Draft Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 and three related instruments, etc - Merits of Statutory Instruments Committee Contents


Ninth Report


Instruments Drawn to the Special Attention of the House

The Committee has considered the following instruments and has determined that the special attention of the House should be drawn to them on the grounds specified.

A.  Draft Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 and three related instruments[1]

Summary: This draft affirmative instrument sets up the provisions for the automatic enrolment of workers into an occupational pension scheme as set out in the Pensions Act 2008. This was proposed as a response to findings that around 7 million people are currently not saving enough to deliver the pension income they are likely to want in retirement with an estimated 44% of working age employees not contributing to a private pension. Supporting regulations set out further details to allow the phasing in of the scheme over the period 2012-17 and to prevent circumvention or abuse of the requirements.

These instruments are drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

1.  The Department of Work and Pensions (DWP) has laid these instruments under provisions of the Pension Schemes Act 1993, and Pensions Acts 1995 & 2008, along with an Explanatory Memorandum (EM) and an Impact Assessment (IA).

Background

2.  The Government's pensions proposals were outlined in response to a report by Lord Turner, the Chairman of the Pensions Commission, which said that around 7 million people are currently not saving enough to deliver the pension income they are likely to want in retirement, with an estimated 44% of working age employees not contributing to a private pension.[2] Following the Commission's recommendations, the Government responded in the White Paper Security in retirement: towards a new pension system, published in May 2006, which set out a programme of State and workplace pension reforms with the objective of increasing an individual's income in retirement.[3]

3.  The first part of this reform package was implemented through the Pensions Act 2007 which focused on changes to state pensions, and established the Personal Accounts Delivery Authority (PADA). The Pensions Act 2008 concentrated on workplace pension reforms and included new duties on all employers to automatically enrol eligible jobholders into a pension scheme and pay a minimum contribution. It also established a compliance regime that will be delivered by the Pensions Regulator and provided for a new low cost simple pension scheme.

4.  These Regulations and the three related negative instruments make provision about employers' duties and workplace enrolment. The National Employment Savings Trust Order and five associated instruments, mentioned below, set up arrangements for the low cost pension scheme.

  • Draft Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 set out the practical arrangements employers must make to automatically enrol eligible jobholders into a workplace pension scheme, as required by the Pensions Act 2008, including the set minimum contributions.[4] Individuals who do not want to participate in pension saving have the right to opt out. The instrument also provides those people not eligible for automatic enrolment with the ability to opt into pension saving voluntarily. Where an employer operates a higher quality scheme, the Act enables the employer to postpone automatic enrolment for a period of time. This affirmative instrument sets out the practical arrangements underpinning the scheme including the process and time limits for employers to achieve active membership for jobholders and the information flows required between employers, pension schemes and jobholders.
  • This suite of regulations also extends the due date by which an employer must pay over employee contributions deducted from earnings to a pension scheme. By allowing the employer to keep the contributions until after the opt out period has passed, the need for the scheme to refund contributions to the employer if the jobholder opts out will be minimised.
  • Employers' Duties (Implementation) Regulations 2010 (SI2010/4) phase in the requirements on specific dates according to the description of the employer. The implementation approach has been designed to help small employers adjust to the costs of reform gradually and minimise costs to small employers during the implementation period:

-  Employers will be brought into the duties by size with large and medium-sized employers brought in first, followed by small and micro employers, giving small employers more time to smooth the costs of set-up;

-  Minimum contributions will be phased in to help employers adjust to the additional costs gradually;

-  To ensure that the compliance regime, communications approach and support for smaller employers works, a group of small employers will be required to automatically enrol their eligible jobholders into a pension scheme early on in the implementation process. Bringing them under the duties earlier will make sure that the needs of this group can be understood, and the approach tailored accordingly, before the majority of the small and micro employers become subject to the duties.

  • Employers' Duties (Registration and Compliance) Regulations 2010 (SI2010/5) set out safeguards to prevent an employer persuading or forcing a jobholder to opt out or leave pension saving and recruitment arrangements that are intended to screen out job applicants who want to save in a pension. This is perceived as necessary to enable the enforcement of these new obligations in order to protect individuals' access to pension saving and provide a level playing field for employers.

