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Lord Higgins: The amendments to which the noble Baroness has spoken would change significantly the Government's approach as carried out in Clauses 246 and 247. The amendments would mean that a transferee employer would have to provide a pension with benefits of similar value to the pension benefits provided by the transferor. However, the Government require only that a transferee employer provide either membership of an occupational-related scheme that meets the reference scheme test or alternatively membership of a defined contribution scheme—for example, a stakeholder pension—to which the new employer matches the employee contribution up to 6 per cent.

My understanding is that the Government have held considerable discussions with various outside interests, particularly the DTI, some three years ago. Nothing much has happened in the mean time. Organisation such as the Engineering Employers Federation (EEF) had serious reservations about regulations that would give protection in private sector to private sector transfers. It suggested that that would limit the number of transfers that took place. In a buyout situation, in particular, the problem is that the pension transfer provisions may be so onerous that the transfer simply does not take place. As a result, instead of transferring the operation of, say, a subsidiary from one company to another where it will survive, or from the company to a buyout situation where it will survive, the transfer does not happen and that part of the operation closes down, with a loss of employment and so on.
 
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There is very much a question of balance in the extent to which those transferring from one company to another gain the full benefits that they enjoyed originally. On balance, for the reasons that I have just given, I am inclined to take the Government's view. No doubt we can debate the matter further, but it is a question of balance. There is considerable danger, if one goes along a route that puts too heavy a burden on the company that is trying to dispose of the assets to another operation.

Baroness Hollis of Heigham: The noble Lord, Lord Higgins, has very fairly described the intent of the proposals and identified the position from which my noble friend argues her case. Clauses 246 and 247 extend TUPE's commitment across the full range of pension provision. Research shows that the average employer contribution in a DB scheme may be around 12 to 16 per cent, whereas the average employer contribution to a money-purchase scheme is around 6 per cent. We think that the proposal for a matched contribution to a money-purchase scheme of up to 6 per cent strikes a sensible balance, given that this is the average value of contributions.

I wish to make a couple of blue-sky points before responding to each amendment. My noble friend was worried that the new approach might not produce an adequate standard of living on retirement. She is obviously right that it is age related. But the provisions also reflect the fact that in a TUPE situation an older employee will have come with accrued rights, whether through a DB or DC scheme, in his existing scheme. We are saying that, during an employee's period of employment with the transferee employer, he will be able to have a pension scheme whose baseline involves a 6 per cent contribution from the employer if he makes a matching 6 per cent contribution. A worker who contributes that 6 per cent matched by the employer could have a replacement rate of between 40 and 60 per cent of his final salary on retirement from his private pension. If, on top of that, assuming a 4 per cent rate of return, we include the state retirement pension and, if he was not contracted out, the state second pension or, if he was contracted out, to the effect of that, the replacement ratio should then be nearer 70 per cent.

So the 6 per cent plus 6 per cent plus either S2P plus state pension or the NI rebates should produce a retirement income of 70 per cent. I think that that is perfectly adequate, I must say, and far exceeds what many people will currently be retiring from in their working life. We have worked this through. Someone will be more at risk where he is not under a TUPE but is changing jobs, possibly in DB schemes and not building up vested rights. That person may very well end up with a pension far short of that, but what TUPE should do, given the hedges that I have put around it in terms of other forms of financial support, such as the state second pension or state pension, will, at those rates of contribution, on quite moderate assumptions, produce a replacement retirement income of about 70 per cent of earnings, which may be larger than people might have expected.
 
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I therefore turn to my noble friend's amendments. As I said, the noble Lord, Lord Higgins, has identified her argument, which is why I cannot go with her. She seeks by Amendment No. 305A to remove subsection (6) from Clause 247. That would remove an employer's ability to vary the level of voluntary contribution for the remainder of the individual's period of employment. That would be the case even where the employee wants a change to be made and, importantly, would apply to increases as well as decreases in pension provision.

More generally, that would unacceptably restrict an employer's rights flexibly to manage his business and could place him under an unacceptable burden to continue with the rate of contributions that he cannot economically maintain. Through that route, we begin to come to a level of compulsion, especially on a transferee employer, that the Government cannot accept, certainly at this stage. With our 6 per cent and 6 per cent, we are ensuring that there is a baseline that many people would regard as more than adequate in today's circumstances. We do not want to tilt on to the transferee employer statutory requirements that are more onerous than on the transferor employer from whom the employee originally migrated.

I think that we have got a pretty good balance. Even the 6 plus 6 per cent figure has in some cases been felt to be unacceptably onerous because, for example, where an existing employer, the transferor employer, contributes 4 per cent, none the less, when that person goes across to the transferee employer, providing the employee is willing to match it, the new employer must go up to 6 per cent. So it is not impossible in some cases that people will actually see their pension provision improve, providing that they are willing to match it.

Given that, if I may echo the words of the noble Lord, Lord Higgins, I think that we have got the balance right. Providing the employee matches the contributions, the outcome will provide a more than acceptable level of income in retirement—all in all, about 70 per cent. With that, I hope that my noble friend will accept that we are unwilling to take the risk of upping the compulsory element of the transferee employer at this time.

Lord Oakeshott of Seagrove Bay: I have been waiting to listen to the Minister about this, because I feel somewhat torn. My heart is with the noble Baroness, Lady Dean. The noble Lord, Lord Higgins, raised the point, but I feel that there is a rather different situation between a private transfer, where there may be genuine problems if the EEF says that solvency or ongoing jobs are at risk.

With a public sector to private transfer, which many of these could be, I feel strongly that it is not acceptable just to say that in the new situation, some people may be doing better than other people do on average. The key point is that where, effectively, a decision is taken over employees' heads and they are transferred out with no real say about what happens, they should be in no worse a pension position. That is an important
 
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principle. I am rather groping here, but I feel that on a public to private transfer, I am very much with the noble Baroness.

Baroness Dean of Thornton-le-Fylde: I thank the noble Lord, Lord Oakeshott, whose instincts are absolutely right. The noble Lord, Lord Higgins, has rightly picked up that this would be a change to the Bill, but it proposes a protection to employees and the pensions promise that they have been given by their employer. We must consider the environment in which we are working on the Bill. People out there feel that the pensions promise does not seem to have meant very much. So many people have worked the whole of their lives and at the end of it have a much reduced pension. I think we all agree that pensions will be a key issue in the election, when it comes.

The blunt fact is that if you change your job, you take a choice. You enter voluntarily into a contract with your new employer about the overall terms and conditions. All too often, I have seen companies sold off—sometimes to save the company. Usually, in the process, a lot of jobs go. But here, the employees would have no say at all and their pensions are affected. I was very interested in the figures cited by my noble friend and will certainly read her contribution. Could details about those figures be made available? The points that she made were interesting.

Baroness Hollis of Heigham: Yes, I am very happy to share that information with my noble friend. On the public to private point, which arose after I spoke, occupational rights of local authority employees who transfer to the private sector—the point identified by the noble Lord, Lord Oakeshott, and my noble friend—on a service contract are protected by measures in the Local Government Act 2003. Employees in the wider public sector who transfer to the private sector under such contracts have their occupational pension entitlement protected in most instances under the non-legislative guidelines issued by the Cabinet Office.

But there is no protection from a private-to-private TUPE. The Bill deals with private-to-private TUPEs, where we are dealing with pension funds that are not protected by Crown guarantee, if you like. As a result, the 6 plus 6 per cent, the statistics that I was giving to my noble friend, which I am happy to circulate, represents a substantial increase in protection to employees who opt and will remain in the private sector.

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