Pensions Bill
15. This bill is concerned mainly with private
pension schemes and arrangements, although Part 2 contains two
provisions about additional state pension and state pension credit.
The contents of the six parts of the bill are summarised in paragraph
15 of the Explanatory Notes. The Department for Work and Pensions
has submitted a memorandum for the Committee explaining the delegations
of legislative power, printed at Appendix 2. It is unfortunate
that the clause numbering in the department's memorandum does
not entirely correspond to that of the bill brought from the Commons.
Henry VIII powers
16. In the introductory part of its memorandum,
the department lists the Henry VIII powers conferred in clauses
13, 61, 75 and 117 of, and in paragraph 9 of Schedule 4 to, the
bill. Those conferred by clauses 75 and 117 are subject to the
affirmative procedure and are not inappropriate in terms of delegation.
The power in clause 13 is exercisable by negative order and enables
the Secretary of State to amend the minimum and maximum earnings
figures set out in clause 12(1)(a) and (b) but the negative procedure
is not inappropriate because the change is limited to the amount
appropriate to ensure that the figures retain their value. We
consider below the Henry VIII powers conferred in clause 61 and
Schedule 4.
Prescribed arrangements by employers — clauses
3, 5, 6 & 8
17. Part 1 of the bill imposes new duties on
employers to enrol eligible jobholders into "automatic enrolment
schemes" (defined in clause 16) and to contribute to the
pension arrangements under those schemes. For that purpose, each
of clauses 3(2), 5(2), 6(3) and 8(2) sets out in the bill itself
the general objective to be achieved for the purposes of that
clause. For instance, clause 3(2) requires that the jobholder
is to become an active member of an automatic enrolment scheme,
but that outcome is to be secured by the employer making arrangements
which are to be prescribed in negative regulations. Similarly,
clauses 5(2), 6(4)(b) and 8(3)(b) leave to negative regulations
the actual duties which are to be imposed on employers as respects
automatic enrolment, "opting in" by jobholders, and
workers who do not have "qualifying earnings".
18. The regime to be imposed on employers under
Part 1 bears some similarity to the arrangements under Part 1
of the Welfare Reform and Pensions Act 1999 for stakeholder pension
schemes, under which much of the provision about the nature of
such schemes, their registration and the information to be provided
about them is made in negative regulations. There are, however,
some significant differences: much of the provision about the
obligations of employers was set out in section 3 of the 1999
Act; and the duties to be imposed on employers under Part 1 of
the bill appear to be more extensive and potentially more onerous
than those under the 1999 Act. Moreover, new burdens imposed on
employers seldom prove to be uncontroversial. We therefore
consider that the first exercise of the powers under clauses 3(2),
5(2), 6(4)(b) and 8(3)(b) should be subject to the affirmative
procedure.
Qualifying schemes — clause 15
19. An "automatic enrolment scheme"
is defined (clause 16) for the purposes of Part 1 in terms of
a "qualifying scheme" which is in turn defined in clause
15(1). Clause 15(2) enables the Secretary of State by negative
regulations to provide that a scheme is not a qualifying scheme
if it requires the payment of management charges or contributions
from members exceeding a prescribed amount, or if it provides
for average salary benefits and "contains prescribed features".
In paragraph 82 of its memorandum, the department explains that
this last power "is included to deal with schemes which fail
to revalue accrued savings". The memorandum does not explain
why that feature could not be set out, or at least described more
specifically, in the bill itself. The power conferred by clause
15(2)(c) goes much wider than the purpose stated in the memorandum
and would enable an average salary scheme to be removed from the
definition of "qualifying scheme" on virtually any ground
whatever. In the light of the importance of that definition in
the construction of Part 1, we recommend that the delegation
at clause 15(2)(c) be more closely confined to the purpose for
which the memorandum states that it is being conferred. If that
cannot be done, then the power should be subject to the affirmative
procedure.
Compliance notices — clause 31
20. Where the Pensions Regulator considers that
an employer has contravened one of the provisions in clauses 2
to 10 or regulations under them ("the employer duty provisions"),
it may give the employer a "compliance notice" requiring
him to take, or not take, specified steps in order to remedy the
contravention. Where the reason for a compliance notice is the
employer's failure to comply with a duty to arrange for a jobholder
to become a member of a scheme, subsection (6) enables the Secretary
of State to make provision in negative regulations for the application
of clauses 2 to 9 in relation to that employer. The purpose of
the power and the ways in which it is likely to be exercised are
not clear from the Explanatory Notes or memorandum.
21. In paragraph 139 of its memorandum the department
explains that the reason for the delegation is "to say how
… regulations [under clauses 2 to 9] will apply to employers
to whom a compliance notice has been issued". But the inclusion
in such regulations of special provision for employers who are
subject to compliance notices could almost certainly be achieved
under the wide additional powers conferred by clause 116(3). The
purpose of the power in subsection (6) would seem to enable the
application of clauses 2 to 9 themselves to be modified, and even
suspended, possibly in relation to the jobholder as well as the
employer (paragraph 138 of the memorandum). In view of these
uncertainties in the stated purpose of this power, we invite the
House to ask the Minister better to justify the delegation, or
else require the affirmative procedure for the first exercise
of the power.
References to the Pensions Regulator Tribunal
— clause 39
22. Clause 39 provides that a person issued with
a penalty notice has the right to refer the matter to the Pensions
Regulator Tribunal in respect of either the issue of the notice
or the amount of the penalty. Subsection (2) allows the Secretary
of State, by regulations subject to negative resolution, to make
provision for (a) the manner and time within which a reference
may be made; (b) the procedure to be followed; and (c) the powers
of the Pensions Regulator Tribunal in relation to such a reference.