B.  Draft National Employment Savings Trust Order 2010 and five associated instruments[5]

Summary: This affirmative instrument sets up the National Employment Savings Trust (NEST) pension scheme. The scheme is aimed at low to moderate earners so that employers who have no private pension provision can use the scheme to fulfil their duties outlined in the Automatic Enrolment Regulations. Supporting regulations set out that the role of member-nominated trustees will be fulfilled by a members' panel; ban transfers of cash equivalent sums built up under other pension arrangements into and out of that pension scheme in most circumstances; and set out the name of the trustee corporation that will run the scheme. A further affirmative order will wind up the Personal Accounts Delivery Authority which was set up on a time-limited basis to advise the Secretary of State on setting up the new pension scheme, from 5 July 2010 when the NEST corporation takes over. Additional information on how the costs of setting up the scheme are to be raised is set out in Appendix 1 although the position is not yet clear.

These instruments are drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

5.  The Department of Work and Pensions (DWP) has laid these instruments under provisions of the Pensions Acts 2008 along with an Explanatory Memorandum (EM) and an Impact Assessment (IA).

6.  The Pensions Act 2008 imposes a duty on the Secretary of State to establish a pension scheme, treated as if established under a permanent trust (like many other occupational pension schemes) through legislation. The aim of the scheme is to address pension saving amongst moderate to low earners who do not have access to a quality workplace pension scheme and it includes a public service obligation to accept any employer who wishes to use the scheme to fulfil their duty under the automatic enrolment requirements.

  • Draft National Employment Savings Trust Order 2010 - This affirmative instrument establishes the first set of rules for the scheme. The Committee requested further information on how the costs of setting up the scheme are to be raised, and noted that the early joiners may be charged more than those who join later (see Appendix 1). A number of key issues are still under discussion and the position is not yet clear. It should be noted that, like any other investment scheme, there is potential for the fund to go down as well as up: the level of eventual pension payments is not guaranteed.
  • Transfer Values (Disapplication) Regulations 2010 (SI 2010/6) prohibit the transfer of pension funds out of the National Employment Savings Trust scheme, except in certain circumstances relating to pension sharing on divorce. This restriction on transfers, along with an annual contribution limit (the amount which can be paid in to the scheme each tax year), are specific measures in this legislative package to focus the scheme on the target market of moderate to low earners. However these rights may be re-applied where the member is (i) over the minimum pension age and satisfies certain conditions, or (ii) in cases of ill-health.
  • Application of Pension Legislation to The National Employment Savings Trust Corporation Regulations 2010 (SI 2010/8) and the National Employment Savings Trust (Consequential Provisions) Order 2010 (SI 2010/9) provide that certain parts of trustee legislation relating to the trustees' knowledge of the scheme and the auditing requirements will apply to the National Employment Savings Trust scheme in a modified form. The scheme will be exempt from the Fraud Compensation Fund and levy (which relates to employer sponsored pension schemes) and from having member-nominated trustees (the members' panel will instead represent the scheme members).
  • National Employment Savings Trust Corporation Naming and Financial Year Order (SI2010/3) names the body which will run the scheme, and the
  • Draft Personal Accounts Delivery Authority Winding Up Order 2010 winds up the Personal Accounts Delivery Authority and makes arrangements for the transfer of its property, rights and liabilities to either the National Employment Savings Trust Corporation (the NEST Corporation) or the Secretary of State. The Authority was set up on a time-limited basis to assist and advise the Secretary of State on setting up a new pension scheme and will cease to exist when NEST takes over on 5 July 2010.

C.  Draft CRC[6] Energy Efficiency Scheme Order 2010

Summary: The purpose of this draft Order is to create the CRC Energy Efficiency Scheme (CRC), the aim of which is to reduce carbon emissions through improving energy efficiency in large public and private sector organisations. The mandatory scheme is part of the Government's strategy to meet its domestic and international greenhouse gas emission reduction targets. The specific policy aim is for the CRC to deliver emissions reductions of at least 4 million tonnes of carbon dioxide (MtCO2) per annum by 2020. The scheme has been under development for a number of years, and the Explanatory Memorandum says there is generally strong agreement with the Government's proposals. Linked regulations made under the Finance Act 2008 will provide the scheme administrator with powers to sell allowances to CRC participants, an important aspect of the scheme. However, these Regulations will not be laid until the Spring, and DECC acknowledge that the timeline is subject to possible delays with the calling of the General Election amongst other things. The House may therefore wish to seek assurance from the Government that the Regulations will come into force by April 2011, as this is when the first allowances sale will be held.

