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I am therefore happy to place on record that the Government are committed to supporting the Pensions Regulator to deliver the compliance regime. Set-up costs for the compliance regime will be funded by the Government by way of a separate grant in aid funding stream, subject to parliamentary scrutiny. As noble Lords will be aware, grant in aid can be used for the exercise of the regulator’s functions and to fund the set up of the compliance regime because the regulator’s functions are being extended by the Bill. Expenditure and funding for the establishment of the compliance regime will be kept completely separate from the Pensions Regulator’s expenditure funded by the general levy and will be accounted for separately. As part of its regular stewardship of the pensions regulator, the department will monitor both funding streams to ensure that they are put to their intended use only. We are exploring further how ongoing compliance costs will be funded, and we will take that work forward with the relevant government departments and the regulator in conjunction with the development of the compliance regime.
There is clearly much detail to be worked out, but I hope I have set out the parameters and the arrangements under which the Pensions Regulator will operate. The compliance regime is based on the recommendations of the Macrory review, which underpins the graduated light-touch approach that I have outlined. I hope that that deals with the queries of the noble Baroness. If not, I am sure she will ask again.
Baroness Noakes: I shall. Can the Minister explain why the regulator will require every employer to register with it, given that information on employers is already held within the existing PAYE and NIC system? By definition, no different groups will be brought within the net. Why is a separate registration regime being set up, especially as the regulator will be completely unfamiliar to the vast majority of employers? The only employers who know about it are those with the nearly extinct defined benefit pension provision. Almost everybody else has no idea about the Pensions Regulator; certainly not SMEs and microbusinesses, which are currently not involved in pension provision at all. I am mystified about why the Government are going down this route.
Lord McKenzie of Luton: Let me see if I can help the noble Baroness. It is the Pensions Regulator’s job to ensure compliance with this regime; therefore, it needs to possess the key relevant information. HMRC will be a key source of that information because, as we discussed earlier, it is the one database of employers across the UK.
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We envisage that the registration process will be web-based and will ask employers about the pensions arrangements that they will use to meet the new requirement. Every employer will be required to register once for each of his PAYE schemes. Information from HMRC can be used to contact employers to effect that. The Pensions Regulator will then check that registration had been completed for every employer PAYE scheme, and that checking process is likely to be highly automated. The regulator will determine the most effective approach to gathering this information in support of its objective to maximise employer compliance. The regulator will intervene early with those who do not register, using reminders and penalties where necessary.
We recognise that seeking information from employers will impose a cost on them, but believe that that will be outweighed by gains achieved by higher compliance overall. We also believe that costs will be relatively low because most employers will complete the registration process only once for each of the PAYE schemes that they run, and will then have very low ongoing contact with the Pensions Regulator. The operational design of the registration process will take into account the need to minimise employer burdens. By enabling early identification of non-compliance, the registration process will minimise further burdens on compliant employers and help to prevent non-compliant employers gaining an unfair commercial advantage.
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Lord Oakeshott of Seagrove Bay: I listened carefully to what the Minister said about costs. He was pretty clear that the extra costs of setting up the extra regime for the Pensions Regulator arising from this would be met by a separate grant-in-aid. What I did not hear him say, which perhaps he would, is: “We have not yet decided, once it has been set up, how all the extra costs of the Pensions Regulator being involved in so many schemes will be funded and shared”. The noble Baroness fairly asked how we will ensure that there is not cross-subsidy from existing pension schemes. Is that still work in progress? We would be very grateful to hear how far the Government's thinking has developed. Setting up is one thing; sharing the cost of a greater regulatory regime is another.
Lord McKenzie of Luton: The noble Lord is right to press me on that matter; but he is also right to say that the question of ongoing compliance costs is still work in progress. We need to be mindful of the fact that the regulator already has powers to pursue late payments to pension schemes. At present, that activity is funded by the levy. That makes it potentially difficult to draw a distinction between the regulator's existing role and its new one, especially in the area of late payments, but that is something that we need to work through.
I answered the question today, which I am not sure we had been asked before, about whether the levy will operate for personal accounts. It would, so there is another potential source.
Baroness Noakes: I am disappointed with the approach that the Minister seems to be taking, which is that the regulator will create lots of de novo processes existing
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The noble Lord, Lord Oakeshott, rightly challenged the Minister on costs. Major employers are very clear that they would regard it as quite unfair for their levy payments to be diverted to funding the cost of compliance across the whole auto-enrolment sphere. That has nothing whatsoever to do with the purposes for which the levy is raised and would be completely inappropriate. However, the Minister says that that is work in progress, like so much of the Bill. That is a very unsatisfactory way to proceed and gives no one any assurance that the scheme will operate fairly, cost-effectively or in a sensitive way for the generality of employers, small and large.
