Draft Automatic Enrolment (Offshore Employment) Order 2012
Draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012
The Committee consisted of the following Members:
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
† Crabb, Stephen (Preseli Pembrokeshire) (Con)
† Cunningham, Mr Jim (Coventry South) (Lab)
Dobson, Frank (Holborn and St Pancras) (Lab)
† Glen, John (Salisbury) (Con)
† Harrington, Richard (Watford) (Con)
† Jones, Mr Marcus (Nuneaton) (Con)
† Lloyd, Stephen (Eastbourne) (LD)
† McCann, Mr Michael (East Kilbride, Strathaven and Lesmahagow) (Lab)
† McClymont, Gregg (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Moon, Mrs Madeleine (Bridgend) (Lab)
† Munn, Meg (Sheffield, Heeley) (Lab/Co-op)
† Paisley, Ian (North Antrim) (DUP)
† Parish, Neil (Tiverton and Honiton) (Con)
† Selous, Andrew (South West Bedfordshire) (Con)
† Stephenson, Andrew (Pendle) (Con)
† Webb, Steve (Minister of State, Department for Work and Pensions)
Alison Groves, Committee Clerk
† attended the Committee
The following also attended ( Standing Order No. 118(2) ) :
McDonnell, John (Hayes and Harlington) (Lab)
Fourth Delegated Legislation Committee
Monday 16 April 2012
[Mr Philip Hollobone in the Chair]
Draft Automatic Enrolment (Offshore Employment) Order 2012
4.30 pm
The Minister of State, Department for Work and Pensions (Steve Webb): I beg to move,
That the Committee has considered the draft Automatic Enrolment (Offshore Employment) Order 2012.
The Chair: With this it will be convenient to consider the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012.
Steve Webb: It is a pleasure to serve under your chairmanship, Mr Hollobone. It is good to see such a good turnout for a pensions debate. I understand that there was a waiting list to be on this Committee.
I will make some remarks about the order and some linked remarks about the regulations, because as the Committee will appreciate, there is considerable overlap between the subject matter of the two. The Committee will be aware that 2012 is the year when auto-enrolment begins, and inevitably there are things to tidy up before we get started. They relate in this case to the sorts of people who are auto-enrolled—that is where the offshore workers and seafarers come in—and to the sorts of scheme into which people can be auto-enrolled, which is where the bulk of the second statutory instrument, relating to certification, comes in.
Let me deal with certification first. The issue is that when we require firms to auto-enrol their workers into a scheme, we want to ensure that it is a good enough scheme. The original proposition was that firms, the taxpayer and the employee together should put 8% of band earnings into a scheme—band earnings are roughly between the lower and upper earnings limits for national insurance—but obviously not everyone’s scheme is set up on that basis. The most obvious example is that some schemes levy contributions from the first £1, not from the lower earnings limit. Some schemes are based on gross pay. Some schemes are based on basic pay. We wanted to avoid a situation in which a firm had to make what was essentially a nugatory effort—had to incur costs reorganising its scheme to fit our rules when what it was doing anyway was good enough, but just in a different way.
The idea of certification is to give companies that run schemes alternative ways of saying, “Here’s our scheme. It doesn’t exactly fit your mould, but it’s good enough.” That issue was discussed in relation to what became the Pensions Act 2011 and has been discussed at length in another place. Indeed, these regulations have been approved by another place already. A very fruitful process—
parliamentary scrutiny at its best—led to changes to the 2011 Act that allowed for the certification process that we are discussing today.Essentially, we are talking about a set of different ways in which a scheme can say that it is good enough. The caveat is that overall in each case, at least 90% of people will get at least as good a pension if not better—at least as much money going in if not more—under each of the alternative tests. We have undertaken that we will use the data that we as a Government collect about earnings, hours and pension schemes to keep that under constant review. We aim to ensure that by allowing the scheme to certify under one of the three tiers in the regulations, at least 90% of workers in each case will be doing at least as well, if not better in many cases. The point of certification is that it allows employers to self-certify that their schemes meet the quality requirement where they are not certifying on the basis of the band of qualifying earnings.
This has been a complex problem, considered over many years, and this is inevitably a pragmatic solution, allowing firms to use their current scheme wherever possible. We are making a trade-off here: it is a simple and flexible system for employers, but with safeguards for scheme members. As I said, the aim is to ensure that the vast majority of members receive at least as good a rate of pension provision under certification as they would if the definition of qualifying earnings were used.
