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When this matter was discussed in the other place, we accepted the need for some compensatory payment that would put the worker into the position in which they would have been had the contributions been paid on time. We announced our intention to introduce an amendment to require employers to pay interest on late-paid contributions. Clearly it would be difficult, if not impossible, to assess completely accurately the loss of investment value to an individual worker, given the numbers of people involved and the different investment strategies and portfolios of individual schemes and investment managers and so on. However, it would be relatively straightforward to require an employer to calculate and pay interest on the arrears of contributions. Such payments would both recompense workers for the lost investment opportunity and give employers an incentive to pay contributions on time.
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The Pensions Regulator’s powers to calculate and, where necessary, estimate the amount of unpaid contributions are set out in Clause 34. While I completely agree with the intention behind my noble friend’s amendment, we think that the ability to require interest to be paid would best appear in Clause 34, which is why we have tabled the government amendment. This will take the form of a power to require interest to be paid. The amendment would give the Pensions Regulator the power, when it issues such a notice, to require the employer to pay interest on the arrears of contributions should certain conditions apply. These conditions, along with the rate of interest and other technical details, will be prescribed in secondary legislation. This will allow for further discussion with the regulator and stakeholder consultation on the detail of how the provision will operate.
I hope that I have assured my noble friend that I agree with the principle that she has raised and I thank her for doing so. Given my assurances that the government amendment will deliver the same intention, I respectfully ask her to withdraw her amendment.
Baroness Turner of Camden: I thank my noble friend for that assurance. I also thank the noble Lord, Lord Oakeshott, for supporting the amendment. He is quite right about what is excessive delay—I understand that. In view of the assurances that the Minister has given, this is obviously a matter for regulation. I am glad that the principle has been accepted and, in those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton moved Amendment No. 91A:
“(6) In this section, “employer” in relation to a worker means the person by whom the worker is or, if the employment has ceased, was employed.”
On Question, amendment agreed to.
On Question, Whether Clause 33 shall stand part of the Bill?
Baroness Noakes: I wish to debate Clauses 33 and 34 standing part in order to ask the Government to explain the relationship between these clauses and the provisions of the Pensions Act 1995. What I am about to say is based on briefing from the Law Society of Scotland.
Clauses 33 and 34 deal with unpaid contribution notices. There are already sanctions and compliance powers in existence under Sections 87 and 88 of the Pensions Act 1995 relating to money purchase schemes. Can the Minister explain why these additional powers are being created in Clauses 33 and 34 and why the existing powers are not adequate?
I cannot see that the Bill repeals any powers in the 1995 Act but it clearly adds powers through these clauses and others. Can the Pensions Regulator act under both this Bill and the 1995 Act in respect of the same issues? Are the Government satisfied that they have not ramped up the regulatory burden on companies in a disproportionate way as a result of the Bill? I look forward to the Minister’s comments.
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Lord McKenzie of Luton: I thank the noble Baroness. I understand the import of the debate that she wants to have and I shall try to deal with the points she raises.
Clauses 33 and 34 form a key part of the overall compliance regime. Where employers are late in paying contributions, these clauses will enable the regulator to issue compliance with unpaid contributions notices to employers directing them to pay unpaid contributions into a pension scheme. These clauses build on and streamline the regulator’s current approach to following up late contributions and will enable it to deal with the higher volume of late payments expected after 2012. While it is expected that most employers will co-operate fully with the new system, it is possible that a minority will fail to fulfil their responsibilities. The compliance regime will therefore need to take firm action against this minority of employers without imposing unnecessary burdens on responsible employers.
The noble Baroness specifically asked why the regulator needs new compliance powers. The Pensions Regulator has a range of powers under existing pensions legislation, as the noble Baroness asserted. These include powers to issue notices, such as improvement notices, and civil penalties. As noble Lords are aware, the Bill introduces a range of new duties. We expect most employers to comply with those duties and, as now, the regulator’s focus will be on educating and enabling them to do so. But an effective enforcement regime is needed where these initial steps fail.
There are two reasons why new compliance powers are needed to enforce the new provisions. First, they are needed to ensure that the regulator can enforce compliance with the new duties in the Bill—for example, the regulator’s existing improvement notice powers would not apply to an employer who fails the automatic enrolment duty—and, secondly, more streamlined powers are needed to equip the regulator for its new compliance role.
That, in essence, is why the new compliance powers are needed. The noble Baroness asked which powers, if both potentially applied, would be used. The compliance powers provided in the Bill would apply. I hope that has dealt with the point but I shall try again if it has not.
