessment, the waiting period will also hit disproportionately younger employees who change jobs more frequently. The aim of auto-enrolment is to build up a savings culture, but to do that throughout the work force, we need to start young, yet this change chips away at the effectiveness of auto-enrolment for young people. The saving to employers in administrative costs—the Minister touched on this—which the Government argue is the main reason for introducing the waiting period, will be fairly modest: the Johnson review put it at about 2% of total annual costs to employers. I therefore suggest to the Minister that there does not seem to be a case in principle for why the group of employees likely to be affected disproportionately by the change should lose the employer contributions that they would otherwise receive. Our amendment 18 would reduce the waiting period to one month. We understand the argument that enrolling someone who is at work for a brief period could be unduly costly, but setting the period at one month would lessen significantly the detrimental impact on savings and reduce the amount of lost contributions from employers to employees' pension savings.