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Mr. Deputy Speaker: With this it will be convenient to discuss Lords amendments Nos. 2 to 56, Lords amendment No. 57 and amendment (a) thereto, and Lords amendments Nos. 58 to 66, 120, 123, 133, 136, 137, 146, 153 to 155, 157 to 168, 170, 207 to 214, 223 and 228 to 230.
Ms Winterton: Today, we enter the final stages of this landmark Bill, which will transform the saving habits of millions of people in the country. Before we begin this final debate, I should like to pay tribute to my hon. and learned Friend the Minister of State, Department of Energy and Climate Change, the Member for North Warwickshire (Mr. O'Brien), to my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) and to my noble Friend Lord McKenzie for all their stalwart work on the Bill. Thanks to their efforts, progress on this Bill has been characterised by a high degree of constructive dialogue between the Government, stakeholders and the Opposition. That consensual approach is clear in the vast majority of the amendments before us. I hope that, during this final debate, we will retain that consensus approach to a certain extent.
On the issue of qualifying earnings, we reached a broad consensus on the way forward because of the constructive and supportive approach taken by a number of our stakeholders. Among others, I should like to thank the CBI, the National Association of Pension Funds, the Association of British Insurers and the TUC as well as colleagues in both Houses for their contributions to the debate on this important area.
As I said, the Government have listened to the points that have been made in debate, and to our stakeholders. Amendments Nos. 21, 22, 57, 61 and related consequential amendments are designed to address concerns about the potential complexity of the band of earnings at the heart of the quality test.
Amendment No. 61 makes it clear that trustees can change scheme rules as a route to compliance, but they still need to obtain the employers consent to change those rules. In order to minimise the risk of levelling down, this power cannot be used to reduce contribution levels. Amendments Nos. 21 and 22 and related
consequential amendments enable employers to use an annual pay period to smooth the impact of irregular payments to workers.
Amendment No. 57 allows employers who are confident that their workers are on course to receive the new minimum level of pension savings to certify that their arrangements meet the quality standard. That will increase clarity and certainty for employers, while ensuring that individuals savings remain protected. The detailed processes will reflect the principles agreed with stakeholders and will be set out in regulations and guidance.
The hon. Member for Eastbourne (Mr. Waterson) has tabled an amendment to amendment No. 57 that would remove the Governments ability to repeal the process of certification in the future. All our stakeholders have agreed that a review in 2017 is appropriate. Removing proposed new subsection (9) would mean that, following the review, we would not be able to repeal this legislation if it was felt that certification was not effective or necessary from the perspective of either workers or employers.
Amendments Nos. 23, 24 and 25 ensure that the limits of the earnings band are reviewed annually in line with changes to average earnings, and uprated accordingly. This proposal was an Opposition amendment but we accept that it is consistent with Government policy, and that is why we have agreed to it this evening.
Amendments Nos. 5, 12 and 15 extend automatic enrolment to workplace personal pension schemes. We always intended that automatic enrolment would apply to workplace personal pensions but concern was expressed on Report in the Commons that they could fall within the scope of two European consumer directives and that that might have prevented automatic enrolment into the schemes. Happily, when the Bill was introduced into the other place and following discussions with the European Commission, we were pleased to be able to announce that that would not be the case. That puts provision by the insurance industry on a level playing field with other provision, and it was warmly greeted by all our stakeholders.
Amendments Nos. 28 to 32, 41 to 46 and 57 make technical changes to the scheme quality requirements to ensure that the widest range of schemes can qualify. Other amendments in this group are minor and technical in nature and are entirely consistent with the overarching policy. I therefore commend the amendments to the House.
Mr. Nigel Waterson (Eastbourne) (Con): It is a great pleasure to be debating the Pensions Bill again as it moves majestically towards the statute book. As the Minister kindly said, it is good to see the hon. and learned Member for North Warwickshire (Mr. O'Brien) in his place. He is clearly a sad person because he cannot keep away from pensions, despite his huge new responsibilities in the energy field. I suppose we will have him to thank if the lights do not start going out in a few years time.
I join the Minister in thanking all the stakeholders that have been part of the process. She listed some organisations, and even more have been involved. For the real enthusiast, there have been any number of seminars, get-togethers, conferences and events to try to
get the thing right. The Opposition are not wholly convinced that there is not a series of unanswered questions, but those questions are for another day.
It is interesting that the Government still have what I might describe as a schizophrenic approach to saving for retirement. Only yesterday they announcedwell, they quietly slipped througha further £2.3 billion stealth tax on private pension pots. Of course, at the moment they are trying to give people in this country two different messages. One is that the problems that have got us here have included borrowing too much and saving too little. The other is that they are to provide a fiscal stimulus that they would like us all to take down to the shops immediately and spend.
