Pensions Bill
Baroness Sherlock Excerpts(11 years, 4 months ago)
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Baroness Turner of Camden (Lab)
I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.
How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?
Baroness Sherlock (Lab)
My Lords, my noble friend Lady Hollis has raised some significant questions and I look forward to hearing the Minister’s answers. This amendment follows an ultimately rather unsatisfactory discussion we had in Committee during which my noble friends Lord McKenzie and Lady Hollis, along with the noble Baroness, Lady Greengross, and others tried valiantly to get the Minister to explain exactly when somebody would receive a communication from DWP to warn them that the state pension they would get in future would not be the same as what they might have expected. I went back and reread the record. I think the answer we got was that they would get a statement if or when they asked for it and then normally only digitally. The Minister kindly arranged for officials to explain their communications strategy to Peers, and I am genuinely grateful for that. However I think it is fair to say that the exercise did not entirely allay our fears or perhaps fill out all the gaps in our knowledge. I hope the Minister is looking forward to finding a consultancy fee for my noble friend Lady Hollis for her contribution to what will doubtless be the next mailshot from the department.
In Committee I raised comments that had been made during the Select Committee inquiry and elsewhere from quite a wide variety of bodies about this subject. It is worth highlighting a couple. Citizens Advice has been stressing that considerable complexity inevitably remains in the system because of the transitional provisions. It says that,
“a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.
That last point is one made by my noble friend Lady Turner. The Association of British Insurers had also stressed that adequate communication was essential because it was important that people did not feel unclear about how much they would receive, and it should be clear that they would need to save. That is a crucial drive behind all of these reforms and the Labour reforms that preceded them. People need to understand what they are going to get to make sure they save enough for their retirement.
The Select Committee certainly found that there was a lot of confusion out there. Many people thought that from now everybody would get £144 a week instead of the current state pension. Many people thought that all means-testing would disappear and that if they would have got more than £144 now that they would lose that in future. The committee stressed how important it was that people have full information about their future entitlement.
I reiterate three simple questions which I raised in Committee; they did not get answered at the time but I think the Minister has had an opportunity since then to reflect on them. First, how and when do the Government propose to contact people to tell them of the changes to their entitlement? Secondly, at what point will the Government contact people who have previously requested and received a pension statement to warn them that it may no longer be accurate? Finally, in setting up a communications campaign on this new scheme, what outcomes are the Government seeking and how will they measure them? I look forward to the Minister’s reply.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the single-tier pension reforms are designed to simplify the current state pension system, to make it easier for people to understand what they will get from the state in retirement. More so than for other reforms, therefore, communication is critical to success, so I certainly share the interest that noble Lords have shown in this issue. Effective communication requires both the right message and the right channel for delivering that message. This forms the basis for our communication strategy to support these reforms, a summary of which I circulated to noble Lords this morning and which will be placed in the Library.
We will deliver a phased approach to our communications, building from Royal Assent towards the implementation of the reforms and beyond. This will allow us to provide accurate and up-to-date information as quickly as possible before we issue more tailored communications through a range of channels to reach all our audience groups.
State pension statements will remain a key communication with future pensioners and will be an important vehicle for helping individuals understand how they are affected by the reforms. The introduction of these reforms gives us the opportunity to radically transform the way we currently provide this statement service. Our ultimate vision is to provide an online system that is integrated with HMRC’s national insurance data, enabling people to access this information at a time to suit them and in a way that allows them to model the impact of gaining further qualifying years.
In Committee I said that we would provide statements that reflect the single-tier rules once we have the new IT in place and individuals’ NI contribution records are complete up to and including the 2015-16 tax year. Prior to April 2016 our plan was to continue to provide statements based on the current rules accompanied by additional information on the single-tier changes to those affected by the reforms. However, we believe there is trade-off in terms of providing information we have available based on current system amounts while trying to minimise the distribution of information that is potentially misleading or simply begs further questions. Noble Lords may wish to note that we are therefore currently reviewing the information we can provide to customers prior to April 2016 to ensure that it is as accurate and helpful as possible. We will make a decision on this by the end of March when we will make our plans more widely known through discussions with our stakeholders and within our broader communication materials.
The noble Baroness, Lady Sherlock, asked when we might contact previous recipients who will be affected by the changes. We will consider this to be part of the process. It is important to note that our data retention rules mean that our statement IT systems hold only a limited number of historic requests going back a maximum of 18 months, and therefore we cannot contact all previous statement recipients. The statements make it clear that the estimates they provide are based on the current rules and may change if individual circumstances alter or the law changes.
Baroness Sherlock
My Lords, although we gave this a fairly good airing in Committee, I confess that I do not yet feel that I properly understand the nature of the Government’s objections to the taking of lump sums. My noble friend Lady Hollis explained her case for this, and there is no doubt that we have a crisis of savings in this country. Too many people do not have a safety net for a rainy day, and British households generally do not have enough money in savings. That amount has been falling in recent years—unsurprisingly, given the pressures on the cost of living. The case made by my noble friend about why people might need access to a lump sum deserves an answer from the Minister. She described when and why the option was introduced and what people might use it for.
