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Session 2007 - 08 Publications on the internet General Committee Debates Pensions Bill |
Pensions Bill |
The Committee consisted of the following Members:Mark Hutton, Committee
Clerk
† attended the
Committee
Public Bill CommitteeTuesday 22 January 2008(Morning)[Sir Nicholas Winterton in the Chair]Pensions Bill10.30
am
The
Chairman:
The Committee has concluded its evidence-taking
sessions. Now we start the clause-by-clause, line-by-line and, in some
cases, word-by-word scrutiny of the
Bill.
I welcome all
members to this fifth sitting of the Committee. I hope you all had a
restful weekend and a less troublesome return to London than I had. I
do not intend to go into that
now.
Clause 1Jobholders
Andrew
Selous (South-West Bedfordshire) (Con): I beg to move
amendment No. 1, in
clause 1, page 1, line 9, leave
out ‘and under
75’.
Thank you,
Sir Nicholas. It falls to me to welcome you back to the Chair. We are
now in the more familiar proceedings of detailed debate in Standing
Committee, although I would like to say that I found the evidence
sessions useful. They added in many important ways to the debate and
they will help us to scrutinise the Bill more effectively over the next
couple of weeks.
The
amendment is by nature a probing one. I do not intend to press it to a
vote but it would be worthwhile for the Committee to examine it.
Personal accounts are to be prohibited for everyone over the age of 75.
There is the option for people to join a personal account between the
state retirement age and the age of 75, which is absolutely right. That
is their choice. If people want to go on contributing to a personal
account between the age of 60 or 65—it will soon be
68—and the age of 75 that is absolutely right. Why, however, is
there this blanket cut-off at the age of
75?
It could be that
some people have not thought much about pensions or savings until quite
late in their working lives. Maybe they are from a gene stock that is
likely to give them a long working life. One example is the late Bill
Deedes who died last year at the age of 94. He was working until only
two weeks before he died. What if Mr. Deedes or others like
him had not thought about pensions until their late 50s or early 60s?
If he had reckoned that he was likely to live a long time why should he
have been forbidden from contributing to a personal account, say
between the ages of 75 and 77, or between 75 and 80? Had he done that
he would have had 14 years in which to enjoy a pension income between
the ages of 80 and 94. That would be a much longer period than many
other people who retire at 65 or whatever and sadly only live for a
couple of years.
I am curious, therefore, as to
why there is this blanket cut-off at the age of 75. An employer such as
Asda, for example, is well known for employing large numbers of older
workers. B&Q also regularly employ people in their late 70s and 80s
and find them extremely good and competent workers. Indeed, we have had
members of this House who have been eminent members, Sir Nicholas, well
over the age of 75. Who are we, therefore, to forbid contributions to
personal accounts over the age of 75? It is presumptuous to have this
cut-off and I am interested to hear what the Minister will say in
response. This is a forewarning; there are one or two areas I would
like to discuss in the clause 1 stand part debate, but they are not
relevant to this amendment.
Danny
Alexander (Inverness, Nairn, Badenoch and Strathspey)
(LD): Thank you very much, Sir Nicholas. It is a pleasure for
me to welcome you back to the Chair and to echo the comments made about
the great value of our evidence-taking sessions, particularly on the
some of the matters we will consider later on. I recognise that this is
a probing amendment, but it does seem to be probing an area that is of
some interest and importance, given some of the issues raised in the
evidence-taking session on Thursday, relating to the way in which
personal accounts will or will not work for people who start saving
later in life.
The
hon. Gentleman made an important point about the reason why the cut-off
age of 75 has been selected. He cited some examples of Parliamentarians
and others, and there are clearly more and more people now—given
the quite correct and natural exhortations from the Government and all
parties in the House—who want to work longer for their own good
and the good of society. Though some aspects of the law such as those
related to annuitisation do involve an upper limit around the age of
75, it does seem that, in circumstances where people over 75 are
encouraged to continue working if they wish to—and many people
of that age do wish to continue working—there should be within
this Bill at least an understanding of the options for those people to
continue to put money aside for their retirement. While many of us
think that when we reach the age of 75, we shall want to retire, many
other people—especially given that life expectancy now is in the
mid-80s and may in the next few years reach the 90s—will have a
number of potential years of retirement ahead of them and will want to
save for them. That is the context of the question the hon. Gentleman
is asking, and I look forward to the Minister’s
reply.
The
Minister for Pensions Reform (Mr. Mike
O'Brien):
May I, too, welcome you, Sir Nicholas, back to
the Chair and to our deliberative sessions? I also found the evidence
sessions very helpful and wish to extend my thanks to those who gave
evidence to us. In terms of the amendment before us, the reason the age
of 75 is in this particular clause is that 75 is the age at which
annuitisation needs to take place, according to the tax rules. If we
were to change this, we would have to look at the tax rules and that is
something we would not want to do in this Bill, but in a Finance
Bill.
Essentially, 75
is when pension tax relief ends, and pensioners are required at that
stage to secure a
pension income with savings from defined contribution schemes. So that
is the reason why this Bill does particular things: it is not meant to
make a significant change in tax laws.
