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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(Afternoon)[Sir Nicholas Winterton in the Chair]Pensions BillClause 3Automatic
enrolment
Question
proposed, That the clause stand part of the
Bill.
4
pm
Mr.
Nigel Waterson (Eastbourne) (Con): I am happy to out
myself as someone who missed the boat on the last group of amendments,
but I shall say a couple of things that I might have said in that
context in this stand part debate. I have two points to make. First,
the Minister has developed a mantra about auto-enrolment as if it were
an everyday occurrence. Apart from the fact that he conceded that there
is an issue of degree in any event, moving from however many he thinks
are auto-enrolling at the moment in existing schemes to what is
fervently hoped will be mass auto-enrolment of up to 10 million people
under personal accounts is a very different kettle of fish. I think
that we can all accept that.
The National Association of
Pension Funds sent me some Department for Work and Pensions figures
suggesting that only 3 per cent. of employers who are currently
contributing 3 per cent. or more to pension schemes use auto-enrolment.
I do not know quite how that reads across to the figures the Minister
has quoted. I think he refers to Tesco. There seems to be a conflict of
evidence there. In any event we would still argue that we are in a
totally different ball game in terms of auto-enrolment under the
Bill.
The other point
is more an attempt to try to tidy up where we go from here on pay to
save and means-testing generally. I appreciate that consensus building
is unlikely to extend as far as giving the official Opposition credit
for raising particular issues which have been adopted by the
Government, but I am delighted to hear that while we were screaming
about means-testing and its effect on personal accounts in a different
part of the same forest Age Concern was saying much the same thing. It
all comes to the same in the end. Again, I should like to welcome the
discussions that are now foreseen by the
Minister.
We did not
support the Bill on Second Reading for precisely the reason that I have
set out on means-testing. It is perhaps an indication of how far we
have come and how quickly that we did not pursue the amendments and the
new clause in the last group as a result of what the Minister said. It
would have been the height of churlishness. I never like to think of
myself as churlish; that may be alright for the Liberal Democrats, but
not for us. Conservatives are not into churlishness in any shape or
form. It would have been churlish to have caused a rumpus or even a
vote over those matters. I should just like to place it on the record
that
we are delighted, whoever is given the credit in public for this
movement forward on these big and important issues, that that movement
has
happened.
Andrew
Selous (South-West Bedfordshire) (Con): Without wanting in
any way to fall foul of your instruction to the Committee to have a
short stand part debate, Sir Nicholas, I crave your indulgence because
there are two completely new issues that we have not touched on at all
which are significant in relation to clause 3. Of course, you could
rule me out of order at any point should you think that I am straying
into territory that we have already debated, Sir Nicholas. However,
there are two issues that we have not touched on that are absolutely
central to the Bill and which relate to clause
2.
The
Chairman:
Order. The hon. Gentleman is always so
reasonable, and I am quite relaxed this afternoon, but
“short” is a matter of
interpretation.
The first
issue that we have not so far debated is the age 22 stipulation in
paragraph (1)(a). It is a slightly different state of affairs from the
point I raised when I spoke to amendment No. 1 on clause 1. That was
about the fact that over 75s were forbidden or unable to be part of the
personal accounts scheme. Of course, because we have agreed on clause
1, people between 16 and 22 will have a right to enrol on the
personal accounts scheme. However, I want to tease out the
Minister’s thinking on why the core age runs purely between age
22 and the state pension age. A person could have six wasted years
between ages 16 and 22, when they have started their working lives but
are not in the personal accounts scheme. We are all keen to get people
into the savings habit as early as possible, given the huge
deficiencies in people’s pension pots that have come to light in
recent years. If a young person begins their working life earning
perhaps £5,035 per year, would it not be sensible to auto-enrol
them? Of course, they would have the option to come out if they thought
that they were going to be in a particular job for only a short period,
or if they wish to study, or for whatever other reason.
I am mindful of placing too
many burdens on businesses, and some young people move in and out of
jobs frequently early in their careers, but that is not the case for
all young people. I would welcome further elucidation from the Minister
on the six-year gap between the ages of 16 and 22. My guess is that few
people who are aged between 16 to 21 will actually step up to the bar
and choose to be auto-enrolled, and I do not know whether the
Government have any advertising planned to encourage people to
volunteer, but it is an important point and I would be grateful if the
Minister responded to
it.
The
other area that I wanted to touch on is the collection method for
personal accounts. All businesses, and particularly small employers,
are concerned about it. The Work and Pensions Committee dealt with the
issue in March in its fifth report of the last Session. Recommendation
no. 230 on page 56 of the report states:
“We would have expected
the thinking on such a crucial keystone in the operation of the scheme,
for employers,
employees and the Authority and Board, to be more advanced at this
stage, and we are deeply concerned that it is
not.”
