Pensions Bill

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Clause 69

”Employee”, “worker” and related expressions
Andrew Selous: I beg to move amendment No. 185, in clause 69, page 33, line 20, leave out ‘whether oral or’.
The Chairman: With this it will be convenient to discuss amendment No. 186, in clause 69, page 33, line 29, leave out ‘whether it is oral or’.
Andrew Selous: Clause 69 is a veritable dictionary of definitions of different terms, which is very helpful. Words need to have precise meanings that we all understand when we are passing legislation, so it is certainly a helpful clause from that point of view. This is purely a probing amendment; note the word “probe” rather than “prove”, which may have been there originally, that comment is just to help the Minister in case he is working from an old brief. It is just to tease out exactly what an oral contract of employment might be, particularly one that is implied. In my naivety, I had thought that all contracts of employment would be in writing, express and quite clear, but that is clearly not the case; I have obviously led a more sheltered life than I had realised. It seems to conjure up all sorts of possibilities, so can the Minister paint in some of the detail on what types of contract of employment we are talking about being expressed or implied, particularly oral?
Danny Alexander: The amendment raises an important point. I appreciate the hon. Gentleman making the point that this is a probing amendment and it will be interesting to hear the Minister’s response. The reference to oral contracts in the Bill is important to retain. Particularly among the target group, who are working for low incomes perhaps in several different jobs who we have rightly worked on at various stages of the Bill, there are circumstances where some will be left out of the scheme because their are earnings are below the qualifying limit, which is a point that I made earlier in the Bill. They may not have what hon. Members on the Committee would regard as a written contract, which we would have with our staff—well, many Members would—or whatever, none the less, an oral contract would be regarded as a contract of employment. Certainly in Scots law there is strong protection for oral contracts and I know that that is what the Bill seeks to do. There are precedents for written contracts being required; the Employment Rights Act 1996 requires that the case of money being deducted from a salary must be in written contract. I can see the hon. Gentleman’s point in relation to central costs, but none the less it is important from the point of view of giving the maximum possibility for people in the target group to benefit from personal accounts that the provision that the amendment seeks in a probing nature to delete is retained in the Bill.
However, we know that there are people without written contracts and we do not want to exclude them from the reforms. I know the hon. Gentleman does not want to do that either. The fact that someone may not have a piece of paper does not mean that he or she is not entitled to employment rights, and those extend beyond pension issues into other employment issues. The amendments would simply enable employers to avoid the duties established in the Bill by using an oral contract in place of a written contract. Obviously, that would not be right, because these reforms are about extending workplace pension saving with a minimum employer contribution to as many individuals as possible. The hon. Member for Inverness, Nairn, Badenoch and Strathspey is right to say that there are likely to be many in the target group with oral contracts.
Andrew Selous: It genuinely is a probing amendment, and that clarification is useful. I was interested in the hon. Gentleman’s definition of an oral contract as one where somebody was told to do some work at a particular point. Could the employer get out of having a contract by saying, “I would like my house cleaned, but I will leave the time up to you, as long as it gets done,” without giving a particular start date? Would that avoid an oral contract, by the Minister’s definition?
Mr. Plaskitt: I am no expert on oral contracts, but I suspect not. As I understand it, once an engagement has taken place between employer and employee, a function has started, and payments are being made in respect of that activity, an oral contract has commenced. If that is incorrect, I will let the hon. Gentleman know, but that is my understanding at this point.
Danny Alexander: For clarification, there are many people in my constituency who work in the tourism industry. In some cases, what happens is that one applies for a job, interviews for the job, agrees to start the job on Monday, working four days a week at x rate of pay, and does so. Custom and practice means that what one has is therefore a contract of employment. Although it is not written down, that is a legally binding arrangement, to which all employment laws should apply.
Mr. Plaskitt: I think we have reached broad agreement on what constitutes an oral contract, and I hope with that reassurance the hon. Gentleman will agree to withdraw the amendment.
Andrew Selous: Without further ado, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 69 ordered to stand part of the Bill.
Clause 70 ordered to stand part of the Bill.