Andrew
Selous:
I suspected that the Minister would reply along
those lines. Perhaps he could let the Committee know—without
making any specific commitment—whether the Government are
willing to consider this area in a future Finance
Bill.
Mr.
O'Brien:
The hon. Gentleman would not expect me to commit
my colleagues in Her Majesty’s Treasury to any such
consideration. All things in taxation are always under review. I am
afraid that is all I can say in response.
Andrew
Selous:
I am not sure that we have learned a very great
deal from the Minister, either in his speech or in response to my
intervention. I have at least raised the general issue, perhaps for
general consideration, perhaps for members of the Committee to take
away and think about. Perhaps they might have a quiet word in the
Corridor one night with Treasury Ministers. As people live longer they
will perhaps need the extra years to provide themselves with extra
provision in retirement. It was a probing amendment and I beg to ask
leave to withdraw
it.
Amendment, by
leave,
withdrawn.
Question
proposed
, That the clause stand part of the
Bill.
Andrew
Selous:
Two other areas of clause 1 caught my eye and I
would like to ask the Minister briefly about
them.
The first is
agency workers. I have been reading the excellent House of Commons
Library brief on the subject, which makes it clear that according to
case law an agency worker may be regarded as an employee of the agency
for which he is working, as an employee of the client of that agency
or, in some circumstances, as self-employed. That has significant
implications for the administration of personal accounts. There is a
good case for agency workers to be auto-enrolled as they need decent
pension provision just like everyone else. However, there is a
particular concern that it is the organisation responsible for the
payroll administration of that employee that should have to auto-enrol
and administer personal accounts. I foresee all sorts of administrative
problems if that were not the case. It would be difficult for the
employee, the employer and this country’s thriving agency worker
sector, and we would not want to do anything to harm that
sector.
I hope I am
not expressing my ignorance, but the second unclear area was that of
employees of British companies, or perhaps people in the armed forces,
working overseas. Paragraph (a) says that a jobholder is an employee or
worker
“who is working or
ordinarily works in Great Britain under a
contract”.
The
employees of some of our multinational companies may have a home
service type of employment contract but not be locally employed.
Presumably they are not therefore ordinarily working in Great Britain.
Does that mean that they cannot be auto-enrolled? For example, I
am not sure whether the staff of HM Diplomatic Service are always paid
under local conditions or whether they continue under the PAYE system
and pay into their UK national insurance accounts. That aspect of the
Bill is not clear either and I would be grateful if the Minister could
elaborate on both those
areas.
Danny
Alexander:
I would be grateful for the Minster’s
thoughts on one further item in relation to clause 1. Subsection (2)
states:
“Where
a jobholder has more than one employer, or a succession of employers,
this Chapter applies separately in relation to each
employment.”
It must of
course be right that for people with multiple jobs that reach the
qualifying earnings limit each employment be treated separately, for
the purposes of the Bill. I am concerned about that category of
people—those in multiple employment—and I would be
grateful for the Minister’s
thoughts.
10.45
am
In my
constituency, for example, there are people working in the tourism
industry. Someone might have a series of seasonal jobs, such as a
winter job in the skiing industry—for as long as it survives the
ravages of global warming—and then several summer jobs in
different tourism employments throughout the season. This clause states
that the Bill applies separately to each job. If such people do not
reach the qualifying earnings limits in each job, they will not be in a
position to benefit from personal accounts, despite the fact that over
the course of their three or four jobs they might well build up a total
income of £10,000 or £12,000 a
year.
The personal
accounts delivery authority has pointed out that additional complexity
of that sort adds to the cost and therefore reduces the overall benefit
to people enrolling in personal accounts, which I understand. Can the
Minister tell us how—if at all—he thinks that there is a
way around that problem for those people? One suspects that the target
audience will include people in multiple low-income employment who are
not saving for themselves, for whom the only option is to take out a
personal pension and to contribute as and when they can. It would be
helpful if a way were found to enable such people to benefit from
personal accounts without adding to the administrative burden. I have
not tabled an amendment on that point, because I do not have a
proposal. I simply want to hear the Minister’s response to the
question how the Bill relates to that group of people, and this seems
like an opportune moment to raise
it.
Mr.
O'Brien:
I will deal with each of those points. As far as
agency workers are concerned, where a person is employed is a matter of
fact in law, and our view is that the primary obligation should lie
with the agency. We want people to be automatically enrolled, and I
think that the broad view in the Committee is that that is the right
approach. Agencies often allocate staff to a number of employers over a
short period of time. A catering agency, for example, might say
“Go to this hotel one day, that restaurant the next day, and
then another hotel.” We therefore need to ensure that the
primary obligation remains with the agency.