Regulations making provision about (a) and (b) are appropriately
subject to the negative procedure. The purpose of the power at
paragraph (c) is described in paragraph 164 of the memorandum
as being "to provide flexibility about how the powers of
the Tribunal will be adapted to the requirements of the new penalties
in clauses 35 and 36", but it is not clear to us why the
powers of the Tribunal cannot be set out in the bill itself, as
happened in section 103(4)-(8) of the Pensions Act 2004. If that
cannot be done, we consider that the power in clause 39(2)(c)
should be subject to affirmative resolution.
Power to establish a pension scheme — Part
1, Chapter 4
23. Clause 58 (amplified by the other clauses
in Chapter 4 of Part 1) confers power on the Secretary of State
by affirmative order to establish a pension scheme (to be regarded
as if it were an irrevocable trust) and to provide for its administration
and management. The clause envisages that, as for many pension
schemes, provision will be allocated between a governing instrument
(here, the order) and a more detailed operational code (in this
case the rules, which under the order may be made by the trustees
who are to administer the scheme or otherwise may be made by the
Secretary of State). Clauses 58(10) and (11) secure the primacy
of orders over rules and identify the kind of provision reserved
to an order, which can put further constraints on the power to
make rules. Once a scheme has been established, the orders and
rules made by the Secretary of State require the consent of the
trustees; and there are requirements (clauses 59(4), 60(1), 62
and 63) for consultation before subsequent orders and rules may
be made, and for rules to be published.
24. Although the powers conferred in this chapter
are wide in the sense that they enable an entire pension scheme
to be devised and arranged by way of delegated legislation, in
view of the constraints set out in clauses 58 to 63 and the affirmative
procedure, the delegation in Chapter 4 is not inappropriate.
25. Clause 61(1) requires the order establishing
the scheme to prescribe a maximum amount of contributions that
may be made in respect of a member in any tax year and subsections
(2) and (3) enable the order to make related provision. In paragraph
197 of its memorandum, the department explains that in 2017 there
will be a review of contributions limits, following which a decision
might be taken to abolish them. A Henry VIII power to repeal clause
61 is therefore included in subsection (5), to avoid the need
for a bill for the purpose. We do not consider this inappropriate
because the purpose of the power is sufficiently clear and the
affirmative procedure will afford the House an opportunity to
satisfy itself that the abolition of contributions limits has
become appropriate as a matter of policy.
Extension of definition of "worker"
— clause 85
26. Many of the rights conferred and obligations
imposed under Part 1 of the bill are expressed in relation to
a "jobholder", defined in clause 1 in terms of an employee
or a "worker", which is in turn defined in clause 77(4)
to include those engaged in certain contractual work as well as
work under contracts of employment. "Worker" is thus
a key expression in determining the scope of Part 1. Clause 85
enables the Secretary of State to apply Part 1 by negative regulations
to other persons falling outside the definition of "worker"
in clause 77(4) and therefore also to persons who would not otherwise
be a worker's "employer" under that clause (see clause
85(c)).
27. In paragraph 223 of its memorandum, the department
explains that this power follows a precedent in section 41 of
the National Minimum Wage Act 1998: that power is in almost identical
terms to this one; and there is also provision of a similar kind
in section 318(4) of the Pensions Act 2004, which enables the
Secretary of State to extend the meaning of "employer"
for purposes of that Act. On these precedents, the scope of delegation
is not inappropriate but both of the precedents are subject
to the affirmative procedure and we recommend that the same applies
here.
Sharing of pension compensation — Part 3,
chapter 1
28. Part 4 of the Welfare Reform and Pensions
Act 1999 made provision for pensions to be shared on divorce or
dissolution of a marriage. Part 2 of the Pensions Act 2004 established
the Board of the Pension Protection Fund ("PPF") to
provide compensation for members of occupational pension schemes
whose sponsoring employer becomes insolvent. Chapter 1 of Part
3 of this bill now introduces arrangements for PPF compensation
to be shared on dissolution etc. of a marriage or civil partnership.
Clauses 91 to 104 and Schedules 4 to 6 contain many delegated
powers, almost all of which are the equivalent of, and in many
cases are identical to, powers conferred by the 1999 and 2004
Acts, the great majority of which are in those Acts as here subject
to negative procedure. Save in the following respect, we do not
consider either the delegation or procedure to be inappropriate.
29. Schedule 4 is concerned with the amount of
PPF compensation which is to be payable to a former spouse or
civil partner ("the transferee"), and paragraph 9 permits
the transferee to commute part of their pension compensation as
a lump sum in prescribed circumstances, up to a maximum of 25%.
Sub-paragraph (7) enables the Secretary of State to substitute
a different percentage by order. Although the memorandum describes
this power as (exceptionally) affirmative (italic description
above paragraph 255), the bill does not list it as such in clause
115(4) or (5). Paragraphs 268 and 269 of the memorandum, while
acknowledging that the power is a Henry VIII power, instead suggest
that the negative procedure is sufficient because the "commutation
limit is intended to mirror HMRC limits on commutation" and
"any change will only be made to correspond to changes made
to the tax regime".
30. Paragraph 9 of Schedule 4 is indistinguishable
in principle from paragraph 24 of Schedule 7 to the Pensions Act
2004, and the power here conferred by paragraph 9(7) is identical
to that conferred by paragraph 24(8) save for the difference in
parliamentary procedure. We recommend that the power in paragraph
9(7) should subject to the affirmative procedure.
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