Pensions Bill

Written evidence submitted by Legal and General (PB 32)

 

1. Summary. Clause 34 of the Bill, which gives Secretary of State power to make exclusions from the auto-enrolment duty by Regulation, has been drafted too widely. It would permit Government to exclude small employers from auto-enrolment to the detriment of their staff. The clause should be tempered by a requirement that regulations made under that power shall apply to all employers and shall not carry reference to the size of employer.

2. The author. This submission is made by Adrian Boulding, Pensions Strategy Director of Legal & General, an insurer that has auto-enrolled around one third of a million employees so far. The author was also a member of The Making Auto-Enrolment Work Review commissioned by the Coalition Government in 2010.

3. The issue in detail .

4. Automatic enrolment is a major intervention by Government in the provision of pensions for ordinary UK workers. It ensures that all workers, within carefully defined parameters, will be put in a pension scheme and receive contributions from their employer.

5. The importance of workplace pensions has been heightened by the changes to State Pension where a flat single tier pension replaces the old Second State Pension and its pre-cursor SERPS. With no earnings related component remaining in the State Pension, middle and above average earnings workers will be at serious risk of under-shooting their retirement aspirations if they do not save in a workplace pension to top up the State Pension.

6. The existing provisions for automatic enrolment are a carefully crafted compromise, into which all political parties and all Stakeholders have been brought into through prolonged debate. The universality of including all employers is an important part of the agreement.

7. Government have given NEST a subsidy of around £600m to enable them to create an infrastructure that will ensure that all employers, even the smallest, have access to a pension scheme that is easy for the employer to administer and provides good value to employees. Many employers will also find good value commercial pension schemes available as an attractive alternative to NEST.

8. Despite this, pressure continues to be brought by various lobby groups to exclude small employers from auto-enrolment. Government have already delayed the staging date for small employers with 50 or fewer staff to the other side of the next General Election.

9. The Making Auto-Enrolment Work Review found that excluding small employers could exclude 1.5 million people on a basis not related to the value to themselves of pension saving. And that it would have a significant gender disparity, with 71% of the excluded group being male.

10. I believe the provision of workplace pensions to the employees of small firms is so important that any changes that exclude small employers should be fully debated both within Parliament and the wider community and not just passed under Regulation.

11. Clause 34 of the Pensions Bill, as currently drafted, would empower Secretary of State to make a regulation excluding employees where the total number of employees in a firm was lower than a number chosen by Secretary of State.

12. I recommend that this clause should be tightened. It should include a clause that the regulations made under that power shall apply to all employers and shall not carry reference to the size of employer.

July 2013