Some agencies have an agreement
with a particular employer to provide a number of staff over a
prolonged period of time. For example, BMW has an engine plant in my
constituency, and it gets staff through a particular agency, whom it
then employs over considerable periods of time—years. The
arrangement is that pensions can be paid by the direct employer, rather
than by the agency, so provided that somebody is covering it, it is
possible for the agency to pass the obligation down. We need to ensure
that, provided that they comply with all the other rules, the person
doing the work can get their pension, become automatically enrolled and
have their opt-out, if they want it. Primarily, the position should be
that they are in a pension scheme. The obligation will lie first of all
with the agency. If there is an agreement, it can then be passed
elsewhere, but the employee must be
enrolled.
The point
raised by the hon. Member for South-West Bedfordshire is interesting,
and it is covered in case law. Lawson v
. Serco
involved an employee of Cathay Pacific Airways, which is a company
registered in Hong Kong. The claimant’s permanent home base was
at Heathrow, and the question was whether or not he was based in the
UK. The court’s answer was that he was, so it depends where the
employee is based. Diplomats are based in their country of origin, so
those who work here for a time, if this is their normal base for work
purposes, are based here. If an American who works for an American
company were to work in the UK for a period, and if this were their
normal base for the job, then they would be subject to the legislation
in the UK. Broadly, that is the way in which the legislation will work.
The key issues are the claimant’s home base and the normal place
that they
work.
Danny
Alexander:
The Minister’s answer is clear, but I
want to clarify one further point. In my part of the country, many
agency workers work overseas—I am thinking particularly of those
who work in the oil industry. Presumably, if the agency were located in
the UK, those people would be automatically enrolled. Is that
correct?
Mr.
O'Brien:
Yes. The agency is the home base from which the
person operates. I am trying to think through some of the issues that
the hon. Gentleman has raised, because, as a former Energy Minister, I
know that the variations in employment patterns in the energy industry
are considerable. Basically, such UK workers work for an agency. Where
a UK employee works for a foreign company in a foreign country,
however, they may not be covered by the UK legislation—they are
not in the jurisdiction; they are not employed from here; they are not
employed through an agency; and they may have enrolled
abroad.
Another
example involves an agency that employs people from abroad to work
abroad—those people may come from one country and work in
another, but the agency is based in the UK. The question is whether
such people would be subject to automatic enrolment, and I want to
think about that one a
little.
Danny
Alexander:
I was not trying to catch the Minister out; the
matter just seemed relevant. If he would like to write to me at some
point, then that would be welcome.
Mr.
O'Brien:
I will think about my last point. I am afraid
that my ability to find exceptions is a product of my previous
training.
The
Chairman:
If the Minister drops a line to the hon.
Gentleman, then a copy will come to every member of the
Committee.
I will deal with
the hon. Gentleman’s point about his constituents with multiple
employment. That is an issue of some concern. We have worked as hard as
we can to see whether we can find an easy way of resolving the issue.
If a person has multiple—perhaps seasonal—jobs, each
earning less than £5,035, which is the current rate, then that
person will not be automatically enrolled. There will be no obligation
on them to have a pension scheme, just as they have no obligation on,
for example, national insurance. There are a number of exceptions in
relation to the lower level of
£5,035.
One
of the problems that we encountered in looking to find a resolution is
that so many permutations are possible—other rules also apply
below that level, such as for national insurance. Our view is that it
would create more complexity and difficulty if a series of new
obligations were imposed, and it would provide a level of deterrence on
employing people. To ensure that such seasonal jobs remain, in the end
our view is that complexity and administration difficulties for
employers mean that we are better off not trying to change the law. If
we were to change the law, we felt that employers would not be likely
to employ people for a few weeks on low-paid contracts. Employers would
probably find some other way of dealing with the issue, such as
offering overtime to other workers, rather than employing people for
short periods. In that way, we would interfere with the labour
market.
If someone has
a job that brings them more than £5,035, they would be entitled
to automatic enrolment with that job. They could ask their other
employers to make further contributions, but such contributions would
be voluntary, and they could make voluntary contributions into personal
accounts. That is how we deal with that point. I do not dispute that
that is not an entirely happy situation, but it is, I regret to say,
about the best we can do in a difficult
circumstance.
Andrew
Selous:
The Minister has thrown a lot of light on that
area. His comment about foreign workers—the example involved
Americans—coming here for short periods and going back serves to
underline the importance of looking at the issue of transferring out in
a few years’ time, when someone is seconded to this country for,
say, two years. Perhaps that American might be more interested in
getting his contributions back out and putting them in his 401(k)
scheme back in America, rather than leaving two years of contributions
in the British personal accounts
scheme.
I am also
grateful for clarification on agency workers. My reading of clause
1(1)(a) is that what the Minister has outlined is not what is down in
the Bill. Perhaps other parts of the Bill mean that it will be all
right for an agency worker who is working overseas to
contribute to personal accounts, if the agency is based in the UK. I
hope that a legal challenge cannot be mounted on subsection
(1)(a).
I am also
grateful to the hon. Member for Inverness, Nairn, Badenoch and
Strathspey for his points on workers having more than one job, and we
will undoubtedly come back to that issue in other parts of the Bill.
The Minister was reasonable in his response, and I am aware of the
point that he was
making.
Question
put and agreed
to.
Clause 1
ordered to stand part of the
Bill.
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