However, having gone carefully over the record and the correspondence since, I did not get answers to some of the questions which I put to the Minister in Committee. Those answers would help me because I would like to understand two things. First, are the Government confident that they have worked through who will be affected by this, what the impact will be and what the alternatives are? Secondly, can they explain clearly why they are doing it? On the first point—and I did ask this—we know that 75% of those who are deferring are women, but do we know why?
My noble friend suggested in Committee that those people are waiting until their partner retires to claim their pensions. Have the Government been able to confirm whether that is why they are deferring, or are they deferring because they are still working and have not saved enough to feel able to retire? What do we know about the wealth of those who are deferring their pensions? These questions matter because they would go to the points made by my noble friend Lady Hollis about whether people without savings are going to end up accessing other forms of credit, which we would not want them to do as they may be problematic.
Most of all, I would like to understand what the Government’s objection is. We have had a few arguments made: the argument of simplicity was made and has been pretty well dispatched, so I will not revisit it. Another argument raised was that significant numbers of people deferring and claiming a lump sum are living overseas. However, we know from the data given to us that more than three-quarters of those people are living in the UK, so that is probably not the issue. Is it the administrative burden? Perhaps the Minister could tell us whether it is that or simply the cost.
If it is the cost, I understand that. If the Government’s argument is that the costs are significant, the House, I am sure, will listen carefully. However, it would be helpful at this point if the Minister could simply come out and say whether he would like to do this but cannot afford it or whether the Government think for some reason that it is a bad idea, in which case my noble friend Lady Hollis has laid down a strong challenge which the Minister really should answer.
Lord Freud
My Lords, in designing the single-tier reforms our overriding aim has been to deliver a flat-rate pension above the basic level of the means test without increasing spending, and to do so in a way that recognises people’s contributions under the current system. This is not easy to do and it involves difficult trade-offs. Some elements of the transition necessarily generate costs in the early years, particularly the “better of” calculation, which means that people with low amounts of additional state pension, such as carers, receive a boost. There is also the fact that those with high amounts of additional state pension, which take them over the full amount of the single-tier pension, are able to keep the surplus as a protected payment. Nevertheless, we have been able to stay within 1% of projected expenditure until 2040, which is fair to current pensioners and to future taxpayers.
In answer to the blunt question of the noble Baroness, Lady Sherlock, removal of the lump sum option for those who defer their state pension has played a key role in flattening expenditure. The early-year savings that this delivers have been ploughed back into the single-tier design. We are, however, still keen to preserve some flexibility for single-tier pensioners who, by choice or accident, claim after they reach state pension age, so people will still be able to build up an increase to their state pension that is paid on top of their single-tier entitlement for the rest of their lives. As discussed in Grand Committee, there remains the option of backdating a claim for a single-tier pension. By backdating their claim to a state pension, someone who has delayed claiming for whatever reason—either unintentionally or as part of a planned retirement—will be able to get up to 12 months’ arrears when they make their claim for a pension. This would provide someone who has qualified for the maximum weekly amount of £144 with arrears of almost £7,500 at 2012-13 prices.
Pensions Bill
Baroness Sherlock Excerpts(11 years, 4 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, I am aware that the noble Lord, Lord McKenzie, cannot be present today for personal reasons. Given the circumstances, I should be happy to have further discussions with him about his Amendment 7.
Baroness Sherlock (Lab)
My Lords, I know that my noble friend would wish to bring back his amendment at Third Reading. Would that be okay with the Minister?
Baroness Sherlock
My Lords, in speaking to Amendment 16, I shall also speak to Amendment 17 in my name and that of my noble friend Lord Browne. We on these Benches agree with the principle of raising the state pension age to reflect longevity. We accept the need for periodic reviews of the state pension age. Where we differ from the Government is on how best to do that.
Fixing the state pension age is never easy. There is always an issue of fairness at stake. Having a careful, evidence-based review before taking any future decisions on changes to the state pension age is a crucial element of ensuring fairness between generations. However, sometimes fairness requires a consideration of difference, particularly differences in longevity and health. The Government are setting considerable store by actuarial information on average life expectancy. However, while average life expectancy tells us something—mostly quite a lot about medical advances and their ability to keep us alive for longer—it does not tell us very much about our health in retirement or differential mortality rates.
We heard a great deal of evidence in Committee to inform our debate, and I certainly will not rehearse it all here, noble Lords will be relieved to hear. However, maybe the headlines are worth briefly restating. People are living longer, but the proportion of years in full health is not keeping track at the same rate. We have significant inequalities in health within the UK, and significant variations in mortality as a result. There are clear socioeconomic differences. There is a class divide, as managerial and professional classes live longer than manual workers by 3.8 years for women and 3.1 years for men. There is a clear geographical divide.
There is then the effect of this differential life expectancy on state retirement incomes, with the irony that those living the shortest lives post-retirement—the poorest and least skilled workers—will receive less in state pension than their better-off counterparts, but they may well have contributed for longer as a result of having spent less time in education.