Clause 71

Crown employment
Question proposed, That the clause stand part of the Bill.
Andrew Selous: I want to take the opportunity in the stand part debate to ask the Minister what estimates, if any, the Government have made about the cost to their own payroll of the provisions in the Bill. There is also the issue of local Government staff, who are obviously not in Crown employment, and that of bonuses to Crown employees, in which form considerable sums are paid from time to time, which we know will be subject to the 3 per cent. employer contribution.
It may be that I have missed it. I looked through the impact assessment quite carefully, to see if I could determine the Bill’s impact on the Exchequer as far as Crown employees are concerned. I appreciate that it is a few years off. I am not looking for detailed figures down to the last pounds and pence, but it would be useful to know that some of the clever people in the Treasury or elsewhere, to whom my hon. Friend the Member for Eastbourne often refers, are at least running their slide rules across the Bill’s implications for the public purse.
Mr. Plaskitt: I would seek some clarification from the hon. Gentleman. He may wish to intervene on me again. There are two issues he may be getting at, and while I listened carefully to what he said, it was not quite clear which of those two issues it was. One would be the potential implication if he sees the clause resulting somehow in additional auto-enrolment into schemes. I am not sure if he does mean that, because all of the existing public sector schemes will satisfy the qualifying criteria, or whether he means the cost to the exchequer of revisions to public sector pension as a result of the reforms that have taken place. If he wants to intervene I might be able to be more assistance to him.
Andrew Selous: It was kind of the Minister to seek further clarification. He has in part answered my query. If he has just said that all Crown employees are already fully covered, I think that does go some way to answering my question. There is the question of bonuses. One reads quite regularly of high flying members of the public service being given large bonuses. The Child Support Agency senior staff were given bonuses quite recently, just to quote one example.
In an earlier provision we put into law that bonuses commissions will be part of the contribution that makes up personal accounts. It may be that this is already covered because public sector pensions for Crown employees are so wonderful anyway that it does not apply. I thought it would be remiss to go through clause 71 without at least probing the Minister and asking for some clarification.
Mr. Plaskitt: I am a little clearer as to the direction he is seeking to take. I think he will be aware that there is a great deal of public sector pension reform taking place. He will know that there are new schemes for teachers that have been in operation since January of last year, and a new scheme for civil servants, which he referred to, which was introduced in July of last year. From April this year a new scheme for the NHS comes into effect and in due course there will be a new scheme for local government workers as well. He will know that the thrust of all these reforms is to ensure affordability to the public purse of all of these schemes. He will have seen the long-term public finance report that the Government published in December 2006, which confirms that expenditure on public service pension provision across the board remains sustainable over the next 50-year period. That includes and anticipates the impact of bonus payments, for example.
The Government’s assessment of the cost of these schemes and their sustainability over the foreseeable future has therefore been clearly assessed, with actuarial evidence behind it. I hope he will accept this.
Andrew Selous: Just to be absolutely clear, is the Minister is saying that pensions for Crown employees are so good that they are well above the levels of contribution of the personal accounts scheme? If so, the personal accounts scheme will not apply at all to Crown employees within the salary bands we are talking about.
Mr. Plaskitt: My understanding of the great bulk of the schemes that are currently in existence in the public sector is that they would not have a difficulty meeting the qualifying criteria, though I do not have the opportunity to go over every single conceivable little corner of the public sector to be sure about that. I have looked at the terms of all of the existing ones in which most people are enrolled and they satisfy the criteria. Now he has come back to the first of the two things he raised, I do not think the financial impact of this clause will be at all significant.
Danny Alexander: The Minister is right in that respect, given that the implied employer contribution for High Court judges is 31 per cent., for Members of Parliament it is about 25 per cent. and for senior civil servants it is also in the low 20 per cent. region. Is he worried that the advent of personal accounts is likely to lead to levelling-down for these levels of contribution?
Mr. Plaskitt: We have had a very lengthy discussion about levelling-down already. As the hon. Member knows, there are clear criteria that the Government seeks to apply to the public sector pension provision, one of which, most importantly, is affordability.
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Any changes that are to be made to employer or employee contributions within the schemes will be made in the light of those criteria. For example, the cost-sharing and capping arrangements that have been introduced may in future have an effect on the employer or employee contributions. The governing criteria are the long-term sustainability of the schemes and the fact that they give decent value to the taxpayer. The effect of the proposal will not be a significant driver of any of those changes, although such changes may take place, but I think it will be for other reasons.
Danny Alexander: The Minister is right to make the point about affordability. Presumably, he is unworried by the recent conclusion of an independent body—the Institute for Fiscal Studies—that unfunded liabilities in the public sector pension arrangements at present amount to about £700 billion.
Mr. Plaskitt: As I suspect the hon. Gentleman knows, that assessment depends on the basis on which it is calculated—a variety of numbers can be used. Indeed, I have seen some figures that suggest that the unfunded liability is even larger than the figure he cited. He must carefully consider the assumptions that have been made in calculating the figures, from which he will see that the higher numbers, including the figure he gave, are not assessed simply on the basis of pension payable to known individuals who will receive them.
The larger figures take into account all those who are currently in employment who are potentially building pension pots and assume that they will always be in employment and in the public sector, therefore all their pot will be in the public sector. But one cannot make such an assumption, because employees may not stay in the public sector. The kind of assessment to which the hon. Gentleman refers on future unfunded liability could have been made at any stage at any time in the past in respect of public sector pension liability. It would always have produced a large number if it had been calculated on the criteria that he cited and always have looked scary but we have never hit a point when it has become unfundable, unsustainable or overly burdensome.
I caution the hon. Gentleman on waving the big numbers around. He should first check on the assumptions that lie behind them and bear in mind that historically it has always been possible to carry out such an exercise. It does not mean as much as some of those who wave the numbers around imply. The key test is whether the schemes are sustainable over the long-term period of 50 years or so. The hon. Gentleman has the Government’s published information on that, and it has actuarial support behind it. I hope he will therefore support clause stand part.
Clause 71 ordered to stand part of the Bill.
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