Standing Committee F
Tuesday 15 February 2000
[Mr. William O'Brien in the Chair]
The Chairman: Good morning, ladies and gentlemen. I am advised that when the Committee adjourned last Thursday, we were dealing with amendment No. 169 to clause 29.
Mrs. Jacqui Lait (Beckenham): On a point of order, Mr. O'Brien. I welcome you back to the Chair; it is nice to see you returned from your globetrotting on such good form. Can the Minister of State tell us what progress has been made on the drafting of the amendments relating to rebates, so that we know how to pace ourselves in that respect?
The Minister of State, Department of Social Security (Mr. Jeff Rooker): We do not need to pace ourselves while waiting for the amendments. They are on their way, but I cannot yet say when they will be tabled. Drafting the amendments on rebates is extremely complicated. Although the issue is simple, putting it into legislative language is difficult. Two people are working on the amendments, and first drafts are floating around. They will take the form of new clauses and consequential changes, and we intend to table them as soon as possible, so that we can have a debate while the Bill is still being considered in Committee. I regret that I cannot give more precise information at the present time. However, I know that the parliamentary draftsmen and the Department's lawyers are working their socks off—perhaps their shoes as well.
Mrs. Lait: Further to that point of order, Mr. O'Brien. As the Minister said, the amendments are extremely complex, and I hope that adequate time will be allowed for their consideration not only by the Committee, but by outside bodies. I should like to put down a marker that if there is not enough time for a proper and thorough debate in Committee, we shall want extra time on Report.
The Chairman: Order. I suggest that the matter should be discussed through the usual channels, rather than here this morning. All we can do in the meantime is take note of the Minister's remarks.
Amendment proposed [10 February]: No. 169, in page 27, line 16, at the end to insert the words
`This subsection shall not apply to those working for companies with fewer than five employees.'.—[Mrs. Lait.]
Question again proposed, That the amendment be made.
Mr. Rooker: I also welcome you back, Mr. O'Brien. I have made a mental commitment to jazz up our discussions on this interesting and vital part of the Bill, on which we made some progress last week.
In a nutshell, amendment No. 169 is unique in that it would tie a state benefit to the number of employees in a company. As far as I know, no state benefit entitlement anywhere in our system is dependent on the size of the company for which a person works. It would be wholly wrong to deprive someone of a state benefit because they happen to work for a firm with fewer than five employees. The stakeholder pension measures are not comparable in that sense. People will not be deprived of a stakeholder pension because they work for a firm with fewer than five employees; it is simply that they will not be able to join a stakeholder pension as of right through an employer with fewer than five employees.
Pensions are retail products that are available on the retail market. Employers can voluntarily give access to them, but will not be required, under the regulations, to do so as a statutory right. A genuine comparison cannot be made. There is a distinction, in that the state second pension is a state benefit, not a private benefit. One cannot possibly restrict a person's state benefit, in which they build up an entitlement on the basis of their own contributions, merely because of the size of their employer. On that basis, I ask the hon. Lady to withdraw the amendment.
Mr. Desmond Swayne (New Forest, West): I fully understand the limitation of the amendment to which the Minister has drawn attention. However, I hoped that he would have abandoned that position and acknowledged the size of the problem, to which the amendment is intended to refer. The problem is that 10 per cent. of the work force are employed by firms that have fewer than five employees. Does not that mean that there is a hole in the proposal? The Minister was correct to say that small firms might voluntarily provide such dedicated pensions, but they may not. People may go into the market where such pensions are available, but they may not. In general, they will have a low income and a marked lack of financial sophistication. The state second pension was intended for them.
The amendment was designed to deal with that problem. I acknowledge its weakness, but the Minister has not addressed the problem that the amendment is designed to cure.
