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I return to my main theme. It is quite simply not market practice in either the public or private sectors for non-executives to be treated as receiving pensionable earnings. But without amendment, the Bill would change that practice. It would not be legal for companies or the public sector to advertise for non-executives on a basis which excluded pensions, so the Bill really will change the practice. Do the Government really need to do this?

I am sure companies do not want to enrol their non-executives. Most, though I concede not all, non-executives do not expect or want to accrue pension rights in respect of those positions, and it is very clear that non-executives are certainly not in the target group at whom this Bill is aimed.

The Minister may well say that it is up to the non-executive to opt out but they may not do so, whether by accident or design. Indeed, signing on as a non-executive does not involve turning up to the personnel department and getting lots of bits of paper to sign. Business life at board level is just not like that.

I hope therefore that the Minister will agree that we need to find a way of reflecting the fact that this group of employees, jobholders or whatever, as non-executives should not be dragged into auto-enrolment and all that that entails. I beg to move.

Lord Oakeshott of Seagrove Bay: This seems a very sensible and reasonable amendment. Almost by definition, non-executives are in office for only a few years. It would be quite messy, from the point of view of personal accounts, to include them. If we think of high-profile boards non-executives have recently been on—for example, Northern Rock—we realise that the last thing we would want would be that they should accrue pension rights. Indeed, it would not be normal practice. This seems, therefore, to be a perfectly sensible amendment and I do not see why personal accounts should make a major change in established practice. As the noble Baroness said, non-executive directors are not part of the target market.

Lord Tunnicliffe: Up until a few weeks ago I, too, would be declaring an interest in this and I, too, confirm that both in the public and private sectors I have never received any pension remuneration as a non-executive or chairman.

Clause 1 sets the core scope of this package of reform by establishing the group of individuals who qualify for workplace pension savings with a contribution from their employer. We call individuals who are workers

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between the ages of 16 and 75 who ordinarily work in Great Britain and have qualifying earnings “jobholders”. This group of amendments seeks to exclude non-executive directors from the scope of these reforms. However, this is not necessary because Clause 1 requires an individual to be a worker in order to be a jobholder. Non-executive directors are not workers—

Noble Lords: Ha!

Lord Tunnicliffe: I thought that might raise an outcry—as they are not employed under contract for their services by the companies to which they provide those services. Instead, non-executive directors are appointed as office-holders and therefore fall outside the scope of these reforms. Office-holders are excluded unless specific provision is made to include them. We have no plans to take such steps for the purpose of these reforms. Amendment No. 43 would exclude non-executive directors’ fees from qualifying earnings. This is similarly not required as such fees would not fall within the scope of these reforms.

From my own recollection, I believe that non-executive directors in the public sector are also office-holders. I will write to the noble Baroness, if she will forgive me, having checked the position as far we are able. I therefore urge the noble Baroness to withdraw these amendments.

Lord Oakeshott of Seagrove Bay: Did I hear the Minister right? Did he say non-executive directors are not under contract? They might be office-holders, but all the non-executive directors I know have contracts for serving on boards. What is the basis for saying that they are not under contract?

Baroness Noakes: Before the Minister replies, as I mentioned at the outset, I declare an interest: I am a non-executive of several companies and have been of more in the past. In each case, I have had a contract. I also rather resent the suggestion that I am not a worker.

Lord Tunnicliffe: I am sure the noble Baroness works very hard but company law details directors as office-holders and they receive fees. I have in my own experience come across this requirement from legal advisers. If Members of the Committee would like us to provide some chapter and verse on the relevant parts of the law, I would be happy to do that.

Baroness Noakes: I raise this as a technical issue. It needs to be clear beyond peradventure, because otherwise it would change market practice and cause a lot of problems. I am grateful for the comments of the noble Lord, Lord Oakeshott, who referred to the sort of problems that may occur.

I am not convinced by the argument that, because one is an office-holder, one is not also under contract as an employee. My understanding is that quite the reverse is the case, and the provisions will not necessarily deal with all the issues that I have raised around the public sector. The department needs to take this away and look at it further. I am very happy to engage in any discussions with the Minister’s officials if they would like to know what a modern non-executive’s contract actually looks like.

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This was a probing amendment, but this is an important issue that we need to resolve before Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Clause 2 [Continuity of scheme membership]:

Lord Skelmersdale moved Amendment No. 5:

The noble Lord said: It was not intended that this amendment should pre-empt what the Minister would say on the next amendment, which is grouped with it, but it so happened that I managed to get this amendment down to the Public Bill Office first, with the Minister following on. The reason why I tabled it in the first place had nothing to do with the Minister’s Amendment No. 6, although it is grouped with it; it is purely and simply a probing amendment to explore the burdens that auto-enrolment will place on employers.