There are three tiers in the regulations. First, a scheme would be subject to certification—would be acceptable—if at least 9% of basic pay was going in, including at least 4% from the employer, “basic pay” being the crucial phrase. Alternatively, it could be 8% of basic pay, with at least 3% from the employer, provided that basic pay in aggregate was at least 85% of total pay. We do not want a situation in which people manipulate basic pay to be a very low figure and say, “Isn’t this great? We’re putting 9% in,” but it is 9% of an artificially low number. The second test is the 85% test, under tier 2. The third is that at least 7% of total earnings is being put in, with at least 3% from the employer. Again, that would qualify. This is all about schemes that are good enough in different ways compared with the Department’s initial model.
The regulations set out the three alternative quality tests for money purchase, personal and hybrid pensions. They provide for how the certification process should work and they prescribe that a certificate can last for up to 18 months. They allow employers using certification to phase their contributions in. They also explain what happens if things go wrong—for instance, if a firm does not handle the certification process properly or if a scheme turns out to have been unsatisfactory. A set of people for whom we had always intended to introduce auto-enrolment, but where more work was needed, is also dealt with.
The second of our two regulations deals with seafarers and the first deals with offshore workers: people who work on oil rigs and in that sort of environment. Neither of those two groups was originally brought into the scope of auto-enrolment under the Pensions Act 2008, because there are complex issues relating to how we define, for example, someone who lives in one country, travels and works on a ship that starts in another port and is paid in a different currency. If the company is
owned by a fourth country, we start to see why we need to get this sort of thing right rather than rushing into it. However, we were always determined to try to bring such groups of workers in, and the second of the two orders brings seafarers in.I will explain what we mean by seafarers and who is included. To be sure that we could automatically enrol seafarers, we had to consider complex issues around maritime and international law. I am not an expert on the subject—even now—but we talked to people who were. We worked with the shipping industry, trade unions and offshore industries to consider how to bring the workers into scope without breaching international law. There are laws about what can be required of ships coming into our waters, and we wanted to be careful that we were not allowing other countries to place duties on our ships in their waters. We did not want to have an adverse effect on the UK shipping industry.
I want to place on the record my appreciation of the Chamber of Shipping and their advisers, the National Union of Rail, Maritime and Transport Workers, and the all-party group. It is good see the hon. Member for Hayes and Harlington here today. We met on two occasions to discuss the issues. The test that we are applying for seafarers is whether they are “ordinarily working” in the UK. That sounds nice and simple, but it will be based on a number of factors, including where they are based. The pensions regulator has set out criteria that an employer would want to look at when deciding whether to enrol a seafarer. The criteria include where the worker begins and ends their work; where they live—their private residence; where the worker’s headquarters is; whether they pay national insurance in the UK; and what currency they are paid in.
The pensions regulator has placed guidance on the website. There is an almost infinite variety of circumstances, so rather than trying to specify everything, we have used a common-sense test. In the vast majority of cases, it will be pretty obvious that someone either is or is not “ordinarily working”. The regulator has indicated what factors should be taken into account. Although we do not want employers or their workers to have to go through the courts to resolve matters, hard cases may end up generating case law to resolve them. The goal is to get things broadly agreed on a common-sense basis. The regulations on seafarers are subject to a sunset clause, which is the general approach of the Government.
For offshore workers, there is a similar set of issues to do with people who work on the continental shelf and whose jurisdiction is involved. In each case, we are talking about 20,000 or so workers—roughly, 20,000 seafarers and 20,000 offshore workers—who would be brought into auto-enrolment. Some are already in pension schemes, so the numbers involved are relatively modest. We have talked to the industry and unions about the numbers involved. It is important that people who are essentially ordinarily working in this country are not excluded from decent pensions at the end of their working lives. I believe that the principles of the regulations command all-party support. They build on the primary legislation passed in the previous Parliament and on the helpful amendments tabled and discussions had with the Opposition in another place. As I mentioned, the regulations have already been approved in another place with all-party support, and I commend them to the Committee.
4.39 pm
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): It is a pleasure to serve under your chairmanship, Mr Hollobone.
The Minister, in his usual style, managed to get beyond some of the detail and set out the broader perspective in which these measures sit. I accept absolutely what he has said on all counts. I have nothing to add on offshore workers and seafarers being included in auto-enrolment, which seems a sensible development. As he suggested, the policy of auto-enrolment was developed by the previous Government and we strongly support it.
Certification is important and the regulations are a detailed attempt to make certification possible for employers who have good schemes of their own, but I note that they deal with one aspect of quality—namely, the contributions made to the pension scheme. That is important, but pension outcomes can also be determined by other criteria. As we continue to discuss auto-enrolment and pensions more widely, particularly in respect of the private sector, the issue of costs and charges will be very big. I suggest that the Minister—I am sure he is already doing so—should watch closely for what the National Association of Pension Funds working group on transparency on costs and charges comes up with. I think that I am right in saying that there are currently no specified criteria regarding this aspect of pensions schemes that employers may select.
