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The disadvantage to the Government is that other non-government participants have had much more time to digest the Government’s responses to questions posed, and to produce counterarguments and even completely new thoughts. I sympathise with the Minister in this because I have been in the same position. Nevertheless, the Recess has crystallised my thoughts on the mechanics of the proposals in the Bill for removing money from a worker’s pay packet for up to three months, pending their decision to opt out. There is logic to this proposal as it will concentrate the minds of those who may not opt out to see their wages or salaries apparently reduced. I use the word “apparently”, because pensions are deferred wages, although the average employee may not appreciate this. Nevertheless, their take-home pay will be reduced by 3 per cent, and with the cost of their household bills rising so rapidly, especially at the moment, they will most certainly feel the difference made by what may seem only a small amount of money to other members of society.

The Minister has told us several times that around 6.5 million people will benefit from the new personal accounts outlined in Chapter 5. What is not said—and I ask him now—is how many of those 6.5 million he expects to opt out from the very beginning. Last week, I had the opportunity to visit the National Debtline in Birmingham, which does sterling work in advising people how to clear their debts. Its staff very kindly furnished me with their statistics for July this year, in which they had 21,572 telephone calls—some 3,000 a week. This caused me to do a little arithmetic and produce a worst-case scenario. Almost 47 per cent of callers revealed that they had debts of between £1,000 and £15,000, and almost 40 per cent had debts ranging from £15,000 to £50,000. While I would have expected many of the holders of the lower amount of debt to be either not working at all or on some form of benefit, I was brutally disabused in finding that almost 55 per cent of callers were in either full- or part-time work. If being in debt is the most likely cause of opting out, as I believe that it is, as many as half of the 6.5 million people to whom the Minister referred could do just

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that. I described that earlier as a worst-case scenario—it will not be anything like that many people—but it will be considerably more than I for one thought when we were discussing the matter in Committee. These repayments will cause a major logistical headache when a large number of withdrawals have to be paid back. In total, that doubles the number that opt out—clearly, because money does more than that, as the money has to go to the employer for his bit and to the employee for his bit, as the noble Lord made clear in col. 978 in Committee.

Amendment No. 10 would go a very small way to reducing that. Under the Bill, even though an employee elects to opt out before he gets his first pay packet, money is still taken from those wages and then has to be paid back to him subsequently. This is a total nonsense; it should be quite possible for an employer to know that a member of his staff has opted out. The Bill should therefore reflect that eventuality and money should not be deducted from his pay cheque.

Amendment No. 11 is to probe the Government’s intentions behind Amendment No. 24, made in Committee, now to be found in Clause 8, on page 8. In col. 976 of 17 June, the Minister said that, if a worker opts out:

“Our intention is that any contributions paid by jobholders who opt out under Clause 7 will be refunded to the jobholder. Similarly, any contributions paid by the employer will be refunded to the employer”.—[Official Report, 17/06/08; col. 976.]

That means that if 3 million people opt out, refunds for 6 million will be made. Regulations are to be made as to when and how that is to be achieved. As our experience in Committee showed, the Minister had no idea. I raised the matter as early as Second Reading and he could say only that it was too early to say—a fact that he kept on repeating throughout our eight days in Committee. That is why I keep repeating that the parts of this Bill referring to auto-enrolment and personal tax are a year too early; we do not know nearly enough to have much confidence that it will work as intended, even if the intention is correct—which I think that it is, as far as the first five chapters of the Bill go. In broad terms, I remain content with the Bill; it is the detail that concerns me.

Amendment No. 11 is to probe how the Government’s thinking on this has progressed over the summer. For the Minister to say, as he did in Committee, that:

“If the money has reached the scheme, there will need to be a process for the money to come back out of the scheme”,

is simply not an explanation. It is a sine qua non. He went on to talk about the situation in which an opt-out has occurred and the money has not yet reached the scheme. He then said that:

“Those processes need to be worked through”.—[Official Report, 17/6/08; col. 980.]

Has any working through been done over the summer and, if so, with what result?

It is also a fact that the tax forgone has to be reclaimed by HMRC. I assume that that will be done through an adjustment to PAYE, but there is another way—that the gross sum will be reduced by the tax allowance when it is returned to the employee and the tax element sent to HMRC, presumably by the trustee corporation. But, again, we simply do not know. I wonder whether the Minister does.