Mr. Rooker: Let us look at the facts. My recollection is that 750,000 employees work for firms that have fewer than five employees, which is nowhere near 10 per cent. of the work force, although they are an important group of people. There are 5 million people in the target group in relation to the stakeholder provisions, which we are not discussing in this context. Those people fall into the band of people whose earnings are roughly between £10,000 and £20,000 and they have no second pension provision. I accept that 750,000 may be a fairly significant percentage of 5 million, but the Government's advertising will ensure that people are aware of the relevant opportunities. We shall review the matter after three years, in an effort to embrace as many people as possible.
The amendment would tie state benefit entitlement to the size of the firm that one works for, but—I say that with due humility to Opposition Members—that could not possibly be done.
Mr. Swayne: Does the Minister's estimate of 750,000 people include sole traders?
Mr. Rooker: I do not know. I recall the figure from memory—it arose in relation to the stakeholder orders. In relation to companies and employers, about two thirds of the original figure would be excluded. In relation to deductions from earnings and access, we are seeking to take a burden away from employers at the start of the stakeholder scheme. I cannot say how sole traders fit in with the 750,000 figure—they may well be included.
Mr. Eric Pickles (Brentwood and Ongar): Sole traders represent 13 per cent. of employed people. My hon. Friend the Member for New Forest, West (Mr. Swayne) is not as far off the mark as the Minister suggested.
Mr. Rooker: I shall obtain further information. My recollection is that 750,000 employees work for firms with fewer than five employees. That is why we considered the limit carefully. If we had raised it to 10 employees, we should have involved almost 1.4 million people, but that was too large a percentage of the target group of 5 million people who do not have second pension provision. We had to strike a balance between the size of the firm and the number of employees who would have access to the stakeholder provisions through their employer. The employer will not provide the pension but will give access to the pension scheme.
Mr. Andrew George (St. Ives): Does the Minister accept that to argue about the numbers is to miss the point? In my constituency, the vast majority of companies fall within the category described by the hon. Members for New Forest, West and for Brentwood and Ongar (Mr. Pickles). How onerous will the red tape be for those small companies? I agree with the principle described by the Minister, but will the requirement for deductions from earnings be so onerous as to add an unacceptable burden to small companies?
Mr. Rooker: For the purposes of clause 29, there will be no burden on firms in relation to the state second pension. The hon. Gentleman may want a debate on stakeholder pensions—a totally different pension system to the one that we are discussing—and the Welfare Reform and Pensions Act 1999, but I have not been briefed to give detailed information on that.
I have been told that the figure of 750,000 does not include sole traders. I had wondered about that when I was speaking on the matter earlier and I did not want to mislead the Committee. The target group of stakeholders comprises approximately 5 million people in the moderate earnings band between £10,000 and £20,000 a year who have no second pension provision, such as a private or occupational pension. The figure of 750,000 represents part of the target group. The total number of employees in a firm would not be included, as those earning more than £20,000 in a small firm would not be part of the stakeholder target group.
The Government will measure the success of the stakeholder pension scheme by the number of people on moderate earnings without a second pension—those in the target group—who take up a second pension. People in small firms who are on high earnings and have private or occupational pensions will not be part of the target group. They could hold a stakeholder pension, but they would not be part of the group that the Government will use to measure the success or otherwise of the stakeholder pension scheme. This brings me back to the point that the state second pension is a state benefit. In some ways, it qualifies as a national insurance contributory benefit. One could not seriously consider tying that to the size of firm in which a person worked.
Mrs. Lait: Perhaps we are talking at cross-purposes. I shall try to explain the problem as we see it.
Right hon. and hon. Members on both sides of the Committee accept that there is a potential for sole traders, and for people working in companies with fewer than five employees, to miss out on stakeholder pensions because of the exemption. During our deliberations on the Welfare Reform and Pensions Bill, we argued that those firms should be exempt, and we welcome that. However, we are left with the problem of people who currently have access to the state earnings-related pension scheme on a compulsory basis unless they are contracted out—which would suggest that they had some form of second pension—and who will be missed out under the state second pension provisions. However sophisticated the advertising and information given to them, they will not take out a stakeholder pension. They will lose under future SERPS and they will be considerably worse off under stage 2 of the state second pension because of the way in which S2P works.