In addition, that debate will take place in the context of making auto-enrolment work. The Minister is aware of Opposition concerns about the delay in the full implementation of auto-enrolment, with the loss of pension contributions for those whom we need to get saving fastest. The income threshold for participation in auto-enrolment has been raised, and that must be looked at closely. If that threshold tracks the income tax allowance, which the Government are committed to keep increasing, there is a danger that we might lose from auto-enrolment some people, particularly women, for whom it might be very significant. There is also the issue of the restrictions on the National Employment Savings Trust. That is the broader framework in which we are considering these amendments to auto-enrolment, and we certainly think that they are welcome.
4.42 pm
John McDonnell (Hayes and Harlington) (Lab): It was an anomaly to exclude seafarers and offshore workers in 2008, and I congratulate the Minister on and thank him for addressing that issue promptly and effectively in the regulations. We still have concerns, in that there is anecdotal evidence that some companies are perhaps seeking to avoid their responsibilities, perhaps even under the regulations, by using the same avoidance measures as when they offshored their payroll to avoid their national insurance responsibilities. I understand that the regulations will address any such measures and prevent them from happening, but I would like the Minister to put it on the record that they will certainly do so.
As the Minister said, the RMT has had several meetings with him and his officials, which have been extremely helpful. The RMT has said that it will monitor the implementation of the process and feed back any attempts by employers to use avoidance measures, as they did
when offshoring their payroll to avoid national insurance. We feel that the regulations are now very tight and should prevent any of that, but we will monitor the process, raise any issues directly with him, and, if necessary, come back to tighten up the regulations. I again place on the record our overall support for the regulations and for his prompt action.4.44 pm
Steve Webb: This debate could set an alarming precedent. I am grateful to both hon. Members for supporting the regulations, and I entirely agree with the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East that how much money goes in is only one facet of the quality of a scheme. He will know that when the previous Government established auto-enrolment, they consciously chose not to over-specify the quality requirements. They might have introduced a raft of requirements, charge caps and all the rest of it in the 2008 Act, but they decided not to do so. However, the powers remain to cap charges, for example, and do various other things, and we will keep a close eye on the situation. We, too, welcome what the National Association of Pension Funds is doing in relation to transparency in charges. When employers choose schemes, we want them to be able to see what is a good scheme, know what the charges are and answer their employees’ questions about them. We will closely consider that work, which we welcome.
The hon. Gentleman mentioned the delayed phasing of the implementation of auto-enrolment. I guess this depends on whether people see the glass as being half full or half empty. An interesting fact for dinner parties, I find, is that by this time next year a million people will have been auto-enrolled—I hope colleagues will take that fact away with them. That is the scale of what we are about to embark on. It is massive. It will involve several million people by the time of the next election, and I think it will result in a cultural shift in attitudes to workplace pension provision. I understand his point about the slower phase-in, which was to benefit the smallest firms, but the measure will still create an extraordinarily dramatic and substantial change over the next few years, and we all have an interest in seeing it work.
The hon. Gentleman raised the important matter of the income threshold. I assure him that that will be debated separately under the affirmative procedure, no
doubt in this very room and possibly with the same cast. Before such regulations come into force, there will be a separate debate on the issue, and I look forward to hearing his comments.The hon. Member for Hayes and Harlington and his colleagues have given us valuable insights. I was not an expert in shipping and the issues associated with working in that industry. He and his colleagues, and indeed the employers, gave us a great deal of insight, for which we are grateful.
On avoidance, we want to ensure that we act on people who deliberately avoid any of these regulations, so feedback of the sort that the hon. Gentleman describes will be entirely welcome. We are not aware of any such reports, but if we hear about any and if we need to reconsider the regulations, we will be happy to do so.
I should have said that we are keen not to define the regulations in terms of the flag on the ship, for example, because, as we know, that flag can be changed relatively straightforwardly. We have defined the regulations in real and concrete terms—where someone lives, what currency they are paid in, where the ship is going to and from—which makes avoidance activity more difficult, although we can never make it impossible. I assure the hon. Gentleman that we will respond positively to any information about how the regulations are working in practice.
I reassure the Committee that the regulations are compatible with the European convention on human rights, which was an issue of concern. It is good to have a positive set of regulations that puts in place the final infrastructure for auto-enrolment and gets in as many people as fast as possible, with minimum unnecessary disruption to employers. On the strength of that, and with thanks to hon. Members who have contributed to the debate, I commend the regulations to the Committee.
DRAFT OCCUPATIONAL AND PERSONAL PENSION SCHEMES (AUTOMATIC ENROLMENT) (AMENDMENT) REGULATIONS 2012
That the Committee has considered the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012.—(Steve Webb.)