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What concerns us with these two amendments is the speed with which the employee and the employer get their money back. I apologise for the time that I have taken. I beg to move.

Lord Oakeshott of Seagrove Bay: My Lords, we like Amendment No. 10 and encourage the noble Lord, Lord Skelmersdale, to press it to a Division, if he wishes. It is a modest amendment, but it makes an important point. I was struck by the horrific statistics he gave from National Debtline about the pressure of debt on people’s currently very stretched budgets. Obviously, we get a similar story from Citizens Advice and the other leading bodies in this field.

As the noble Lord said, pensions are in principle deferred wages, in the long term. However, in the short term, for people under pressure, pensions contributions are a pay cut. It is all very well, if that contribution is to build up to a worthwhile extra pension in old age. However, if the cost is either letting your debts roll up faster than the pension is rolling up or losing benefit because you lose means-tested benefits in old age, clearly that is not good. We shall be dealing with this whole issue in more detail when we reach the amendments on generic financial advice, but the same arguments apply here in a more modest way. Practically, we do not think it is a good idea that people should have the money taken out and then have to wait for it to come back. Administratively that is also a bad thing. Therefore, the noble Lord has made a good point.

Lord McKenzie of Luton: My Lords, I thank the noble Lord, Lord Skelmersdale, for this amendment and hope to satisfy him that it is not necessary. Specifically he asked about percentages on opt-outs. The research done to date—and this is an ongoing programme which we will also discuss later—including whether people would participate or opt out of personal accounts, found that seven in 10 would be inclined to participate, so there is a 70 per cent participation rate and a 30 per cent opt-out rate.

The noble Lord raised a point about debt and whether that is likely to be a key driver for people opting out. Clearly that will be a factor. Certainly it is quite possible that it would be in the interests of those with high interest charges. Automatic enrolment changes the default approach to workplace pension saving, but it does not make participation compulsory. Accordingly, Clause 8 ensures that people who become automatically enrolled are able to opt out, if they wish.

Amendment No. 10 seeks to ensure that contributions are not collected from jobholders if they opt out before the first contribution is deducted. However, a valid opt-out completely undoes membership. Therefore, once a jobholder gives notice that they wish to opt out, the employer no longer has any right to deduct contributions from pay. Furthermore, the jobholder also becomes entitled to a refund of any contributions that may have been deducted between the day they were automatically enrolled and the point at which they gave notice of their wish to opt out. This is government policy, and the Bill already gives effect to it.

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Amendment No. 11 removes the powers in Clause 8(3). These are necessary to enable government to frame the process by which jobholders receive a refund of any contributions due. It may be of interest for noble Lords to know that we have started to develop more detailed plans for framing the automatic enrolment and opt-out processes. I can see that that is greeted with delight by the noble Lord.

Our target is to consult on draft regulations during the early part of 2009. The eventual regulations will be subject to the affirmative procedure, so there will be plenty of time and opportunity to debate the details of the various processes. However, it might be helpful if I expand a little on our current thinking. The Bill makes clear that jobholders need to be automatically enrolled from day one. At this stage, we anticipate that regulations will provide a working window of up to 14 days from the automatic enrolment date—for example, the day the jobholder starts work generally—during which employers will be required to take whatever steps may be necessary to make the jobholder an active member of their scheme.

We also expect to regulate for a concurrent 14-day window, during which the employer will be required to provide the jobholder with information about the effect of the employer duty—for example, that the jobholder has been automatically enrolled into pension saving, what the contributions will be, that they have a right to opt out, and so on. While these windows are likely to be 14 days, there will be nothing to prevent an employer from acting more quickly. In some cases it might be possible to carry out all the necessary steps within one day.

Should a jobholder have a pay day during the joining window, the employer will be required to make a deduction from pay to avoid any negative impact on participation of waiting to take a large bundle of contributions at a later date.

Our current thinking is that the schemes should be the source of the blank opt-out form. Once completed, the opt-out notice should be given in the first place to the employer, although it is likely there could be ways for a scheme and an employer to be notified simultaneously.