As I understand it, Clause 2(1) prevents the employer of a worker in a qualifying scheme from taking any action to dissuade him to leave the scheme while he remains in that employment, presumably with or without the employee’s approval. That is all well and good; I have no trouble with that at all.

My amendment would remove the words, “or make any omission”, for two reasons. The first is to ask the Minister to give us an example of the sort of omission that the Government are thinking of. I know that there is a small reference in the notes on clauses, but I do not think that it is as complete as the Minister could make it, if he wished to.

The second reason is to highlight the additional work that auto-enrolment will inevitably place on the shoulders of employers. I have no doubt that large employers, with their HR departments, will not have too much difficulty with those extra burdens, but what about small and medium-sized enterprises? Have the Government made any estimate of the number of these that are likely to have schemes that will qualify? What demands does the Minister expect to be placed on them? How much paperwork and other administrative burdens will those employers have to deal with? Does he really believe that, even though it will be illegal for them not to make any act or omission, some will not try it on?

In my research this morning, I came across an article that was prompted by the National Association of Pension Funds, which suggested that many thousands of pounds might be necessary to alter the schemes to make them qualify. Both my noble friend and I will bring up that point on later amendments, but for now will the Minister provide answers to my questions? I beg to move.

4 pm

Lord McKenzie of Luton: I shall speak to government amendments in this group and to Amendment No. 5, which I ask the Committee to reject. Automatic enrolment will establish the presumption to save as the new default. However, we need to ensure that employers do not enrol their workers one day then look for ways in which to take them out of workplace pension saving shortly after.

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Clause 2 prohibits employers from acting, or failing to act, in any way that results in the loss of active membership for a jobholder. The compliance regime in Chapter 2 will apply in respect of the employer duty in Clause 2. Breaches of the duty may, where necessary, result in the Pensions Regulator taking enforcement action in the form of compliance and penalty notices.

Government Amendment No. 6 extends this prohibition to actions, or failed actions, of the employer that would result in a jobholder scheme losing its status as a qualifying scheme. This will provide additional security for the jobholders and help to ensure that continuity of good-quality pension saving is protected. For example, some employers like to be able to retain an ability to control their costs, by varying either contribution rates or the definition of pay on which contributions are calculated. Such employers who offer money purchase arrangements could use that ability to reduce the amount that they are otherwise required to contribute to meet the duty, thereby subverting the duty without terminating active membership.

Opposition Amendment No. 5 would remove the element of the clause relating to employer omissions. We are clear that it is inappropriate to allow employers to benefit by failing to do what they are required to do, either deliberately or accidentally. Employers should be held responsible if they terminate scheme membership, even if that is by accident. Some pension providers may require an employer to keep their employee details up to date. We do not want a failure by an employer to provide such details to result in the termination of the active membership for any of their jobholders. This amendment, however, would undermine the duty on employers to maintain active membership of a scheme and could increase the number of jobholders who come out of pension saving without having made the decision themselves. That would undermine the central objective of these reforms.

The Government recognise that some employers voluntarily pay higher contributions or offer schemes with high benefits significantly above the default. We recognise that, in the longer term, this is to the advantage of their workers and we want to support these employers to continue to do this. Clause 4 therefore enables an employer offering higher-quality pension provision under the employer duty to be able to defer automatic enrolment for any or all of their jobholders for a limited period, the details of which will be set out in regulations—for example, the length of the period.

Amendments Nos. 13 and 14 ensure that an employer who takes advantage of the facility to defer automatic enrolment must guarantee membership of the higher-quality scheme for a minimum period. If an employer is unable to maintain membership of the higher-quality scheme, through no fault of their own or of jobholders, regulations made under a new clause to be introduced by Amendment No. 21 will require the re-enrolment of a jobholder into alternative higher-quality provision within a set timeframe. Therefore, I urge the noble Lord either to withdraw Amendment No. 5 or ask for it to be rejected.

The noble Lord asked a number of questions about the costs of automatic enrolment and re-enrolment. The whole thrust of these provisions is to make sure

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that the arrangements are efficient and low-cost and we do not want to impose undue burdens on employers. We are not at a stage to be precise about what the process will be and quite how it will proceed. We will be looking in part to PADA and its work to advise and help us to develop these arrangements. However, the noble Lord makes a good point: we need to ensure that we do not impose undue burdens on employers by this process. There is no reason to assume that the process necessarily would, but those details have yet to be worked out and the matter will be developed in the coming months. We are absolutely convinced on the essence of the Bill, which is that auto-enrolment is the route by which we deal with the current inertia whereby so many people are prevented from saving.

