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Lord Sainsbury of Turville: I beg to move that the Committee be adjourned until 6.20 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 5.59 to 6.20 p.m.]

Clause 17 [Rights during and after maternity leave]:

Lord Razzall moved Amendment No. 54:

"( ) Any shortfall in the employee's contributions to a defined contribution pension scheme during a period or periods of ordinary maternity leave, ordinary adoption leave or statutory paternity leave attributable to statutory pay during that leave will be paid by the employer."

The noble Lord said: Perhaps I should start by thanking the Committee for bearing with me.

The purpose of this amendment is to remove the ambiguity over the interpretation of existing rules for ordinary maternity leave. Under the current provisions for ordinary maternity leave, an employee is entitled to benefit from her usual terms and conditions, save remuneration, under the Employment Rights Act 1996. When an employee is on a period of ordinary maternity leave, the employer has to contribute to any defined contribution pension scheme as if the employee were at work and receiving normal pay. The employee, however, under Schedule 5 of the Social Security Act 1989, can only be required to contribute in proportion to the actual amount of money she receives. As a consequence, unless an employee is receiving her full contractual pay during her ordinary maternity leave, there will be a difference between the rate at which the employee would normally contribute and the contribution she makes during her ordinary maternity leave.

I understand that when the provisions of Schedule 5 of the Social Security Act 1989 were implemented, the original advice from the DSS was that the employer had to make up the shortfall. This advice, however, has subsequently been retracted but the legal position on the point is not clear. The purpose of this amendment is to clarify that employees' contributions have to be

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matched up to the defined limit, notwithstanding the reduction in the salary received during ordinary maternity leave. However, it should be clear that in circumstances of unpaid family leave, such as additional maternity leave and, presumably in future, additional adoption leave, employers should not be required to make any contributions since, in those circumstances, there are no obligations on them to continue to provide the benefits of contractual terms and conditions. The amendment is strongly supported by the Law Society. I beg to move.

Lord Sainsbury of Turville: I am not aware that there is any ambiguity in the current law. Under the Employment Rights Act, women on ordinary maternity leave are entitled to their normal terms and conditions of employment, except for remuneration.

This means that employers are obliged, in respect of all other terms and conditions of employment, to continue providing the employee with the same benefits as they did before the period of maternity leave began. This includes access to, and contributions to, occupational pension schemes. Employers must contribute to these schemes, or indeed to personal pension schemes where appropriate, in the same way as before.

I believe this is both readily understandable, and right, in that it keeps pensions in line with all other terms and conditions of employment. The effect of the amendment would instead be to put an additional obligation and burden on the employer; namely, to make good any shortfall, and thus to take pensions provision out of line with other aspects of employment. I do not believe that it would be right to impose this additional burden.

I do not know whether the DSS advice in 1989 was different from the current advice, but there is no ambiguity about the current advice which the DWP gives to employers and it is as I set out above.

On that basis, I would ask the noble Lord, Lord Razzall, to withdraw the amendment.

Lord Razzall: Before the Minister sits down, would he not accept that there is ambiguity in the Employment Rights Act 1996, Section 71(4), which he quoted, which states that under the current provision for ordinary maternity leave an employee is entitled to benefit from her usual terms and conditions save for remuneration? Any normal reading of those words would indicate that a temporary drop in salary or wages under the ordinary maternity leave provisions would not affect the pension contributions which the employer was making. That would have been the normal assumption from that wording. It has not been appreciated by a number of people that that meant that an individual during this period would receive lower pension contributions and that the employer would not simply cough up the shortfall that the employee would otherwise suffer.

Lord Sainsbury of Turville: It is quite clear that in this case what the employer does continues to be the same. I refer to employers undertaking to provide a

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defined contribution. They would go on providing that, but they are not required to make up the balance of costs. They are obliged to pay the appropriate contribution rates set out in the scheme rules, and that continues to apply in respect of women on ordinary maternity leave. The question is: do they make it up? The answer is no.

Lord Razzall: I shall reflect on the Minister's words. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 agreed to.

Clause 19 [Rate of statutory maternity pay]:

Lord Razzall moved Amendment No. 55:

    Page 28, line 23, at end insert—

"( ) For regulation 21(3)(b) of the Statutory Maternity Pay (General) Regulations 1986 (S.I. 1986/1960) there is substituted—
"(b) the last normal pay day to fall at least 52 full weeks earlier than the normal pay day mentioned in paragraph (a) or, where there is no such pay day, because the woman has not been employed for at least 52 weeks prior to the normal pay day mentioned in paragraph (a), the first normal pay day of her employment.""