Baroness Noakes: Can the Minister explain why the Government are not removing anything from the 1995 Act if they are producing streamlined and better powers under this Bill? Is there not a case—there is always a case—for removing regulatory burdens, especially where so-called improved versions of legislation are introduced?
Lord McKenzie of Luton: It is because the existing powers are needed to deal with the existing business of the Pensions Regulator; these powers are focused on the new duties that arise under the Bill. However, they are still relevant to the other powers and responsibilities of the Pensions Regulator. I have a note of the detail on that which I will be happy to share with the noble Baroness, but I expect there will be no appetite for me to do so at the moment.
The other point to bear in mind is that, to date, the Pensions Regulator regulates an environment where there is voluntary sign-up to pension arrangements. Obviously auto-enrolment takes us into a new era and
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Baroness Noakes: The Minister has revealed his true clothes. We are back to, “All employers are potentially evading their responsibilities and so we have got to have bigger and better powers to bash them with”. I regret that the Minister has replied in those terms.
Clause 33, as amended, agreed to.
Clause 34 [Calculation and payment of contributions]:
Lord McKenzie of Luton moved Amendment No. 91B:
The noble Lord said: I shall speak also to the other amendments in the group. It is essential that a worker’s decision on whether to join a qualifying pension scheme is taken freely and without influence from the employer. We know that the vast majority of employers will not put pressure on their workers around this decision but there is a risk that a minority might, and we have recognised from the start that that risk must be properly managed.
We have listened to the repeated concerns of the Opposition in the other place that existing measures in the Bill did not go far enough in this regard and several stakeholders, including the Equality and Human Rights Commission and the TUC, have also expressed concern.
We now propose to introduce an amendment that I hope will satisfy those calls for a stronger approach by sending out the clearest possible message to employers that trying to encourage or force workers to opt out from, or cease, pension scheme membership is unacceptable. Government Amendment No. 106A will introduce a prohibition on such behaviour.
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The prohibition will be enforceable by the Pensions Regulator alongside its new role of maximising compliance with the employer duties in Chapter 1 and the prohibited recruitment conduct clause, Clause 49, in Chapter 3. The regulator will have available to it the full suite of enforcement powers appropriate to this role. This group of amendments contains proposed consequential amendments to several of the Chapter 2 compliance clauses. These changes will enable the regulator, where it believes that an employer has contravened the prohibition, to be able to investigate matters and, if appropriate, issue a compliance notice setting out what action is needed to remedy the contravention. If that notice is not complied with, the regulator will be able to issue penalty and escalating-penalty notices, just as it can in relation to failures to comply with Chapter 1 employer duties.
However, the aim of compliance activity in this area is not simply to punish non-compliant employers in order to deter them and others from such behaviour in the future. We want to ensure that individuals are, so far as possible, put back into the position they
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I shall briefly explain the other amendments in this group, which are consequential upon the new clause. Amendment No. 91B amends Clause 34 in order to allow for the calculation and payment of contributions that have been unpaid as a result of the induced opt-out or cessation of membership. It does so by extending Clause 34 to contraventions of Clause 2(1), and subsection (2) of the new inducement clause provides that Clause 34 applies to a contravention of the inducements clause as it applies in relation to a contravention of Clause 2(1).
Amendments Nos. 98B and 99ZA ensure that the regulator’s powers to require information and enter premises are available to it in the context of its role in maximising compliance with the two Chapter 3 prohibitions on inducements and certain forms of recruitment conduct. Government Amendment No. 99ZA also ensures that these powers are available in respect of any corresponding provision in Northern Ireland. I hope that these amendments will find favour, and I beg to move.
Lord Skelmersdale: My colleagues in another place will be delighted that a clause of this sort is now to be included in the Bill, and I congratulate the Minister on moving this amendment, to which I do not object—but I have a problem. He said that employers could be made to re-enrol a worker where they have persuaded him to opt out with either financial inducements or any other inducements, perhaps payment of overtime. When all that is settled and the employer is clearly in the wrong, it may be that the worker in question will still want to opt out, now of his own volition. Has the Minister considered what would happen then in relation to Amendment No. 106A?