Lord Skelmersdale: I am grateful to the Minister, who need have no fear on this occasion; I described this as a probing amendment, so of course I will withdraw it. I am relieved to hear that the Government intend to make this whole operation as low-cost as possible for employers because, without that, there would be very grudging acceptance, to say the least, of these reforms. I understand why the Government are not yet ready to be prescriptive on all this. In part, as the Minister almost said, he is waiting for PADA to tell him what is appropriate and, in part, the department is still working on this with the various stakeholders. I shall say a bit more about them in a minute.

We must be extremely careful that we do not throw the baby out with the bathwater. We will have quite a discussion, in which I hope other Members of the Committee will join, on the qualifying schemes and the test scheme. From what the Minister has said, I assume that more, rather than fewer, existing schemes are likely to qualify, because that would keep the cost down. That is perhaps too broad a question for now and would be better repeated at another time.

Lord McKenzie of Luton: I am sure that we will debate that in some detail, but the Government are keen to make sure that all existing good-quality provision is maintained and we seek that objective through part of the structure of this Bill.

Lord Skelmersdale: I am delighted to hear that, but we will see. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McKenzie of Luton moved Amendment No. 6:

(a) the jobholder ceases to be an active member of the scheme, or(b) the scheme ceases to be a qualifying scheme.”

On Question, amendment agreed to.

Baroness Noakes moved Amendment No. 6A:

The noble Baroness said: This is a probing amendment, which would add a new subsection to Clause 2 providing an extra exemption from the clause’s main duty on employers. The amendment was suggested to us by the

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Law Society of Scotland, which, as the Minister will be aware, is a fruitful source of technical probing amendments.

We have been debating the main thrust of Clause 2, which is to ensure that employers do not force jobholders out of qualifying schemes. A number of exemptions in the clause appear to cover cases where a jobholder becomes an active member of another qualifying scheme or asks the employer to remove him from the scheme. However, the clause does not appear to cover the situation in which an employer reorganises his pension arrangements and the jobholder, when offered the opportunity to join another qualifying scheme, decides to opt out of membership. Subsections (2) and (3) do not apply, because the jobholder is not remaining or becoming an active member. Subsection (4) does not apply, because the jobholder has not requested the employer to do anything or to omit to do anything in relation to the existing scheme. The jobholder simply declines to sign up to the new successor scheme. Why should this result in the employer getting into trouble with the Pensions Regulator and bringing himself within the enforcement provisions of the Bill? I beg to move.

Lord Oakeshott of Seagrove Bay: I defer to no one in my admiration for Scottish solicitors. I have the pleasure of dealing with them a lot and, on this occasion, I would not want to add to their worthwhile comments.

Lord McKenzie of Luton: Automatic enrolment, as we have said, will establish a presumption to save as the new default. After jobholders have been enrolled, they have a right to remain in qualifying workplace pension saving. Clause 2 is designed to protect this right by prohibiting employers from acting or failing to act in any way that results in the loss of active membership for a jobholder. The compliance regime in Chapter 2 will apply in respect of the employer duty in Clause 2. However, employers will not be in breach of Clause 2 if they make arrangements for the jobholder to become an active member of another qualifying scheme within a prescribed period.

The thrust of the noble Baroness’s amendment would allow employers simply to offer membership of another scheme rather than enrol jobholders into one. If a jobholder declined membership of the replacement scheme, the employer would still be considered to have met the duty. That would undermine the core principle that jobholders have a right to participate in workplace pension saving without interference, unless they make the choice that they want to opt out or terminate membership later. Under this amendment, if a scheme closed, the jobholder could be forced to make a decision on whether to continue saving and might suffer detriment simply because they had not had access to the wider information associated with any decision to opt out under Clause 7, which provides a process for opting out. There is nothing to prevent a jobholder who wishes to terminate their membership of a scheme from doing so. However, we want any such choice to be free and informed.

The amendment could, although I accept entirely that this is not its purpose, enable unscrupulous employers purposely to terminate a scheme and subsequently

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require jobholders actively to opt in to a replacement scheme. That would undermine both the principle of automatic enrolment and that of maintaining scheme continuity. The key to automatic enrolment is that it must be done by the employer, with the employee’s choice following that in light of information that must be provided under those enrolment arrangements.

Baroness Noakes: I do not find the Minister’s response very satisfactory. Part of the problem is that the DWP now seems to see unscrupulous employers round every corner, which influences its attitude to the way in which the Bill will be approached. That is unfortunate, given that the vast majority of employers are, and wish to be, compliant. The notion of the unscrupulous, non-compliant employer has been raised several times this afternoon and it has permeated all the proceedings and explanations in another place. That is unfortunate.

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