The report goes on
to ask whether the PAYE scheme could not be amended to make life easier
for employers. On page 55, the report states:
“Lord Turner
admitted...that collections systems were ‘not an issue that
we bottomed out fully’”.
Therefore, the Pensions Commission did
not really begin to consider the issue, give it full scrutiny, or ask
the Government to come up with proposals.
Businesses in general, as
represented by the Federation of Small Businesses and Mike Cherry, are
concerned about the matter. In our evidence session on 17
January, he told us that the federation is worried about the
“on-cost” of creating a different system in addition to
PAYE. It is not just the cost to businesses that are significant, which
we all want to minimise given the extra 3 per cent. that will be
added to employers’ payroll costs. There is also an
issue of
time.
The Minister for Pensions Reform (Mr. Mike O'Brien):
Just to seek clarification, I am following the
hon. Gentleman’s argument, but I am not sure that I have
understood one part of it. He is suggesting that PAYE should be the
means of collection for personal accounts, but is he suggesting that it
should be the means of collection for all other pension
schemes?
Andrew
Selous:
No, I am not suggesting that. I will come back to
that point, because the Minister touched on it when he gave evidence to
the Committee. At the moment, I am touching on the issue purely of
personal accounts and enrolment. That will cause a significant extra
monthly administrative task for millions of small businesses up and
down the country. I am pleased to see the hon. Member for Ochil and
South Perthshire (Mr. Banks), a member of the Federation of
Small Businesses. This may be an issue that he wants to furnish the
Committee with his opinion on from his business
experience.
There is
not just a monetary cost in creating another system. It is about time
as well, particularly for small businesses, which do not have the
resource of a personnel department that can do these tasks. There are
many issues that they have to deal with month by month of a regulatory
nature, to fulfil all of their obligations. It is important that the
monetary cost of collecting the personal account contributions and the
time that it takes are both
minimised.
I know that
the Minister is aware of this issue, but I am nervous that we are
proceeding through the Bill and do not yet have the clarification that
millions of businesses up and down the country want. I will be grateful
if the Minister tells us where the Department’s thinking is on
this issue and what the plans are. Is it possible to ally the payment
in some way with PAYE, notwithstanding the difficulties that he has
already told us
about?
Lastly, as far
as the PAYE computer system is concerned, I turn to the evidence that
the Minister gave to the Committee on 17 January. Having reread what he
said in answer to question no. 154, which I put, he said that he wanted
to be mindful—if I read his argument correctly—of not
over-favouring the
administrative systems for personal accounts as against other forms of
pension contribution. That is a fair point because we want a level
playing
field.
This
issue is about a balance of priorities. Given the scale of
auto-enrolment that we are looking at up and down the country for
millions of our fellow citizens and millions of businesses that have
not contributed to pension funds on behalf of their employees, I think
that there is a stronger counter-argument that it should be the
Government’s top priority to have administrative ease by
reducing both the cost and the time of collecting the personal
accounts. We are not talking about making life more difficult for any
other form of pension contributions. They are coping at the moment. I
think that ensuring that our businesses and our economy are not unduly
burdened should be the priority. I would be grateful if the Minister
also addressed that point in his
response.
4.15
pm
Danny
Alexander (Inverness, Nairn, Badenoch and Strathspey)
(LD): Like the hon. Member for Eastbourne, I believe that the
Government’s new approach to paying to save and to means-testing
is a welcome step forward. I just hope that in the course of this
debate the Minister will clarify one thing. If the body being set up is
to produce a report, it would be useful if he put it on the record
that, although it will not make any recommendations, and although the
Government have made no commitment to act on anything in the report,
none the less Parliament will have an opportunity to debate it. It is
important to ensure that Members on both sides, who have expressed
concern about means-testing, have a chance to debate that matter on the
Floor of the House. The Bill will have been enacted, or at least all of
the Commons stages will have been completed, before the report from
this august body is
published.
The hon.
Member for South-West Bedfordshire made an important point about the
lower age limit of 22. I echo his points about the fact that
at least some young people aged between 16 and 22 will be disappointed
to miss out on automatic enrolment. They might be embarking on a
career, and not just changing jobs every few months, as often happens
at that age. The ability for them to join the personal account would be
useful.
