Annex: supplementary memorandum
Clause 3 - Automatic enrolment
Clause 5 - Automatic re-enrolment
Clause 6 - Jobholder's right to opt in
Powers conferred on: Secretary of State
Powers exercised by: Regulations (statutory instrument)
Parliamentary procedure: Affirmative procedure when first exercised then negative thereafter.
9. Clause 3 places a duty on employers to automatically enrol those jobholders aged at least 22 and under pensionable age into an automatic enrolment scheme, who they are not already active members of a qualifying scheme.
10. Clause 5 imposes a duty on employers to periodically automatically re-enrol jobholders aged at least 22 and under pensionable age, who are not in a qualifying scheme, into a qualifying scheme, and sets out circumstances in which the duty applies.
11. Clause 6 provides for jobholders, who are not participating in workplace pension saving because they opted out or ceased saving, or do not qualify for automatic enrolment because they are aged between 16 and 22 or between pensionable age and age 75, to opt in.
Purpose of power
12. A new power to ensure that information is provided by employers or schemes to any person that is relevant to the automatic enrolment process and the scheme in question, but in particular jobholders, about how the enrolment process affects them. We envisage that the power would be used principally to oblige pension schemes to provide information about the scheme to jobholders - notably the provision of terms and conditions where personal pensions are concerned.
13. The power to regulate for an exemption from automatic enrolment and re-enrolment for personal pensions will be removed. These new powers at 3(5) and 5(5) replace them.
14. The purpose of these new powers is to allow for a jobholder to be automatically enrolled, as set out under clause 3(2) and re-automatically enrolled under clause 5(2), into a personal pension scheme. The powers specify the need for a deemed agreement between the jobholder and the provider of the scheme on the basis of terms and conditions to be determined by regulations where the automatic enrolment is into a personal pension scheme.
15. The term "provider", will be defined in regulations under clause 86 in the case of non-UK personal pensions.
Reason for delegation
16. The purpose of automatic enrolment is to facilitate the enrolment of jobholders into pension savings without the need for active participation on the part of the jobholder. Unlike occupational pensions, which must be provided under trust, personal pensions are provided through agreement with the pension provider.
17. In order to facilitate automatic enrolment for personal pensions there is a need to deem the existence of the agreement at a point in the automatic enrolment process. That agreement will be deemed on the basis of terms and conditions to be prescribed in regulations. In developing what those terms and conditions will be we will need to consult the pensions industry and consumers. We also need to retain flexibility for the future, so that the terms and conditions remain relevant and are able to be adapted where appropriate in the future.
18. It will be necessary to define the term 'provider' for non-UK personal pension schemes in regulations under clause 86, as the relevant party for the purposes of the deemed agreement, because we need to consult with stakeholders and ensure that as necessary we accommodate schemes with features not common to UK schemes. This will be determined in conjunction with the regulations establishing the overall quality requirement for non-UK personal pensions (see paragraphs 19-23).
Clause 16 - Automatic enrolment schemes
Powers conferred on: Secretary of State
Powers exercised by: Regulations (statutory instrument)
Parliamentary procedure: Affirmative resolution
19. Clause 16 specifies which qualifying schemes can be used for automatic enrolment, re-enrolment or opt-in to fulfil the employer duty.
Purpose of power
20. The purpose of this power is to give the Secretary of State an ability to prescribe additional qualifying criteria, in secondary legislation, for schemes used for automatic enrolment if necessary.
Reason for delegation
21. It is important to ensure robust requirements that take account of the distinct governance and regulatory arrangements for the range of schemes which will be used to meet the new duties on employers., particularly in relation to personal pension schemes used for automatic enrolment. It may be appropriate to introduce further safeguards for automatically enrolled members of these schemes if the way that the pension products are managed could undermine the aims of pension savings under these reforms. In particular, we may need to consider issues such as schemes' charging structures for members who entered the scheme under the employer duty, and approaches to default investments.
22. We plan to consult on the proposed secondary legislation to ensure the views of all interested parties are considered and allow full consideration of how these powers would be used.
Clause 23 - Quality requirement: UK hybrid schemes
Powers conferred on: Secretary of State
Powers exercised by: Regulations (statutory instrument)
Parliamentary procedure: Negative resolution
23. Clause 23 sets out the quality requirements for UK hybrid schemes being offered as qualifying schemes under the employer duty. Hybrid schemes have elements of a money purchase structure and a defined benefits structure.
Purpose of power
24. Rules made under powers in clause 23 will direct employers to the appropriate quality requirements for their hybrid scheme. The money purchase or defined benefits quality criteria, or a combination of both will apply. Regulations will enable the quality requirements to be modified so that they can accommodate a range of hybrid schemes.
Reason for delegation
25. Hybrids come in a variety of forms and some have complex benefit structures. Enabling the tests of scheme quality to be modified in regulations allows the Secretary of State to deal flexibly with these schemes to ensure that the standards of schemes used for the employer duty meet the aims of these pension reforms. For example, the quality requirements in subsection (1) of clause 23 might be modified for schemes where the members accrue a notional fund which is then used to provide for an annuity rather than a pension or for a combination hybrid where a member's pension is made up a money purchase and defined benefit component. The tests can adapt so that they apply in proportion to the money purchase and defined benefit element of the pension.
26. Enabling the modifications to be provided for in regulations, allows for full consultation with key stakeholders to ensure that the quality requirements can be applied in a relatively straightforward manner.
New Clause after 25 - Quality requirement: other personal pensions
Powers conferred on: Secretary of State
Powers exercised by: Regulations (statutory instrument)
Parliamentary procedure: Negative resolution
27. This new clause will enable the Secretary of State to specify the quality requirements for non-UK personal pension schemes in regulations.
Purpose of power
28. The power will enable the quality requirements of personal pension schemes operated outside of the UK to be set in regulations. This will allow the required flexibility to accommodate schemes subject to a regulatory regime outside of the UK or with features not common to UK schemes.
29. The power would allow the Secretary of State to respond flexibly to the widest range of schemes, thus enabling employers to maintain high quality, diverse pension provision.
Reason for delegation
30. We want to enable employers who wish to use schemes based outside of the United Kingdom to do so, provided they meet minimum standards and are appropriately regulated. However, we are currently not in a position to set out global standards or regulatory requirements in this legislation.
31. We would like to consider this issue in more detail and also take the opportunity to seek views of the relevant stakeholders (particularly consumer protection groups) to enable individuals to benefit from the widest range of good-quality schemes.
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