We face a huge number of amendments from the Government and just a sprinkling from the Oppositionones on which the Government were defeated in the Lords or that the Government were good enough to accept. To that extent, there will be a reasonably pre-festive season air about this evening. Having said that, the Bill is not in the same league as the Pensions Act 2004, to which there were more than 1,000 amendments, so perhaps things are getting bettereven though we still have an awful lot of amendments on our plate this evening.
I pay tribute to my colleagues in the House of Lords. Lord Skelmersdale and Baroness Noakes made a huge contribution to improving the Bill in the Lords, sometimes with the co-operation of Lord McKenzie, the Minister in the Lords, and sometimes without. They have made some major changes and a lot of minor ones, some of which I will not necessarily have time to touch on this evening, but on the whole considerable improvements were made to the Bill. I also pay tribute to those who served on the Committee in this House. It was a model of amity, co-operation and consensus, as far as that goes.
It is worth mentioning a couple of issues before I go into the detail of the first group of amendments. We have been allocated three hours for five groups of many amendments. Life being what it is, the fifth group relates almost entirely to an issue that has not yet arisen in the Houseregulation of buy-outs of pension funds. It would be a huge tragedy if we did not reach that group in the time that the Government have allocated to us this evening.
On the first group, I intend to be even more selective than the Minister in the amendments that I want to speak to. As she rightly said, there are many technical and minor amendments and I do not see any purpose in labouring them in any detail. The central issues are clear. They are mainly concerned with the concept of automatic enrolment. My party has been convinced on that matter in the pensions field for longer than any other party. Indeed, it was our policy before the last election. It is important to recognise that in many ways we are all slightly mesmerised by the architecturethe designof personal accounts, but the more important issue is auto-enrolment. The top prize is to auto-enrol people into existing pension schemes that have much more generous provision than the overall 8 per cent. contribution envisaged for personal accounts. It is important to remind ourselves of that as we get into the detail of the amendments.
As I said, many of the amendments bring simplification, clarification or rationalisation to the original draft of the Bill, and I want to make some observations on some
of the amendments before I talk to our amendment (a) to Lords amendment No. 57. The first issue principally revolves around Lords amendments Nos. 23, 24 and 25, which the Minister touched on. They were moved by Baroness Noakes and are designed to ensure that the Secretary of State does not in future let the value of the earnings threshold for personal accounts fall behind increases in the level of earnings generally.
There was one of those bizarre exchanges in the Lords in which the Minister, Lord McKenzie, was clear that it is, and was, the Governments policy to uprate the earnings band in line with earnings. However, that was not in the Bill. As originally drafted, it appeared to give the Secretary of State carte blanche to decide how and when to revalue the band. Lord McKenzie talked about needing flexibility. He said:
We always have this dilemma where we have a clear policy and objective and believe that uprating by earnings is the right way forward. However, given that we are setting down reforms for decades to come, there must be a strong argument in favour of flexibility.[ Official Report, House of Lords, 23 June 2008; Vol. 702, c. 1267.]
I do not regard that as a dilemma. If the policy is clear, why does the legislation not follow it? In the event, that argument did not persuade Baroness Noakes or, indeed, their lordships, because it went to a vote and the Government were defeated. I thank the Minister of State for graciously accepting that the amendment should stand.
The main issueand it is very important, for reasons that I shall describerevolves around Lords amendment No. 57 and amendment (a). Amendment No. 57 allows for what is called self-certification in respect of the qualifying earnings rule. That is a complex but important matter. It is clear from the design of personal accountswe accept this as a principlethat if one is introducing auto-enrolment either into an existing scheme or to personal accounts, there has to be a mechanism whereby it is proven that the terms of the existing scheme are at least as beneficial to the employees as personal accounts would be. All the evidence from organisations such as the National Association of Pension Funds is that existing schemes will overwhelmingly be much more generous in terms of the employer contribution than will personal accounts.
Perhaps this is more of a theoretical than a practical problem. However, it is clear that there has to be a test of some sortthe qualifying earnings testand it has to strike a balance between two different things. One is, of course, to protect employees rights. That must be clear. The other is the real need for the test to be as easy, cheap and straightforward as possible for employers to operate. We do not need another complex regimea third regimesitting alongside PAYE and national insurance as an extra burden on employers.