The
Association of Chartered Certified Accountants raised a point with me
relating to the automatic enrolment date, which is provided for in
clause
3(6):
“The
automatic enrolment date, in relation to any person, is the first day
on which this section applies to the person as a jobholder of the
employer.”—
in
other words, on the first day of their employment, as I read it. That
seems sensible; it is how many existing occupational pension
schemes—the person joins on day one.
In its
briefing, the ACCA pointed out that some times when an employer
automatically enrols someone on day one, and when that is also the date
on which they first receive the information about the personal account,
it might take a while for the employee to digest the
information—perhaps a few weeks or a month. After that, they
will decide whether to remain enrolled. It is quite
clear from the Government’s forecasts, for the
numbers of people expected to enrol in personal accounts versus the
number of people in the target audience, that it is predicted that a
significant number of people will choose to opt out. In those cases,
presumably the employer will have to repay the contributions or work
with PADA to do so. Might that not place an unnecessary additional
burden on employers by providing for an additional administrative
layer? I have some sympathy for the view that automatic enrolment
should take place on day one, but we should consider the burden on
businesses. I would like to hear from the Minister whether he or his
Department have considered that point.
Mr.
O'Brien:
Let me begin with the points made by the hon.
Member for Eastbourne. I think that his NAPF figures relate to its
members, whereas the wider issues on automatic enrolment also concern
public sector employees and others. I have been advised that one in six
employers are currently automatically enrolled.
On his broader comments on the
Bill, I welcome the constructive approach that he has adopted. He
indicated that the Conservative party has come some distance, and
indeed so have others. That is all part of the process of discussing
and evaluating the arguments, and of seeking to maintain a consensus.
However, to use a phrase that the hon. Gentleman has often used and
that I accept: a consensus is not a blank cheque. It is the ability to
question, challenge and ensure that the debate is properly engaged in.
I have no problem with that, and we have sought to respond to the
debate and ensure that we move it forward, recognising that these
issues must be properly discussed.
The hon. Member for South-West
Bedfordshire asked a couple of questions. First, he asked, as did the
hon. Member for Inverness, Nairn, Badenoch and Strathspey, why we do
not have automatic enrolment from the age of 16. There are a number of
reasons for that, but I want to make clear that a 16-year-old will have
the right to join a personal account and to have an employer’s
contribution. However, it will effectively be a voluntary joining by
the 16-year-old should they, or indeed anyone up to 22 years old, want
to do so.
The issue is
about at what point to impose legal obligation on employers. We are
conscious, as the hon. Member for South-West Bedfordshire indicated,
that 16 to 22-year-olds change their employment regularly. Many are
students and will be employed for quite short periods. Some will go
over the £5,035 figure during their period of employment, but
they will only be employed in a temporary job during that year.
Therefore, particularly for 16 to 22-year—olds, there were a
number of issues to take into account. As part of the process of
consulting and discussing with employers’ organisations, we took
the view that the creation of a legal obligation for automatic
enrolment, in addition to the employers’ contribution that
exists from the age of 16, would create a greater administrative burden
for 16 to 22-year-olds than it would do for the majority of people over
that age. We decided that 22 was a sensible age at which to impose that
obligation on employers. To do so below that age would have produced an
obligation that we felt to be somewhat excessive and probably, in some
cases, likely to lead to burdensome steps, particularly where people
were employed for short periods.
On the method
of collection for personal accounts, the hon. Gentleman suggested, as
did the Work and Pensions Committee, that we should look at linking it
to PAYE and use one of the official mechanisms such as Her
Majesty’s Revenue and Customs or one of the taxation bodies. We
looked at that, and there are several problems with it. There is the
obvious administrative issue that the tax system has a lot of work to
do, and any additions increase the burden on the system, creating, by
theirs own nature, more inefficiencies. It was not a good thing to do
unless we had to, and we did not think that we did.
The more
important question is about what this would do to the market. As the
hon. Member for South-West Bedfordshire indicated, one of my key
concerns was that we should create a system of personal accounts that
complements, rather than competes with existing provision. There is a
fair degree of concern, particularly among insurance companies and
others, that we are creating a personal accounts system that will move
into a market in which they themselves are competing.
If we were to give our personal
accounts a competitive advantage in terms of the means of collection,
by saying to employers, “If you have this pension provider or
personal accounts, you will be able to use a more simple method of
provision”, two things are likely to happen. First, the
competition in that area of the market will say that personal accounts
have a competitive advantage denied to them and that has been done by
the state. More particularly, some employers might be tempted to trade
down and to move into personal accounts in order to take advantage of
that mechanism.