If we want people to save for retirement, they need to trust the Government, to trust Parliament and to believe that their pensions are safe in our hands. The public need to know that they will not be at the mercy of political expediency, and that they will be protected from any adjustments that need to be made by ensuring that they are not made too quickly. Rather than simply being a matter for the Secretary of State, as the Bill proposes, we need a genuinely independent panel which has the kind of cross-party and independent representation that will reassure the public and give confidence to parliamentarians from across the spectrum. Our amendment proposes simply that the review body should include representatives of the opposition parties and of the Cross Benches of this House to ensure that Parliament as a whole is at the heart of this process. It would also include representatives of trade unions, who are themselves the representatives of those who are spending their ever-longer working lives saving for retirement. This broader representation will give people confidence that a wide range of views will be heard. I urge the Minister to accept it.
Lord Freud
My Lords, as your Lordships know, the purpose of the review of state pension age is to inform the Government. The reports from the Government Actuary and the independently led review, which will feed into the review, should collect and analyse the latest data, and give the Government of the day the information they need to make what will always be a difficult and contentious decision.
We are all keen that the Secretary of State receives a report that is impartial. Because we are requiring that all reports compiled as part of the review are published and all future changes to state pension age continue to go through primary legislation, any proposal based on a report that is not impartial, credible and comprehensive will quickly fall apart when scrutinised by stakeholders and both Houses of Parliament.
Turning first to the substance of the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, if one thing is apparent it is that there is no clear consensus on who should sit on the review, what they should look at, or how they should collect the necessary evidence. We have been clear in Grand Committee and in the other place that this Government’s vision of the review is one similar to the independent review of public service pensions. That review was run by the noble Lord, Lord Hutton, a member of the opposition Benches and an expert in his field. It was transparent, comprehensive, independent and established a consensus.
Noble Lords will also be aware that the Pensions Commission, set up by the previous Government, had three commissioners from the areas of business, trade unionism and academia: not a single politician or Cross-Bencher. That commission gained support through comprehensive and open debate about the issues and trade-offs, rather than being based on the inherent characteristics of the commissioners’ backgrounds.
In short, the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would preclude these two successful models. It would result in a body of at least six individuals from stakeholder groups, the other place and this House. It would not necessarily have the expertise to review the relevant data and would effectively create a mini parliamentary process before the parliamentary process proper. We do not think that is the right way to run a review designed to inform the Government. In the Bill as currently drafted there is nothing to prevent a future Government running the review in whatever way they think best. That is a key point underpinning our approach to the review—getting future Governments to take active ownership of and responsibility for all aspects of the review, instead of just going through the motions.
Turning to the factors to be considered as part of any review, I must note that in response to the recommendation made by the noble Baronesses, Lady Turner and Lady Sherlock, we do not have the data regarding the relationship between specific occupations or types of work and life expectancy and healthy life expectancy. Beginning to collect such data would be both burdensome and, I imagine, for some professions simply impossible. More generally, we do not think it is necessary to specify any factors to be considered in legislation. We have already consulted stakeholders on what factors they think are important, and stated the factors we expect to be considered in the White Paper. The Opposition are worried that by not specifying the factors in legislation, future reviews simply will not consider important variables. However, what kind of support would such a review generate?
We want to encourage all interested parties to feed in their thoughts and contributions to better involve them. Specifying factors in the Bill could send out the message that we have already thought of everything important, and that future Governments do not need to consider additional factors as they are not set out in primary legislation. Such an approach could lead to a tick-box mentality, with Governments simply going through the motions instead of taking a proper, considered approach to each review. My point is illustrated by the fact that another factor has been added to the Opposition’s amendment since its predecessor was tabled only a month or so ago. Other noble Lords have also previously suggested additional factors, including life expectancy of the lowest income decile, prevalence of smoking and quality of diet. This demonstrates that the determination of relevant factors should take place after a thorough and extensive consideration and on an iterative basis for each review.
I turn now to the review’s remit. We believe that the Government should maintain control of this to keep it focused on the task at hand. There is nothing in the Bill to prevent the Secretary of State of the day updating the remit of the review, and we—or, more importantly, stakeholders—would fully expect him or her to do just this if new and compelling factors were identified during the course of the review.
The amendment of the noble Baroness, Lady Sherlock, also requires evidence to be gathered in public sessions. Although there is nothing in the Bill to prevent some evidence being taken orally—rather as Select Committees do—noble Lords will be aware that the nature of the analysis around state pension age, such as the myriad tables, charts and graphs, does not lend itself well to public sessions. Underpinning our approach is the idea that each Government will fully own and be responsible for the review. Setting out membership and factors to be considered restricts rather than increases that responsibility. It would instead limit the scope of reviews and reduce engagement by stakeholders. I therefore urge the noble Baroness to withdraw her amendment.
Baroness Sherlock
My Lords, in Committee the Minister came under sustained pressure on this matter from my noble friends Lady Hollis and Lord McKenzie, among others, and I am sure that he did not expect to emerge unscathed from Report. Many noble Lords pressed the Minister in Committee to try to understand what the consequences of this increase in means-testing would be. In particular, they were concerned about what would happen to those older pensioners who inadvertently, or perhaps negligently, fail to report changes of circumstances.
The Minister could not assuage our fears in Committee but wrote to us subsequently. That was helpful as it made clear what would happen. The letter he sent to us, dated 20 January, noted that claimants of any age who commit benefit fraud can be prosecuted. However, it also says:
“DWP may offer an Administrative Penalty as an alternative to prosecution. That penalty is 50% of the overpayment with a minimum value penalty of £350 and a maximum of £2000”.
