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( ) A reference in any provision to the relevant pay reference period is a reference to the period determined in accordance with regulations under this section, as they apply for the purposes of that provision in the case concerned.
The noble Baroness said: My Lords, Amendment No. 33 would add an additional subsection at the end of Clause 28, which is the clause which deals with transitional arrangements for money purchase and personal pensions schemes.
In Committee, I raised the issues that have been raised with us by several sources, namely the cost and administrative burdens for SMEs of moving to compliance with this Bill and with the auto-enrolment requirements in particular. I remind the House that on the Governments own estimates this Bill will cost employers £2.5 billion a year, on top of year-one costs, but this will bear disproportionately on small and medium-sized employers. On the Governments figures, £1.2 billion will be borne by SMEs, adding around 1 per cent to payroll costs compared with 0.5 per cent for larger employers. Organisations which represent SMEs believe that the Governments figures massively understate the administrative cost burden that will fall on SMEs and, in particular, on microemployers.
In Committee, the Minister accepted that there were concerns about the impact of auto-enrolment on employers, but conspicuously failed to give the kind of assurances on which the SME sector could place any value. He did not accept that a support package for SMEs, such as that proposed by the Engineering Employers Federation, was necessary. He did not even commit to constructing the staging of the introduction, as envisaged by Clause 12, so that small employers were last in the queue.
I return to these themes with Amendment No. 33, which would allow the transitional arrangements of phasing, as set out in Clause 28, to be specified differently
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I am not wedded to giving support to the SME sector through either or both staging or phasing. There are other options, such as the EEFs proposals for a special support package, which I have already mentioned. What I am keen to see is that special provisions are made in this Bill or outside it to enable support to be delivered in some form to SMEs.
I remind the Minister that the economic environment in which auto-enrolment is now being developed is considerably less benign than when the Pensions Commission first came up with its proposals. We do not know what the economic circumstances will be in 2011 or 2012 in the run-up to the commencement of auto-enrolment but, even if the economy improves, as we all earnestly desire, many employers still in business may be nursing the wounds of the current trading environment. These will be additional strains to those of absorbing the one-off and ongoing costs imposed by this Bill. My amendment would give the Government some additional flexibility to respond to circumstances and deliver aid where necessary to assist in a successful launch of auto-enrolment. I hope that, if the Government cannot accept this amendment, they will have some positive proposals of their own. I beg to move.
While Clause 28 sets out specific arrangements for phasing, moving from 1 per cent to 3 per cent employer contributions over two transitional periods of at least a year, we have retained the flexibility to set the length of the periods in regulations. We believe that our proposed arrangements for phasing will help all employers adjust to the reforms. However, phasing will be of most benefit to the smallest employers who do not currently make workplace pension contributions for their workers. Only 23 per cent of firms with fewer than five employees offer pension provision with an employer contribution, compared to over 60 per cent of firms that have more than 50 employees.
We will consult employers and employer groups to develop the detailed regulations that will establish exactly how long phasing will last. As part of this consultation, we will, of course, consider any views about whether our proposed arrangement is right for all types of employer. We also intend to carry out research into the ability of small employers to absorb and adjust to increases in costs. These findings will
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We believe that these measures will help to minimise the impact of the reforms on employers of all types. We will continue to work closely with employers to develop the secondary legislation for phasing and for all the employer duty and compliance measures. I hope that this provides some reassurance, in particular that what the noble Baroness seeks to achieve in her amendment is already made possible by two separate clauses in the Bill.
Baroness Noakes: My Lords, I am grateful for the clarification on how Clause 28 can be extended by Clause 138. Having looked at it briefly, I might be forgiven for not realising that it had that effect. The purpose of my amendment was to raise the issue of support for the SME sector. I still did not hear from the Government whether they plan to do anything for SMEs, either by staging or phasing, or in any other way. The Minister did not respond to that. Will he do that, before I decide what to do with my amendment?
Lord McKenzie of Luton: My Lords, we are pretty much where we were when we discussed the matter in Committee. We are consulting and, when we look at the total costs of the scheme, there will be issues to discuss around procurement before funding arrangements become clear. Knowing more fully what is involved, we will be able to take more informed judgments. We have taken no final decisions on these matters. As I explained, we will consult when regulations are put forward, but we have the scope in the regulations to phase differently for smaller or larger employers.