Lord McKenzie of Luton: We get these persistent challenges and a sense of bad faith about how this will all work. We have clearly put on record our approach to compliance, being mindful of burdens on employers and doing what we can to retain existing good quality provision. The noble Baroness has to recognise that this is a framework Bill. Of course, lots of practical detail has to be worked through, some of which we cannot get under way effectively until we pass this legislation and can give the appropriate powers. It really is unfair for the noble Baroness to continue with this line. We have been very open about the basis on which this Bill is structured and how we want to see it implemented.
Baroness Noakes: The Minister was very open, but he does not have the answers to the questions. We are bringing to this Committee the concerns expressed to us, in particular by employer groups. It is not acceptable that the Minister stands there and says that they have not worked out the answers and that it is unfair to criticise them for not having done so. Day by day, the Minister exposes that this Bill is not ready to come through the parliamentary process because too little is understood. We will not pursue this again today but we will return to the theme.
Clause 48, as amended, agreed to.
Lord McKenzie of Luton moved Amendment No. 103D:
On Question, amendment agreed to.
Lord Tunnicliffe moved Amendment No. 103E:
“Functions of the Pensions Ombudsman(1) Section 146 of the Pension Schemes Act 1993 (c. 48) (functions of the Pensions Ombudsman) is amended as follows.
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The noble Lord said: I have tabled this amendment to ensure that people who begin saving for their retirement as a consequence of the 2012 reforms enjoy the same safeguards as those who are currently members of pension schemes. Access to the Pensions Ombudsman is one of those safeguards. Section 146 of the Pension Schemes Act 1993 prescribes the type of complaints that the Pensions Ombudsman may investigate.
Where a person wishes to make a complaint, or when someone wishes to complain on his behalf, it is necessary for that person to be an “actual or potential beneficiary” of the scheme. In practice, the person who wishes to complain must be a member of the scheme, have been a member of the scheme in the past or be in dispute with his employer or the scheme administrators over his right to join the scheme. These arrangements work well at present, but following the introduction of the duties on employers as part of the 2012 reforms we will see the emergence of a new class of people—those who were automatically enrolled into their employers’ schemes and who subsequently opted out.
As the Bill makes clear, a person who is automatically enrolled and opts out will be treated as though he had never been a member of the scheme in question. Such a person would not be able to take a complaint to the Pensions Ombudsman on the grounds that, being neither a current nor a past member of the scheme, he or she was not an actual or potential beneficiary. That is an undesirable outcome, as that person might well have need of the ombudsman’s services in order to remedy an injustice relating to the opt-out process. We are therefore seeking to amend the Pension Schemes Act 1993 to include people who have opted out in the class of actual or potential beneficiaries, thereby giving them the right to have their complaint to the Pensions Ombudsman investigated. I beg to move.
Baroness Hollis of Heigham: I declare an interest as a trustee of the Pensions Advisory Service. Clearly, this provision will expand the role of the Pensions Ombudsman if he or she is seen as the final court of appeal for any challenge to the pensions structure. First, what has happened—and what is it therefore expected will happen—to the original proposals for amalgamating the functions of the FSA and the Pensions Ombudsman? Are we now expecting to keep the Pensions Ombudsman as a separate resource? It may be that we will wait until the Thoresen determinations are finished before we decide how that pattern will emerge.
Secondly, given the substantial delays at the moment in getting recourse from the Pensions Ombudsman, what additional resources will there be? What extra work does the ombudsman expect to face as a result of personal accounts? Clearly, any new scheme coming up in this way is likely to generate a degree of uncertainty and people may choose to go down that route rather than other adviser or financial advice routes to have their problems resolved. My noble friend may care to write to me at some length, because I have not given him notice of these questions. It seems to me that there is still a question mark over how this function of
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Lord Skelmersdale: The noble Baroness, Lady Hollis, tempts me to remind her that the Government—I think under her watch—spent some time ignoring the ombudsman, which is why eventually the financial assistance scheme was set up.
Baroness Hollis of Heigham: I take issue with that. The financial assistance scheme had nothing to do with the role of the Pensions Ombudsman or its neglect. I cannot think what the noble Lord is referring to in that respect, unless he is thinking of the Parliamentary Ombudsman and not the Pensions Ombudsman.
Lord Skelmersdale: I apologise to the noble Baroness. I am reminded on all sides that it was the Parliamentary Ombudsman. However, the fact remains that, as long as the Government ignore the ombudsmen, one wonders what role they are to perform in the future. That said—I do not expect an answer—I have no problems with the amendment. As the ombudsman exists, this is a proper role to consider.