When a claimant makes an error resulting in an overpayment, the letter explains that,
“a DWP decision maker will consider the full circumstances of the individual case … taking into account the reasons that led to the error”.
The letter then referred us to the guidance for decision-makers. I read this guidance so that noble Lords would not have to, and that is an hour of my life that I will not get back, so anyone who feels that he would like to buy me a drink at any point to say thank you is most welcome to do so. However, having done so, I then discovered the following. Incidentally, CPen means civil penalty and DM means decision-maker. The guidance states:
“Before imposing the CPen, the DM must establish that the claimant
1. has acted negligently and
2. has failed to take any reasonable steps to correct the error that led to the overpayment”.
I accept that the word “negligently” implies something serious. However, on the “Meaning of ‘negligently’”, the guidance continues:
“DMs should note that negligently should be taken to mean acting carelessly, not paying sufficient attention to the task in hand, or disregarding the importance of what is required to be done in relation to the claim or an award”.
In other words, that is a pretty low bar.
A number of noble Lords expressed concerns—as has been done very clearly by my noble friend just now—about what happens to pensioners who might struggle to keep the paperwork together or report every relevant change. The letter from the Minister said that robust safeguards are in place to ensure that matters such as mental capacity are considered. However, the guidance also makes clear that misrepresentation can involve simply leaving a section blank, perhaps because someone cannot figure out how to fill it in at that point and forgets to go back and do so later. The guidance also states at paragraphs 09206-7 that a claimant cannot avoid responsibility for misrepresentation just on the grounds that they claim they did not know what they were doing. It states:
“Non-responsibility is limited to those who are blind, illiterate or do not fully understand a particular form they have signed. Poor education, illness or inborn incapacity alone is not sufficient to show non-responsibility. People are expected to take reasonable steps to understand what they sign”.
This is exactly the sort of reason why so many pensioners dread means-testing and do not claim benefits to which they are entitled. If the Minister does not want to accept this amendment tonight, I plead with him to do one thing. Will he please take this guidance away urgently and have it revised before this legislation ever is introduced, so that pensioners are not expected to follow these kinds of rules?
Lord Freud
My Lords, assessed income periods were introduced by the noble Baroness, Lady Hollis, during the passage of the State Pension Credit Act 2002. At that time it was assumed that income and capital for those above pensionable age remained relatively stable and it therefore made good sense to relax reporting requirements, both for the individual and the department in terms of running costs. This was still the case in 2007 when the Government of the day introduced indefinite assessed income periods for those aged 80 or over.
The noble Baroness said just now that income and capital do not fluctuate by much. We have now tested those assumptions, analysed around 100,000 cases and come to the conclusion that there is actually a greater degree of volatility in people’s financial circumstances than she and the department had anticipated at the relevant times. In some cases, assessed income periods have allowed people to continue to receive pension credit following a change in their circumstances when they would not have been entitled to it had they made a new claim at that point. The evidence means that we have had to think again about the viability of the policy and have concluded that AIPs should be abolished. Ultimately, if we were to allow AIPs to continue, the taxpayer would be providing support to people who no longer need it. It would mean retaining a system in which we can only apply changes to retirement provision that would increase an award but cannot take account of windfalls that would otherwise see a reduction in or loss of benefit.
Let me be clear, we are not changing entitlement rules. We are changing the reporting system so that people’s benefit entitlement reflects their circumstances at the time. To that end, we are looking to simplify the reporting requirements so that we are able to support those who need it most and best target our benefit expenditure. I am of course mindful that by changing reporting requirements some people may find it more difficult to adjust, particularly those of the most advanced years who may have the greatest difficulty in contacting us. This is why existing indefinite assessed income periods in place prior to 2016 will continue.
For those new recipients, or those on fixed-term AIPs, we will have the opportunity to explain clearly what does and does not need to be reported at the point of claim or when their existing claim is reviewed. I stress that pension credit is already designed in such a way as to minimise reporting requirements. For example, changes to capital only need to be reported if their total amount exceeds £10,000. Currently, only 12% of people on pension credit have capital above that level. People would need to report new income streams, but we will continue to take into account annual increases in pensions automatically, based on what people tell us. We will also encourage people to tell us if their capital falls below £10,000 or if any income stops, to ensure that we capture beneficial changes.
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014
Baroness Sherlock Excerpts(11 years, 4 months ago)
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Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of this order, and I apologise for missing the first few seconds of it. Like my noble friend, I was caught out by the omission of this order from today’s lists, and I apologise to the Committee. I also thank my noble friend Lady Drake for her very detailed and extraordinarily learned analysis of the impact of this order and the ones that have preceded it. I hope very much that the Minister will be able to give it the answer it deserves, and I look forward to hearing that.
A helpful note on this subject from the House of Commons Library dated 17 December 2013 reminds us that the original idea proposed by the Pensions Commission chaired by the noble Lord, Lord Turner, of which my noble friend Lady Drake was such a distinguished member, was that the qualifying earnings band should start at the primary threshold for national insurance purposes and should finish at the NI upper earnings limit. The previous Government said in their 2006 pensions White Paper that they would adopt broadly this approach, so the lower and upper limits of the qualifying earnings band were set at £5,035 and £33,540 respectively, and provision was made for both limits to be increased in line with earnings.