4.30 pm

Jobholders need to be given time to consider their options. We expect to propose an opt-out period of 30 days. This period will start when the jobholder is both an active member of a scheme and in possession of the information that enables them to make an informed decision. Jobholders who opt out will be treated as never having become a member of the scheme and both jobholder and employer contributions will be refunded. Regulations will propose that jobholder contributions must be refunded within 21 days or two pay days, whichever is the earlier. We do not propose to regulate in any detail on refunds of employer contributions. The manner and timing of employer refunds will be a matter between the employer and their scheme.

Where the money will be during this process will depend in part on whether the employer, having deducted the amount, will have paid it over to the scheme. The

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requirements for payment over to the scheme are already defined in legislation. I believe that the 19-day rule operates for defined contribution schemes, so that would determine whether the money is still with the employer or whether he has paid it over to the scheme and needs to recover it or offset it against continuing payments.

I hope that I have helped the noble Lord by setting out our thinking on the timescale and processes of opting out, on which we shall consult in due course. I emphasise that we do not need a specific provision in the Bill to prevent employers taking contributions once opt-out has been initiated because the Bill and the law would prevent them doing that. The noble Lord raised a good point but I hope he will accept that it is already covered.

Lord Skelmersdale: My Lords, I am grateful to the Minister for telling me that one of my fears is already covered by the Bill and, to an extent, by existing legislation. I am also grateful to hear that thinking on this matter has progressed during the summer. I hope that it will not come to a grinding halt between now and when the Bill is enacted, in whatever form that may be. We have lost the chairman of PADA and a Pensions Minister. The latter has been replaced, the former not yet. I hope that does not bring thinking to a grinding halt. However, for the moment, I am pleased that the Minister explained the thinking so fully. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Lord Skelmersdale moved Amendment No. 12:

12: Clause 8, page 6, line 9, at end insert—

“( ) the amount of interest to be paid;”

The noble Lord said: My Lords, Amendment No. 12 presupposes that an employee decides to opt out in the second half of the period allowed. For the sake of argument, let us say that the relevant period is three months and that two months into that period he decides to opt out. I calculate that an employee on the average wage of £22,000 would have £146 to be returned. Somebody—we still do not know who—outside the firm will have accumulated this money, which may have been paid in eight weekly instalments or, if he is salaried, two monthly ones. That somebody is hardly likely to sit on the money, but will put it on deposit somewhere at some rate. They will earn interest on money that is not theirs. Is it not both right and fair that interest should be returned to the employee, and the relevant interest to his employer, who I think will have £110 to be returned to him? Is this the Government's intention, or have they vetoed the idea of repayment of interest altogether? If they have vetoed it, the interest earned by whoever receives the money will go into the overheads of the scheme. In other words, non-members will be subsidising members. Is that really what the Government intend? I beg to move.

Lord Oakeshott of Seagrove Bay: My Lords, it seems only fair; it is the members’ money.

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Lord McKenzie of Luton: My Lords, a decision by a jobholder to opt out completely undoes membership of the pension scheme into which they were automatically enrolled. Our position is that jobholders should neither gain nor lose by opting out.

In addition, we do not want employers or their schemes to bear unnecessary burdens or risks; including any associated with interest payments on contributions that may be taken between the point of automatic enrolment and the completion of the processes for a jobholder who goes on to opt out.

Clause 8(3) sets out the key issues that are likely to be regulated for in connection with the refund of contributions to jobholders who opt out. The amendment would extend that list to include interest payments to jobholders to compensate the jobholder if, following automatic enrolment, they go on to opt out, but some contributions have already been taken and there is a short interval before they can be refunded. We maintain that refunds should be restricted to the value of the contributions originally taken, and we have no plans to introduce interest payments.

It would be premature to attempt a detailed debate about how refunds will work. However, we have started to develop our thinking about how to frame the processes and we have given an insight into the sort of timeframes involved. The key will be to strike an appropriate balance regarding the provision of sufficient time for jobholders to consider their options, ensuring that most if not all jobholders will have the chance of feeling the impact of workplace pension saving on their pay packet before the end of the opt-out period and minimising the need for refunds by enabling employers to be able to deal with the whole process relatively quickly.

On current thinking, we do not expect the interval between automatic enrolment and the completion of any refund processes to be long, and certainly not long enough to result in interest payments of any meaningful sums. To recap, current thinking is that the enrolment process would have to be taken within 14 days, and it is within those 14 days concurrently that the information flow should be undertaken. From the date of active membership and the information being provided, there would be a 30 day opt-out period. In some instances, the opt-out might have happened before any contributions had been taken.