Lord Tunnicliffe: I have a sense that I should quit while I am in front. On the relationship between the FSA and the Pensions Ombudsman, the Bill does not contemplate any change. There may be an ongoing review of that area but the Bill, in a sense, notes that the involvement of the Pensions Regulator in the regulation of the schemes means that there is an ombudsman process. That general ombudsman process is carried forward by using the regulator under the regulators Act. The small technical amendment that I have just moved is to correct an exception to that generality because of the concept that someone is considered never to have been in a scheme if they have been properly enrolled and properly opted out. It addresses only that simple point. The whole issue of the appropriate level of resources for the regulator is a developing field of policy. As soon as we have more concrete proposals, we will be happy to share them with noble Lords.
On Question, amendment agreed to.
Clause 49 [Prohibited recruitment conduct]:
Lord Skelmersdale moved Amendment No. 104:
The noble Lord said: I have already given approval in principle to Amendment No. 106A, which concerns inducements. However, I should like to take this opportunity to probe how draconian the restrictions on employers’ behaviour as a result of Clause 49 will be and how the Government intend to enforce these restrictions. Clearly it would be impossible and, indeed, counterproductive to expect employers to avoid any mention of auto-enrolment. After all, a pension plan is a significant perk, which employers should advertise to potential employees. There is also the small matter that it is the employer’s duty to pass on information to employees about auto-enrolment and so on. Breach of proper recruitment conduct will therefore be a matter of judgment and, as there are generally only representatives
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Lord McKenzie of Luton: I am sure that we all agree that employers should be prevented from screening out job applicants according to whether or not they may opt out of pension scheme membership. The aim of Clause 49, which was introduced by a government amendment in another place, is to prohibit certain forms of employer behaviour designed to give the indication that the job on offer is conditional on the applicant agreeing to opt out of pension scheme membership. We do not expect the majority of employers to behave in this way, but it would be naive not to anticipate that some may and we cannot allow them to gain an unfair commercial advantage by avoiding their responsibilities in this way. We are determined that employers should not be allowed to sift out applicants who wish to remain in pension schemes.
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The noble Lord’s amendment would limit the scope of that prohibition by covering only questions from the employer and not statements, resulting in individuals being offered less protection. It would mean that employers could not make a statement, for example, in an advertisement indicating that non-membership of a pension scheme was required and that a job was therefore conditional on an individual’s opt-out decision. Those statements would not be caught, whereas under the prohibition as it currently stands they would. There is also a risk that some employers would exploit that loophole and deliberately frame questions and statements that would otherwise meet the test in Clause 49(1). The clause as drafted will provide an effective deterrent for the small number of employers who might be tempted to try to avoid their employer duties in this way.
The noble Lords ask how such compliance will be enforced. At the end of the day, whether the prohibition had been breached would be a question of fact and individual circumstances. That might come to the attention of the regulator in a variety of ways; for example, communication from an individual employee who has been subjected to this treatment. The arrangements within the Bill for the Pensions Regulator to seek facts and get information are the way that it would proceed. It is difficult to be specific, but I am sure the noble Lord will recognise that whether the prohibition was breached would depend on the facts of each situation.
Lord Skelmersdale: I am grateful to the Minister. He said that one way would be by a complaint by the interviewee that I illustrated, as a result of the interview. What other ways are there? That way is obvious, but it is a little more difficult to see any others.
Lord McKenzie of Luton: I can imagine that there might be a number of ways. For example, the employer might have trade union representation, which might indicate trends in how the firm recruits. There may be other ways that I cannot think of off the cuff, but in a sense it does not matter; the prohibition is there, and if people breach it there is a right to remedies.
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The noble Lord previously asked how we could ensure that the introduction of the prohibition will not stifle genuine negotiations about pension arrangements above the qualifying minimum, or that it will not prevent positive communication about pension saving from the employers during the recruitment process. Under ordinary employment law, employers and employees are currently free to negotiate and agree remuneration packages and to offer choices between different benefits, rates of pay and pension scheme membership. We do not want to interfere with any right the employer and worker may have to negotiate the type of qualifying pension arrangement that will be offered. The right to negotiate the type of qualifying pension arrangement also includes the right to change from one qualifying pension arrangement to another, with or without an inducement, even where the new pension arrangement is less advantageous to the member than the old one, provided it is still a qualifying one. Clearly, we do not want to prevent employers communicating the positive benefits of the qualifying scheme that they provide to their workers, and nothing in this measure would stop that.
Lord Skelmersdale: I am grateful for that addendum. I am glad that the Government do not want to prevent the positive benefits that can be accrued and that this measure is purely to police a negative matter, if one would like to put it like that. My mind is heartily relieved, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton moved Amendment No. 105:
On Question, amendment agreed to.
Clause 49, as amended, agreed to.
Clause 50 [Compliance notices]:
Lord McKenzie of Luton moved Amendment No. 105A:
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