The real jump came with the Government’s Pensions Act 2011, which introduced an earnings trigger for auto-enrolment set at a level higher than the lower limit of the qualifying earnings band, on which contributions are paid. As we have heard, for 2011-12 the trigger was set at £7,475 rather than the planned threshold of £5,035 in 2006-07 terms, and the effect of that was to exclude 600,000 individuals, 75% of them women. My noble friend went through some of these figures but I think it is worth rehearsing them because the Minister will have to give us an answer about the effect of these changes.
Since then, the exclusions have mounted up. In 2012-13, the trigger rose to £8,105, excluding 100,000 people, 82% of them women. In 2013-14, it rose to £9,440, excluding some 420,000 people, of whom 300,000—72%—were women. Now, as we have heard, by going up again from £9,440 to £10,000, the Government will exclude another 170,000 people, of whom 120,000—69%—are women. I would be very interested to know if the Government agree with the figure offered by my noble friend Lady Drake about the cumulative number of people who have been excluded from auto-enrolment by these changes.
The DWP paper titled Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2014/15: Supporting Analysis—I commend the officials on its title—issued in December 2013, offers the defence that the reason that so many women are affected is that women are more likely to work part-time and to earn less than men, so they will be disproportionately represented in the group excluded from auto-enrolment. Well, yes, of course. That is not a defence, it is a reason, but that still leaves the problem. Now another 170,000 are to be excluded from the benefits of auto-enrolment into pension saving.
Of course, not only are women more likely to work part-time but there are those who work in more than one mini-job, neither of which takes them above the trigger point for being brought into this. Those women could, in fact, be earning significant sums of money on which contributions would be payable but because neither job takes them above the trigger they will not be auto-enrolled in either job. I would be interested if the Minister could comment on that.
As so much has been said already, I will ask just a small number of questions of the Minister. The DWP document I mentioned noted—and the Minister reinforced a version of this in his speech—that the Government used three principles in reviewing the automatic enrolment thresholds. The first of these is whether the right people are being brought into pension saving. Can the Minister tell the Committee how the Government reached the conclusion that excluding another 170,000 low-paid workers from the benefits of auto-enrolment met the condition that the right people are being brought into pension saving?
Secondly, with a trigger of £9,440, the target population for auto-enrolment is around 10 million individuals, of which only 37% are women; going up to £10,000, that falls slightly to 36%. When the Minister considers that figure, which came from the DWP’s excitingly named document, and the high proportion of those excluded who are women, is he satisfied that the Government’s approach to auto-enrolment is serving women workers well?
Finally, the paper argues that workers paid below the earnings trigger are likely to be able to achieve their target replacement rates through the single-tier pension if they remain low earners, and it may therefore not be beneficial to direct income from working life into workplace pension savings. If an individual earning £9,999 a year has an option to contribute to a DC scheme, should she take it?
Lord Bates
My Lords, first, both the noble Baronesses referred to the speed with which we have gone through the Order Paper. In fact, that caught all sides on the hop, and apologies are due all round. The responsibility, of course, lies in the preceding orders going too speedily. However, I am grateful to both noble Baronesses, who, in the exchanges we have had over many sittings on the Pensions Bill, have demonstrated their incredible grasp and knowledge of these complex areas, and have spoken passionately about the impact upon women in particular. I will come to these points, and respond to them as best I can.
One of the key things I said in the concluding remarks of my speech was that we recognise that setting these thresholds is a balancing act and that there is no right or wrong answer. It is therefore right that there should be a debate and that it has become an annual debate. It is an affirmative instrument and therefore any changes that are made annually have to come before your Lordships’ House for consideration. That is the right way to do it.
The other point of context we need to acknowledge, which the noble Baroness, Lady Drake, was good enough to make, is that the figures for auto-enrolment, which I accept came out of the Turner commission, which in turn came out of the Pensions Act 2008 under the previous Government, have been impressive. Significant progress has been made in encouraging the right people to save for their retirement. In pursuing that, we are absolutely on common ground.
It might be helpful if I went through some of the figures that we have for the number of people affected. Raising the 2014-15 value of the automatic enrolment trigger from £9,440 to £10,000 will exclude around 170,000 individuals, of whom around 120,000—69%—are women. Raising the 2013-14 value of the automatic enrolment trigger from £8,105 to £9,440 excluded around 420,000 individuals, of whom 300,000—72%—are women. I am going back through these numbers because it is a rough way of getting back to the calculation made by the noble Baroness, Lady Drake, which the noble Baroness, Lady Sherlock, asked me whether I agreed with. Raising the 2013 value of the automatic enrolment trigger from £7,475 to £8,105 excluded around 100,000 people, 82% of whom were women. Finally, raising the 2011-12 value of the automatic enrolment trigger from £5,035—in 2006-07 terms—to £7,475 excluded 600,000 individuals, 78% of whom were women. If one calculates those figures, one begins to recognise the numbers that the noble Baroness, Lady Drake, presented to us.