I pay tribute to the industrys working group, whose views I shall come to in a minute, because it has worked so hard with officials over many months to get the right answer. Indeed, I think that it is still working with them. The group includes organisations such as the Association of British Insurers, the CBI, the Institute of Chartered Accountants, the Society of Pension Consultants and the National Association of Pension Funds. Its concern, which is the same as ours, is that if the test is not simple, cheap and straightforward to operate, it could encourage the process of levelling down, whereby the introduction
of personal accountsapparently in 2012, which we might discuss laterwould give an extra impetus to employers to close their existing defined benefit schemes and point their employees in the direction of the Government-backed personal accounts. We strongly believe that every possible measure should be taken to try to discourage that process, because otherwise there could be the nightmare scenario in which many people are disadvantaged by ending up with personal accounts rather than existing, and much more generous, company schemes. We share the concern that the test, as applied in practice, could assist the process of levelling down. I shall come to the views of those key stakeholders.
The current position could fairly be described as a work in progress. There have been discussions, and there were more discussions with the industry working group over the summer. The Government have moved somewhat by accepting some of the principles that would make the process simpler but, in fairness, there is still some way to go on the detail.
The next step, as I understand it, is the publication of detailed regulations on the qualifying earnings test. We and, indeed, the industry will look very closely at just how the regulations are drafted, and if we do not get the drafting right at the next attempt, an incoming Conservative Government would certainly wish to revisit it as a matter of urgency.
I turn to the concessions that the Government made on the subject in the House of Lords in early November. In a letter, Lord McKenzie cited the efforts of the stakeholder group led by the ABI, conceded that there should be a self-certification procedure, which we welcome, and said that
employers will not be required to make retrospective reconciliation payments if contributions unexpectedly fall short, unless the detriment to an individual exceeds certain de-minimis levels,
a departure from the policy of an individualised test.
In developing this approach we have sought ways to increase clarity and certainty for employers going forward, without opening up the risk that some individuals find themselves regularly or materially losing out
and he talked about getting the balance right. The Opposition still think that, despite all the best efforts, the balance is not quite right, but I am prepared to concede that everyone is doing their best to try to reach the right answer.
In its briefing for this debate, the CBI expressed the concern to which I have referred: that the original test, as drafted, could contribute to levelling down. It also said how important self-certification is. The self-certification point has now been conceded, and that is important. However, the CBI goes on to say that
employers and pensions industry professionals alike were very concerned about maintaining high quality existing provision in the face of an impractical qualifying test that defines pay in a way that does not meet the current market standard. The costs associated with complying with this definition would provide an incentive to level down into Personal Accounts.
The self-certification approach ensures firms need not take on significant administrative costs, without affecting the levels of contribution made to their scheme...We strongly support amendments to introduce self-certification, which is a robust but less burdensome approach.
In addition, we acknowledge the move to annual reconciliation as a majorand very welcomestep toward simplification.
we, along with other industry groups, remain concerned that the wording of the key amendment to the Pensions Bill on self-certification may not achieve these aims
The current drafting of the amendment adds considerably to the administrative burden for employers and risks discouraging them from continuing to provide pensions to their employees that have higher contributions than the level set for personal accounts.
I look to the Minister for an absolute assurance that, just because the Bill is passing into law any time soon, she and her Department will not lose interest in the nitty-gritty work that still needs to be done on the qualifying earnings test. As the Minister pointed out, my amendment (a) would remove subsection (9) of the new clause in Lords amendment No. 57. It is important that we make that stand, because it seems to me that the current position is as follows. By dint of a lot of hard work by officials and stakeholders, we have made significant progress. Further progress needs to be made on the regulations, and I hope that it will build on the discussions that have already happened.
I am totally bemused by why the Government now want to put into the legislation what is effectively a proposal to go back to square one some time in the future. We are deeply suspicious of that proposal. We see no need for the power in proposed subsection (9), which enables the Secretary of State to repeal the whole new clause by order.
We will talk at some point about the question of a review after five years of personal accounts, but if something cataclysmic occurred in the context of personal accounts and of the qualifying earnings test and how it applies, I am sure that the Government of the day would wish to get to the bottom of the problem through primary legislation. That would be fair enough. I commend amendment (a) to the House, and subject to any further comments from the Minister on the issue, we will press it to a Division.
The final issueI appreciate that to some extent I am cherry-picking the really important issues from this huge number of amendments, which are not of our making, as I explainedis one that the Minister has already touched on, which concerns auto-enrolment into workplace personal pensions, or WPPs. That was a major concern during the passage of the Bill in our House and is a matter of huge worry to organisations such as the ABI. In fairness, there is a great deal of
consensus about it. I remember having private discussions with the then Minister, the hon. and learned Member for North Warwickshire, on how it could be sorted out. Lord McKenzie recently emphasised the importance of doing so:
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