This instrument is drawn to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.

7.  The purpose of this draft Order is to create a new energy efficiency scheme called the CRC Energy Efficiency Scheme (CRC). The aim of the scheme is to reduce carbon emissions through improving energy efficiency in large public and private sector organisations. The scheme is part of the Government's strategy to meet its domestic and international greenhouse gas emission reduction targets. The scheme will be mandatory and will be administered by the Environment Agency, the Scottish Environment Protection Agency and the Northern Ireland Chief Inspector.

8.  The draft Order has been laid with an impact assessment, and the Department of Energy and Climate Change (DECC) has submitted further information to the Merits Committee (see Appendix 2). The Explanatory Memorandum (EM) says that emissions from the CRC's target sector are estimated to be approximately 53.2 million tonnes of carbon dioxide (MtCO2) per annum, and the policy aim for the CRC is to deliver emissions reductions of at least 4 MtCO2 per annum by 2020 (paragraph 7.2). The EM also says that the net financial benefits to participants of achieving this reduction will be approximately £1 billion per annum by 2020 (paragraph 7.2). The administrator of the scheme will publish a league table setting out how well each participant is improving its energy efficiency relative to other participants.

9.  The EM shows that the scheme has been under development for a number of years, and there is generally strong agreement with the Government's proposals (paragraph 8). However, there has been concern expressed in the schools sector that local authorities will be financially accountable for the energy usage of schools but without having sufficient levers to influence their schools' behaviour. In response, DECC has provided a duty for schools to provide their local authorities with relevant information, and for local authorities to pass on the costs and benefits of CRC participation to their schools (see Appendix 2). The Merits Committee has also received written evidence from Freshwater Public Affairs on behalf of Forth Ports PLC (see Appendix 2). They raise a similar concern about the decision to make landlords (specifically in the case of ports), where they supply electricity to tenants, responsible for the carbon emissions of their tenants under the CRC. DECC has submitted further information addressing the points made by Forte Ports PLC (see Appendix 2). This exchange indicates some of the many complexities involved in the implementation of the scheme, and the House may wish to satisfy itself that the Government has drawn the line in the right place in relation to landlord/tenant responsibilities, and seek further information on the practicalities of implementation and evaluation of effectiveness.

10.  Linked regulations made under the Finance Act 2008 will provide the administrator with the powers to sell allowances to CRC participants, an important aspect of the scheme. DECC anticipate publishing a draft of these Regulations by the end of February, and then laying them during the spring (see Appendix 2). DECC acknowledge that the timeline is subject to possible delays due to the scrutiny process, the budget and the calling of an election. The House may wish to seek assurance from the Government that the Regulations will come into force by April 2011, as this is when the first allowances sale will be held.



1   Employers' Duties (Implementation) Regulations 2010 (SI 2010/4); Employers' Duties (Registration and Compliance) Regulations 2010 (SI 2010/5) and Public Interest Disclosure (Prescribed Persons) (Amendment) Order 2010 (SI 2010/7) Back

2   First report of the Pensions Commission - 'Pensions: Challenges and Choices', Chapter 4, Section 5 http://www.webarchive.org.uk/wayback/archive/20070801230000/http:/www.pensionscommission.org.uk/index.html  Back

3   White paper - Security in Retirement - http://www.dwp.go.uk/docs/white-paper-complete.pdf  Back

4   equal to 8% of gross earning between £5035 and £33,540 (2006/2007 terms) Back

5   Transfer Values (Disapplication) Regulations 2010 (SI 2010/6), National Employment Savings Trust (Consequential Provisions) Order 2010 (SI 2010/9), Application of Pension Legislation to the National Employment Savings Trust Corporation Regulations 2010 (SI 2010/8), National Employment Savings Trust Corporation Naming and Financial Year Order 2010 (SI 2010/3) and Draft Personal Accounts Delivery Authority Winding Up Order 2010 Back

6   CRC means 'Carbon reduction commitment' Back


 
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