However, it is not so simple as to say that 70,000 women would be in automatic enrolment if their part-time earnings were brought together. I realise that there is a big education job to be done here, because many women who are underneath the threshold need to realise that if they are above £5,772 in terms of the lower earnings limit, they can opt in and therefore get the benefits that would accrue from that.
Baroness Drake
I do not want to be too difficult. However, the Secretary of State has stated clearly that this is driven by his view that people should not be auto-enrolled into pensions until they start paying tax. That is not doing a balancing act; that has been the Government’s consistent position since 2010. The Hansard record shows that I keep asking the question, “Are you going to keep tracking the tax threshold, because if you keep doing that you will exclude more and more women?”. That is not a balancing act. If you did a balancing act, you would say, “What is the balance between that approach and the number of women excluded?”.
The Government have locked themselves in, both by the Secretary of State’s statement and by their behaviour since 2010, when they said that people who do not pay tax should not have the advantage of auto-enrolment. The benefit of releasing them from a certain level of tax is reduced by the fact that they lose the employer’s contribution, and we are now getting to a point where the gain from the increase in the tax threshold is less than the loss of the 3% of the employer’s contribution. So over their lifetime, the low-paid person is actually worse off.
Baroness Sherlock
My Lords, before the Minister answers that, I asked him whether he felt that the way in which the Government have designed the service served women well. His defence appeared to be that there has to be a line somewhere. The point I was trying to put to him is that the Government have designed this scheme in such a way that only a third of its target population are women; in other words, they have designed a scheme that will benefit two men for every woman. Does he feel that the way the Government have chosen to design the scheme benefits women?
Lord Bates
No more or less than raising the personal tax allowance thresholds is a policy that is designed to disproportionately benefit women compared to men. When the tax threshold goes up from £7,475 to £10,000, that is a massive benefit to women, particularly in lower income positions. That is money coming into their households, so they can decide what to do with it. Anyone with earnings over £5,772 will retain the right to opt in, as I have already said, with employer contributions.
The Pensions Act requires the Secretary of State to review the thresholds each tax year. That is a discussion which takes place. There is a strong argument that says there is synergy there between personal tax allowances at the £10,000 level, helping employers and employees to understand where that mark falls, but in no way does that guarantee what the policy will be going forward. It will be for the policy to be announced and the review to take place and the instruments to come forward next year.
I am trying to work my way through the many questions that the noble Baronesses have put to me. I am not sure whether I have answered all the points.
Baroness Sherlock
I will let the Minister off the first two, if only on the grounds that I am unlikely to elicit an answer that I will find helpful. But my last question was very specific: if an individual earning just less than £10,000 a year had an opportunity to contribute to a DC scheme, does the Minister think that she should take it?
Lord Bates
The view is that this will be a personal choice for the individual faced with that challenge. It is a specific point. I know that the noble Baroness feels very strongly about this.
Baroness Sherlock
I am not asking this question because I feel strongly about it; I am trying to test the Government’s argument that the reason low earners should not be auto-enrolled is that it is not worth saving small sums of money. Do the Government assume that same stricture should apply to private pensions as well as to auto-enrolment?
Lord Bates
Each individual’s situation will be different. In some cases, they will have partners who will be earning more and therefore they will take a household decision to take advantage of the same scheme. For some people, that will not be the case and therefore they will not. We are saying that we want there to be a scheme. We want it to be as simple and straightforward as possible so that as many employers and employees as possible can get full benefit from it, and so that people can get into the habit of saving. It will be up for annual review. There needs to be much more education to ensure that all people who earn below that threshold realise that they can opt in should they wish to and should their personal circumstances make that the right choice for them.
I have tried to address as many as possible of the questions that have been put forward by the noble Baronesses, for which I thank them.
Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014
Baroness Sherlock Excerpts(11 years, 4 months ago)
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Baroness Sherlock (Lab)
My Lords, I thank the Minister for that explanation. I woke yesterday morning to hear on the radio an announcement about a wonderful new scheme the Government are planning to introduce called the health and work service, which would cover England, Wales and Scotland. I wonder what happens in Northern Ireland. I am not sure I caught that. This scheme would offer voluntary medical assessments and treatment plans for employees. There was nothing in that bulletin to inform the listener that this would be paid for by scrapping the percentage threshold scheme, or PTS, which enables employers to reclaim some of the costs of statutory sick pay, or SSP, from the state. I will be charitable and assume that this is because Parliament has not yet approved this order. I know that Ministers are loath to let anything slip out to the media before Parliament has had the opportunity to scrutinise it in great detail—although I confess that, somehow, the BBC had got hold of that side of the story on its website a little later.
These regulations abolish the percentage threshold scheme, and we are assured that stakeholders welcomed the change, apart from one employer representative group which was concerned about the impact on small employers of removing the remaining element of SSP reimbursement. We were told that the average amount claimed under the scheme in 2009-10 was £500 per year, per claimant—that is, per employer claiming. That may not sound a lot, but the impact assessment also tells us that micro-employers, those with fewer than 10 workers, receive 70% of the recovery, and £500 can be a lot of money to a micro-employer.