I asked for someone to calculate the maximum amount of interest a weekly-paid jobholder could accrue between the point of automatic enrolment and the refund of all contributions taken following an opt-out at the last minute, including the time taken to make the refund. I am advised that for someone on a median salary of £24,550 a year, with a 5 per cent interest rate, it would amount to 60 pence. The equivalent for a monthly-paid jobholder would be about £1.50. I suggest that putting in place complicated arrangements and provisions to deal with that goes against the spirit of simplicity and trying to make the administration of this as effective as possible.

We are currently on target to publish and consult on draft regulations during the early part of 2009. The resultant regulations will be subject to the affirmative procedure, which means that there will be plenty of

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scope for further debate about the detail in due course. I urge the noble Lord not to press the amendment. I understand that he is seeking to achieve equity in all of this, but for the potential sums involved—the amounts calculated were maximum amounts—having a bureaucracy to deal specifically with them is inappropriate.

Lord Skelmersdale: My Lords, I am glad that my amendment prompted the noble Lord to have some mathematics done behind the scenes, but the mathematics are accurate only if there is a comparatively short period before the repayment is made. The longer the repayment takes, the more interest will have accrued.

Lord McKenzie of Luton: My Lords, if the noble Lord will permit me, I can go through the detail of the calculation. I have not done it myself, but I asked about the maximum amount of interest, assuming that opt-out is at the last minute and that the refund takes the maximum time to be completed—two paydays or 21 days, whichever is shorter. That is the current proposition. I had asked for the calculation on the basis of the maximum interest that would accrue in that scenario. It is relatively modest, as I have pointed out.

Lord Oakeshott of Seagrove Bay: My Lords, what was the rate of interest?

Lord McKenzie of Luton: My Lords, the rate of interest was five per cent.

Lord Oakeshott of Seagrove Bay: My Lords, you can do a lot better than that these days, even with reliable banks.

Lord Skelmersdale: My Lords, it does not matter when the calculation is made; what matters is when the money gets back to the employer and the employee, which may take a considerably longer time. We simply do not know. The noble Lord talks about—

Lord McKenzie of Luton: My Lords, I am sorry to keep jumping up, but it is important that we are clear on this. I have explained that we will consult around a proposition and what that proposition is. It is the 14-day period for becoming an active member of the scheme, a 30-day opt-out period that runs from that and, if opt-out has taken place, there will be a defined period within which contributions must be refunded to the individual. This is not open-ended. The period, once opt-out has taken place, would be the lesser of 21 days or two paydays. Obviously, for monthly paydays the period would be 21 days, and for weekly arrangements it would be two weeks—depending on whether the person had worked for a week in hand. I hope that that helps. We are not talking about open-ended issues, but about consulting on a proposition with real timescales that are around those that I have indicated. That is our current thinking.

Lord Skelmersdale: My Lords, we are talking—or at least the Minister is—about a situation in which we have 100 per cent, perfect, super-duper administration. The Minister said—and I wrote this down—that the

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current thinking was that some 30 per cent of the 6.5 million people of whom he has been talking are believed to be likely to opt out. That is around 2 million people. If 2 million amounts of cash are floating around, that represents 4 million repayments, does it not? To achieve that within a short period is beyond possibility. However, I shall not press the amendment as I was asking whether the Government had any intention of paying back any interest earned on that money. The answer is no and I am content, for the moment, to live with that, but I cannot promise that I shall be content for very much longer. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 [Workers without qualifying earnings]:

Lord McKenzie of Luton moved Amendment No. 13:

13: Clause 9, page 6, line 41, leave out “rules”

On Question, amendment agreed to.

Clause 10 [Information to be given to workers]:

[Amendment No. 14 not moved.]

Baroness Noakes moved Amendment No. 15:

15: After Clause 10, insert the following new Clause—

“Protection for employers

(1) An employer shall not be required to give advice to jobholders or workers, either generally or on an individual basis, in respect of their rights under this Chapter.

(2) An employer who provides information in compliance with any regulations issued under section 10 shall not incur any liability to any jobholder or worker to whom the information is given.”

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