Lord McKenzie of Luton: I can see that those circumstances might arise, and I do not see that they would be precluded. This clause says right at the start that,
“An employer contravenes this section if the employer takes any action for the sole or main purpose of ... inducing a worker”,
and so on. If they originally took that action to induce a worker, the matter has been rectified and the worker has been enrolled but then decides to opt out, I do not fundamentally see a problem with that. There would be issues regarding evidence and the facts and
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Lord Skelmersdale: Obviously it is the worker’s absolute right to opt out, whether or not an inducement has been offered or even received. My question was directed to the effect of compliance, but if the Minister is saying that if a wrong has been committed, no matter what happens afterwards, whatever compliance notices, fines and so on are produced from the regulator, then I understand that point of view. I was just trying to clarify what the Government were actually thinking in this area, but I suspect that there is no point in pressing the point now.
Lord McKenzie of Luton: I will reflect further on that point because it is an interesting one. However, if we are talking about the same act of inducement that first time around caused the employee to opt out, but after a compliance notice the employee was then auto-enrolled into an auto-enrolment scheme and then chose to opt out, one would have to consider the juxtaposition of those events and whether effectively the first inducement so tainted the subsequent decision that it was wrapped up in it. One would need to go into more detail. I am happy to do that and discuss it with officials. It is a practical matter; if there is evidence that there was inducement the first time around and there was an opt-out that followed pretty swiftly afterwards the second time around, there might be some difficulty with evidence. We will have a look at that; the noble Lord might even receive one of my letters on that subject.
Lord Skelmersdale: I am very grateful.
On Question, amendment agreed to.
Lord McKenzie of Luton moved Amendments Nos. 91C to 91E:
Clause 34, page 16, leave out line 8 and insert “are of a description specified in the notice (“unpaid relevant contributions”);”
Clause 34, page 16, line 11, leave out “33(3)(a)” and insert “(Meaning of “relevant contributions” )(2)(a)”
On Question, amendments agreed to.
Lord Skelmersdale moved Amendment No. 92:
The noble Lord said: This is a probing amendment to seek a clearer understanding of how the repayment of contributions will operate. As I understand it, it is possible for a repayment to go in one of at least three ways. The first and simplest is that within the prescribed period—presumably a grace period for employers who generally misunderstood their duties—both the employer and the jobholder pay in the contributions that they have missed. Another possibility is that the jobholder might decide that he will opt out of repaying missed contributions, although the employer is still liable for his portion.
The complication comes in when the employer does not repay the contributions within the prescribed period. As I understand from subsection (2)(c), he then becomes liable for the entire shortfall, both the employer’s
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The Chairman of Committees (Lord Brabazon of Tara): If this amendment is agreed to, I cannot call Amendment No. 92A.
Lord Tunnicliffe: I am grateful to the noble Lord for raising the important issue of the policy on restitution. As we have already discussed, making contributions to pension schemes in full and on time is vital to the growth of the individual’s pension fund. This is one of the key intentions of the compliance regime and the focus of this subsection of the Bill.
Where employers are late in paying contributions for a short period, which will be set by regulations, we propose that they be required to pay only backdated contributions. Their worker can choose whether to pay their own missed contributions and elect to do so in instalments. However, where an employer is late paying contributions for a longer period, the worker may not be able to pay arrears of their contributions. Without the worker contributions, an individual’s pension pot will be significantly smaller over time.
In this situation, it would be unfair if workers were disadvantaged by their employer’s failure to pay contributions on time. Therefore, where the contribution arrears are for a longer period, the employer may be required to pay both their own arrears and those of their worker. As well as being fair to the worker, it should act as a strong incentive for employers to comply and pay contributions on time. The principle behind the clause is supported by a range of stakeholders, including Help the Aged, the TUC and Which?. Certain stakeholders, including Help the Aged and the TUC, have suggested that the period be three months. However, before we identify a period, I want to discuss it fully with stakeholders, including business organisations.
The amendment would remove the requirement on employers to restore missed worker contributions even where they had been non-compliant for a long period. It would mean workers ending up with a smaller pension pot, which, I am sure we all agree, would be undesirable. In addition, as I have just said, it would reduce the incentive for employers to pay on time and mean that scheme members lost out on the investment value of their contributions. I therefore urge the noble Lord to withdraw his amendment.
Lord Skelmersdale: I described it as a probing amendment and it was a real description—noble Lords might think, “for once”. However, I still find a little confusing in paragraph (c) the words
and shall read carefully what the noble Lord, Lord Tunnicliffe, said. I assume that it means for both of them, as I said in my opening remarks, but if I am wrong, I will no doubt get the answer from my reading of Hansard. I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
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