I know of a church in Durham, where I live, the sole employee of which is a rather wonderful youth worker; the vicar, of course, is paid by the diocese. Sadly, the youth worker has been off sick for some months. It was a big decision for the church to hire her, but it decided to dip into its reserves to hire a youth worker to work not just with the children in the church but children in the local community. Unfortunately, she has developed a condition which means that she has been off sick for some months. She is brilliant and the church does not want to lose her, but money is tight. Thanks to the PTS, it has been able to get some of the SSP back, so it can afford to pay a locum to do at least some of the work. At the moment, a locum youth worker is running a wonderful club for a few weeks for year 6 children in the neighbourhood to help them prepare for moving up to secondary school. However, my point is that £500 to that church is a lot of money. Can the Minister tell the Committee whether the Government have talked to micro-employers about the likely impact of this change on their operations? According to the Black review of sickness absence, micro-employers represent 82% of employers; obviously, they represent a smaller percentage of employees, but that is a lot of employers.
The argument made in the Black review is that PTS compensates mainly small employers for “higher-than-average sickness absence” but fails to promote attendance management; I think that was the point the Minister was making. That seems to me to fail to distinguish between two things that were rammed home to me in business school in assessing sickness absence in an organisation: the number of periods of sickness and the number of days of sickness. If you have a lot of periods of sickness, a lot of employees off for a small number of days, that can tell you something about whether people are taking sick leave a lot and it can tell you something about morale. The total number of days can be completely skewed in a small organisation by one person having a very serious illness. I did not see that distinction made. A good example would be this church, which would look as though it had a terrible sickness record but that is because one youth worker happened to develop a condition.
I am trying to draw this out, because I wonder if the Minister could help me to understand. The assumption is that those who get most of the money are small organisations with higher than average sickness absences, which therefore fail to promote attendance management. I wonder whether the evidence backs that up. Can the Minister help me to understand that rationale? The impact assessment says that the abolition of the PTS removes a transfer of some £50 million from the Exchequer to businesses and that the new health and work advisory service will generate a net value of around £70 million for employers—£120 million in benefits minus £50 million in intervention costs, I gather. There will also be a presumed benefit to the state.
The Minister can correct me if I am wrong, but my understanding is that that means that all the current spend on the PTS of £50 million is being recycled into the new scheme. Can the Minister confirm that? The assumption is therefore that businesses are not losing out. However, if that is true, what calculations have been made as to how evenly the gains and losses will be distributed? After all, if 70% of the benefit of the PTS goes to micro-employers, is it assumed that 70% of the benefits of the new service will be enjoyed by micro-employers? The impact assessment says that smaller employers are expected to benefit disproportionately, as they are less likely to have their own rehabilitation and occupational health services, but it did not quantify that. Can the Minister tell the Committee if any assessment was made? If so, what is the distinction? Within smaller employers is a large group: micro-employers are those who have fewer than 10 workers. Was any distinction made between those two categories?
A crucial question is whether the fact that in future employers will bear the full cost of SSP is likely to have any effect on their willingness to hire or retain staff whom they may judge likely to need it. In other words, will they discriminate against staff who have a potential health issue or have had a health record in the past that gives them cause for concern? The impact analysis does not address that directly, but under the heading “Key Assumptions/Sensitivities/Risks” it includes the following assumption:
“The removal of the PTS doesn’t precipitate (illegal) discrimination by employers against employees with poor sickness absence records”.
Can the Minister tell the Committee what evidence underpins that assumption? I am not saying that that will happen but I would be glad to know why the noble Lord, Lord Freud, felt sufficiently confident that it would not to sign off the impact assessment without that assumption spelt out in it.
My other question about these regulations relates to whether there is any risk that employees will be less likely to receive SSP under the new system. In consequence of the abolition of the PTS, the Government have also produced a set of regulations which have not yet taken effect, which propose to abolish the requirement on employers to maintain records for each employee relating to sickness absence and the payment of SSP for three years after the end of the tax year where SSP was paid. I refer to the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations 2014.
Can the Minister tell us what risk assessment the Government have undertaken as to the likelihood of employers not paying SSP correctly or at all once the record-keeping requirement is abolished alongside the order we are discussing today? The Explanatory Note which covers both orders tells us that HMRC will retain the power to require an employer to produce records to show them that SSP has been paid appropriately. What discussions has the department had with HMRC to satisfy itself that there will not be an unintended consequence of some employees not getting the money to which they are entitled? The Explanatory Note also says:
“Stakeholder engagement found that employers maintain records of sickness absence for payroll, tax and other staff management reasons”.
Can the Minister confirm that those stakeholders include individuals from or representing micro-enterprises?
Finally, the 2011 Black review on sickness absence recommended that the Government should carry out further research into the reasons behind the significant number of people claiming ill health benefits who come straight from work, especially from smaller employers. That is the earlier Black review. It recommended that the Government carry out further research into the reason why significant numbers of people claiming ill health benefits who come straight from work appear not to have been paid sick pay by their employer beforehand. Has that been done?
My very final question is that the impact assessment notes that HMRC periodically visits businesses to see if their payroll is running smoothly and it reviews payroll documentation including SSP and sickness absence records. Can the Minister clarify whether on those visits HMRC will still routinely review SSP records? I look forward to the Minister’s reply.