Our view is
that it would be better to leave it to the various means by which
pensions are collected today. We do not seek to create impersonal
accounts with a product and an organisation that will have a
substantial competitive advantage. We expect it to move into a
market—for the low paid in particular, but also those on
moderate incomes—in which, to be fair, there is not enough
profit for most of the commercial sector.
Companies such as Aegon and
Standard Life operate in that market, but only in niche parts of it.
They want employers of a reasonable size that will give them a
reasonable payment in return. Some areas of the market, particularly
small employers, those who employ only one, two, three or four
people—perhaps a chippie, a garage or a hairdressers—are
often not sufficiently commercially viable to become involved with the
various pension providers at the
moment.
We expect
personal accounts to move into this area. In a sense, it will therefore
be accepting a position that is not for other commercial providers. It
will say, “We will operate in an area in which, on the face of
it, there is not a vast profit to be made. We will be available to all
these employers, whether or not we would have done so if we were making
a purely commercial decision.”
There will be
an extra burden on the Personal Accounts Board and on personal accounts
to provide something that the commercial organisations will not
provide. We are therefore prepared to give them some facilitation and
some encouragement, some compensatory support to go into that market,
but we do not want to disrupt the overall commercial market. We do not
want to create such a competitive advantage that employers are tempted
either to get out of their current provision or to
not even look at commercial private-sector provisions because the
public-sector provision is so strongly
competitive.
On
the other hand, I can tell the hon. Member for South-West Bedfordshire
that we are looking for collection to be linked simply to the payroll
system. We are looking for PADA to create a low-cost, simple collection
method. It knows perfectly well that it will be dealing with a number
of employers that are very small in terms of numbers, that are often
not well provided for in terms of accountancy support or backup; and
they sometimes may not have higher educational qualifications. We
therefore need to create a straightforward and simple low-cost method.
We asked PADA to advise on the best method of providing that sort of
simple and straightforward collection method, but we do not want to
provide it with a competitive advantage.
Andrew
Selous:
I read somewhere that it is intended that personal
accounts collection should be entirely online. Will there be an option?
Some very small business might prefer to get the cheque book out once a
month and send a cheque to PADA. Is that an option, or has it been
totally ruled
out?
Mr.
O'Brien:
That has not been ruled out. It is a matter for
PADA to consider. In some cases, it may prove not to be practical to do
it only online. We have to consider the matter because some employers
will not have mastered the online facilities that are available to many
of us. We have to ensure that the garage owner, who is probably very
good at mending cars but may not be very good at running a computer
system or an accounts system, to continue his business and to employ
the extra person that may be needed to do the paperwork. It has to be
fairly straightforward.
The straight answer to the hon.
Gentleman’s question is that we have not ruled out someone
sending a cheque. We want to ensure that procedures are simple, but we
also want to keep the costs down. We do not want to have idiosyncratic
collection systems that drive up the cost for the rest of those
participating. There is a balance to be
struck.
4.30
pm
The hon. Member
for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) asked
about a parliamentary debate, about which I can give no commitments.
There will be a report back by the group which Age Concern suggested,
and to which we responded positively. That will set out the background
information. As he indicated, we are not looking for recommendations
and we do not expect any in a report—we expect an elucidation of
the nature of the debate and of the issues in the debate, rather than
anything else. We give no commitments as to how we will respond. The
response will be for his party, others in the Opposition and the
Government to decide when we see the document. Debates and whether
there shall be debates in the House of Commons are for the usual
channels; I will not seek to
intrude.
In the hon.
Gentleman’s other question, he asked—a fair
point—about the issue of when an employer is enrolling an
employee on day one. The employee spends some time looking at the
documentation and
decides to opt out; that will happen. The key question is when the
obligation arises for the employer to make payments into personal
accounts. From what point does he have to start paying? That does not
mean when he administratively puts in place the mechanism for him to
pay for employee X. He may give employee X a week or two to decide
whether he wants to opt out or not—but the employer’s
obligation begins from day one. The employer has to be prepared to pay
a contribution in but, provided that the procedures have been gone
through, that it is known that an employee has opted out and that the
opting out has been registered, then there is no obligation on the
employer to start making contributions for someone who has opted out.
The employer will, however, have an obligation as from day one to make
contributions where a personal account system has been set
up.
We will shortly
come to the exception. All that I have said is “caveated”
by an exception: it is possible to defer payments in from day one in
certain circumstances, but we will come to that in the next clause. I
hope that that deals with the issue for the hon. Member for Inverness,
Nairn, Badenoch and Strathspey and that we will be able to approve the
clause.
Question
put and agreed
to.
Clause 3
ordered to stand part of the
Bill.
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