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Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012

My Lords, as is always the case with pension reform, it has been a more than interesting and lively debate. The comments of noble Lords have been insightful and helpful and I thank them for those. These reforms are designed to transform the culture of saving for retirement in our country. Automatic enrolment is a bold start, but we have also begun looking at how to improve transfers to deal with small pension pots, a point raised by my noble friend Lord Boswell, and the industry is looking at issues around the transparency of charges. Both these issues were debated in your Lordships' House during the passage of the Pensions Bill. On transfers and small pots, our consultation closes next week and we will publish a response in the summer. The Pensions Regulator has also recently published a document on what a good direct contributions scheme looks like in order to help employers to select an automatic enrolment scheme. I will now do my best to wade through the large number of important questions asked by noble Lords. I will start with a question raised quite late in the day by the noble Lord, Lord McKenzie, because it sets the tone of the debate. It concerned the 10 per cent of jobholders who might lose out. Employers who are aiming to meet the minimum requirements under the law are unlikely by definition to use self-certification. Those using it will tend to be those seeking to run a scheme that is at least as generous as, and probably more generous than, a statutory minimum scheme for at least 90 per cent of their workers. We are talking about employers who see the provision of pensions as an important benefit for their workers. We want to allow such employers some latitude, or we may end up losing these more generous benefits for many workers. Therefore, because members will be in a comparatively generous scheme, the risk that they will lose out to a significant extent will be small. The noble Baroness, Lady Drake, asked a lot of pertinent questions. They were fairly technical and I want to make sure that I address the right question in each case, so I may write on a number of them. I will attempt to answer as many of them as I can. She asked about the publication of the assessment certifying that the conditions of the 90 per cent test are still being met. That will be published in 2017. She asked whether, if an individual has a shortfall, the employer will be required to make it up. If the employer has miscertified when he should not have done so, the Pensions Regulator will have powers to end the certificate and require the employer to make up the shortfall. The noble Baroness asked about waiting periods and re-enrolment. An employer cannot use a waiting period in relation to re-enrolment so the problem of multiple waiting periods will not apply. She asked about the use of self-certification for certain groups of jobholders and suggested that the system could lead to abuse. What I might term ““good”” employers told us that they needed flexibility in how they applied the certification test. We will monitor the use of certification as part of the evaluation of the reforms. If we find that employers are abusing certification, we will have the power to change the scheme and ultimately repeal it by order if necessary. The noble Baroness, Lady Drake, and my noble friend Lord Boswell asked about the issue of salary sacrifice. The definition of ““earnings”” in the Pensions Act 2008 is, "““earnings payable to the person””." If an individual chooses to sacrifice part of his or her salary, it is no longer ““payable”” and therefore not part of earnings, so the employer contribution would be payable only on the residual earnings. I will consider the point made by my noble friend Lord Boswell. The noble Baroness, Lady Drake, asked about employer behaviour and increases in the opt-out rate—effectively, not following the template. The statutory requirement is to provide the prescribed information. There is no statutory restriction on providing additional information, but putting pressure on a worker to opt out is unlawful. Employers will need to be careful that they do not overstep the pressure test, even implicitly, by applying pressure to their workers. My noble friend Lord German asked about the issue of ““ordinarily working”” in the context of seafarers. There are several factors a court is likely to consider in deciding where a seafarer is based and therefore whether they are ordinarily working in the United Kingdom. Where they join and leave the ship is just one of them. Other factors can be taken into account, such as the terms of their contracts. Offshore workers are deemed to be ordinarily working in the United Kingdom if they are working on the UK continental shelf or working on the UK part of a cross-boundary field. For offshore workers, the start and end of a journey does not matter. My noble friend Lord German also asked about powers to cap charges. The Government have taken powers to place restrictions on charges in pension schemes. However, charges are not currently high in default schemes. They are typically in the range of 0.4 to 0.6 per cent. The industry is responding and a code of practice on transparency of charges is planned. We do not propose to regulate without evidence that it is necessary, but we will if there is evidence of a problem.