We recognise that the reforms should impose the fewest possible burdens on employers of all sizes, and small employers in particular. In developing the policy and operational framework for the reforms, we have engaged with employers and their representatives to ensure that we balance our objectives of increasing access to pension savings while minimising employer burdens.
Until operational systems are more fully developed, we cannot predict reliably the final costs of potential administrative burdens. There is no evidence at this stage that financial support would be necessary for small employers. Obviously it would be unwise currently to commit future Governments to spending taxpayers money in this way. I would like to re-emphasise our
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As we have said before, we expect staging to occur by business size. However, the decision on how we divide employers into groups is operational. We will not be in a position to consult until we have had detailed input from the Pensions Regulator and PADA on system readiness, but we will consult on regulations that we expect in late 2009. I return to the point that the specific flexibility that the noble Baroness seeks with the amendment is already in the Bill.
Baroness Noakes: My Lords, I thank the Minister for confirming that the flexibility is in the Bill and for what he has said on the burdens on businesses of different sizes being taken into account. He should perhaps recognise that there are still concerns among groups that represent smaller employers. The Government have been keen to say what they could do, but have not said what they will do. That leaves smaller employers feeling that they will bear something which may feel unsustainable when the time comes and not knowing whether their concerns are recognised, especially asthe Minister will knowthere is considerable dispute about whether the Governments figures for smaller businesses fairly reflect the cost burdens that will be reflected on them.
I shall not divide the House on the amendment, but will urge the Government to stay in touch with organisations that are in touch with the concerns of all employers, particularly small employers, because these are very real issues that could affect the success or otherwise of any launch of personal accounts. If we put that in the context of a conjuncture where economic circumstances are not good, the Government could be laying straws that break camels backs without intending to if they are not very careful when they implement these proposals. I beg leave to withdraw the amendment.
( ) must not exceed 10% of the turnover of the employer (determined in accordance with such provisions as may be specified in an order made by the Secretary of State).
The noble Lord said: My Lords, in Committee I tabled amendments to compare the penalty regime in the Bill with the much lighter regime that the Government have seen fit to impose for national minimum wage avoidance, about which we heard a little in the second Starred Question today. The Ministers objections to those amendments have led to some changes in my approach, and I hope that my attempts today will garner rather more sympathy from him than previously. For example, I appreciate his argument that the regulator already has the power to impose a penalty of £50,000 so it would be inconsistent to reduce arbitrarily that cap for these penalties. We have therefore withdrawn our objection in this area; indeed, we have been so receptive to this that I have not even imposed a cap on the escalating penalty, although I still have severe reservations about giving such an unlimited power to the regulator.
Instead I have addressed our concerns about the possible size of penalties in another way, again by using a technique found in existing legislation. The Competition Act 1998 sets out the penalties that could be imposed on businesses as a function of their turnover. That has many advantages. First, larger businesses, which could pay a penalty without much difficulty and could avoid obligations so as to save a great deal of money, can be hit with an appropriately high penalty. Secondly, at the other end of the scale, small businesses are protected from a disproportionate penalty that in many cases could shut them down altogetherI think everyone would agree that that would not be in the best interests of their employees or indeed the economy as a whole.
Despite my attempts to address the Ministers concerns regarding our amendments, I am sure that he will have found new reasons to oppose thesealthough I can indulge in optimism at least until I sit down. It is possible that he will object to the limitations these amendments will impose on the freedom of the regulator to impose the enormous penalty of £50,000. However, given that apparently neither the regulator nor his predecessor, Opra, has ever in 13 years existence imposed a penalty higher than £10,000, I cannot feel that this limitation will hamper the regulator in his duties.
I do not feel that the limitation this amendment imposes on the escalating penalties will be difficult to live with either. The Minister pointed out in Committee that limiting Clause 40 would in effect cap the period within which employers are deterred from continuing to breach their duties. He spoke as though these penalties were the last resort. Of course they are not. A very comprehensive deterrence is still available in the form of prosecution through the courts. If an employer is not deterred by the time he has seen 10 per cent of his annual turnover become liable for confiscation, I feel that the best way to encourage his future compliance would be to expose him to the potential penalty of two years imprisonment.
The precedents that the Minister highlighted in aid of this uncapped escalating penalty do not in any way justify what Clause 40 does. The Companies House regime, from what I can see, imposes a maximum penalty of £15,000 for a public company filing more
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