The noble Lord said: The purpose of the amendment is to extend the period of calculating entitlement to existing and new categories of statutory payments from eight weeks to one year. The purpose of this is to remove anomalies that would otherwise distort the calculations.

The calculation of normal weekly earnings determines two things for the purposes of statutory maternity pay. First, it is one of the criteria for entitlement to statutory maternity pay. So assuming that she meets all the other qualifying criteria, a woman will be entitled to statutory maternity pay if her normal weekly earnings for the eight weeks ending with the qualifying week are at least the lower earnings limit for paying national insurance contributions. The qualifying week is the fifteenth week before the expected week of confinement.

The second criteria for which this is relevant is that if a woman qualifies under this earnings condition, the rate at which her statutory maternity pay will be payable during the first six weeks will be 90 per cent of her normal weekly earnings.

A number of noble Lords will already have had experience of the anomalies that can be created by the eight-week definition. First, if a woman works additional overtime during the period in question, or, more commonly, reduces her hours prior to taking her statutory maternity leave, this distorts the calculation of her normal weekly earnings. Secondly—this can be significant when manipulation sometimes takes place—if an annual bonus becomes payable during the eight-week period, it will count as earnings and significantly inflate the calculation.

If, as is more likely, any such bonus does not become payable in the eight-week period, conversely the woman would be under-compensated in relation to the calculation. By extending the calculation period to one

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year, or the period of employment when shorter, the amendment would remove the current anomaly identified above. I should also say that this amendment is supported by the Law Society. I beg to move.

6.30 p.m.

Lord Sainsbury of Turville: The amendment seeks to extend the period over which a woman's average weekly earnings are calculated, from eight weeks to 52 weeks. The noble Lords, Lord Razzall and Lord Sharman, wish to ensure that a woman's earnings-related statutory maternity pay entitlement is a fair reflection of her earnings so that she receives neither less nor more SMP than she might have expected to get because of temporary dips or increases in her earnings over the calculation period.

I want to reassure the noble Lords that we, too, want to achieve the same result. But it is important to do so in a way that is fair to the individual woman and at the same time fair to the employer, who has to administer the scheme, by ensuring that the formula used is as straightforward and as simple to operate as possible.

When we considered ways of simplifying SMP, we looked very carefully at the rules dealing with the calculation period of average weekly earnings. In our consultation we explored the possibility of assessing pay over a 26-week period. However, the consultation revealed the consensus view that the existing method of establishing average weekly earnings provides the best balance between a representative reflection of a woman's earnings and a straightforward calculation for employers.

That was particularly true for small employers who were perhaps not supported by elaborate payroll systems and were extremely concerned that they would have to interrogate pay records for a longer period than the existing eight weeks. The suggested change to 52 weeks would lengthen by a considerable margin the relevant period for calculating earnings. That period is currently eight weeks. While I sympathise with the motives of the noble Lords in putting forward the amendment, I have strong reasons for not going down such a path.

First, perhaps I may explain what the calculation is all about. The aim of the average-earnings calculation is to arrive at a reasonable reflection of a woman's earnings during her pregnancy in order that she may receive earnings-related SMP, which is paid as a proportion of those earnings. The aims of the SMP scheme are that it should be as simple as possible for employers to operate and that it should be as easy as possible to understand, so leaving the minimum room for disputes.

The amendment proposed by the noble Lords would mean that, in practice, employers would have to examine pay records going back to a point at least 15 months before the expected week of childbirth. Members of the Committee will see that the suggested 52-week period ends with the last normal pay day to fall before the start of the 14th week before the expected week of childbirth.

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I believe it is doubtful whether such a period could be used because it is outside the maximum period laid down in the Pregnant Workers Directive—that is, the EC directive on the protection of pregnant workers and workers who have just given birth. That directive prevents member states taking account of periods of employment which are more than 52 weeks before the date of expected birth.

Of course, the eight-week period produces winners and losers. Some—those who are paid more than usual during the calculation period—gain from this system and some lose. A 52-week calculation period would also result in gainers and losers compared with the current system and might not produce a result that is a fair reflection of recent earnings. For example, a pay rise awarded in the latter part of the period would be averaged over the whole 52 weeks.

For all its faults, the current system is at least clear and avoids the need for difficult judgments. That is important in minimising disputes and delays in payments. I fear that the approach put forward by the noble Lords is not desirable or possible for the reasons I have explained. Therefore, I invite the noble Lords to withdraw the amendment.

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