Lord Bates
I thank the noble Baroness for her questions and for the case study she gave us from the diocese of Durham, which of course I have a strong affinity with and want to see everything possible done to help. In considering that, the best thing that could happen to any small employer in that situation is that the employee returns to the workplace. The question is whether, through this reallocation of the resource from the threshold scheme to the health and work service, it is more likely that the person concerned will find a pathway back to the employer and the workplace, which is the best solution all round. Our view is that it will and that it is a better use of the resource.
The noble Baroness asked how the £50 million that is currently paid under the threshold scheme will be allocated. It will be used to fund the health and work scheme and the tax exemption for interventions which was announced in the Autumn Statement. Where interventions are recommended to get somebody back to work which incur a cost—for example, the provision of physiotherapy or a particular piece of equipment or a change in working practices—the employer will be able to offset that cost. Many large national or multinational companies have sophisticated HR departments which seek to address all these issues to get employees back into the workplace as soon as possible. However, micro-employers do not have that facility. They will be able to take advantage of the new scheme and make some savings as a result of it. That is one of the reasons why it is widely welcomed by them. Micro-employers will benefit more than larger employers for the reasons I have outlined.
Less than 10% of micro-employers make claims under the percentage threshold scheme, which raises another point that the scheme is so complicated and complex that many micro-employers who could benefit from it do not take advantage of it at present because they do not appreciate that it is there. We hope that with the publicity surrounding the new way of working through GPs and employers and employees, more will take advantage of the service, and that will be to the benefit of all. Micro-employers currently receive around 70% of the money paid out under the scheme. The average claim under the scheme is less than £500 a year, but this masks considerable variation. For example, around 25% of micro-employers claimed less than £200 in 2008-09.
The noble Baroness asked about a particular church employee. The health and work service will support the employee and the employer in the diocese to try to find a plan to enable the person concerned to return to work under the new scheme. She also asked why the scheme will not apply to Northern Ireland. However, this is a fully devolved matter for Northern Ireland and therefore it will make its own decisions on how the scheme will operate. The health and work scheme will apply just to England and Wales.
The noble Baroness asked about the abolition of associated SSP record-keeping. Employers will still need to maintain SSP records for pay-as-you-earn and tax purposes. There is no evidence to suggest that employers will not meet their SSP obligations as a result of record-keeping abolition. The HMRC statutory payments disputes process will continue to ensure that employers meet their obligations. There will be ongoing monitoring of disputes and the actions which are taken.
I think that that covers many of the points which were made. However, the noble Baroness may be about to tell me—
Baroness Sherlock
I would hate to disappoint the Minister and I thank him for going through so many of my questions.
I have a couple of specific points. His answer to my concerns about the record-keeping point was that the Government assume that since employers keep records anyway, there is no reason to assume they will cease to keep them. They say that in its routine visits HMRC currently inspects payroll records, including SSP records. Is it the intention of the Government that it will continue to inspect SSP records on these visits, even though companies are not specifically required to keep them in the form that is described here? The suspense is killing me—I look forward to hearing that answer.
Can the Minister explain again the position of micro-employers? My understanding was that 70% of the benefit was going to micro-employers, but I think he said it would be only 10% of the claims. Perhaps he could help me to understand that. The point I was trying to draw him out on, about the fact that the new service will more than compensate for the loss of the PTS, was that I can see that across populations that is true but if, as a micro-employer, you have only one or two employees and they cannot be got back to work because of the nature of their conditions, they will lose out. Was any thought given to whether they might be protected from that in some way?
Lord Bates
The noble Baroness asked about the HMRC visits. I am delighted to give her the answer, which is yes. She also asked for clarification on the 10% figure. I said that less than 10% of micro-employers make claims under the percentage threshold scheme, which I think was the point she was asking for clarification on.
I hope that noble Lords will agree that the abolition of the percentage threshold scheme is important so that savings can be reinvested in the new health and work service, which will benefit both employers and employees in reducing lost working days and increasing economic output. I commend the order to the Committee.
Employment: Young People
Baroness Sherlock Excerpts(11 years, 4 months ago)
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Lord Freud
My Lords, I could not agree more with my noble friend. There are only four things one can do to help youngsters into the workforce: directly get them a job; training and education; apprenticeships; or work experience, which is a stepping stone. That is what Alison Wolf told us, and that is what the Government are aiming to do.
Baroness Sherlock (Lab)
My Lords, I think the Minister said that the Government inherited high long-term youth unemployment from the Opposition. However, the ONS publication Labour Market Statistics shows that long-term unemployment for 18-24 year-olds is 232,000. The same data set shows that in the period spanning the last election it was only 188,000. Labour has made it very clear that we would guarantee a job for every young person out of work for more than a year and make them take it. What will the Government do?
Lord Freud
My Lords, the figures the noble Baroness quoted are very distorted by the training allowances, which got people off the long-term measure. I will not go into a long song and dance about it, but those figures were the result of a very distorted comparison. I have quoted the real figures—the ones that matter—to this House on a regular basis. When you look at youngsters who are both workless and outside full-time education, that figure rose through the longest boom we have seen in our history because of structural inability to get those youngsters into the workforce. There was neither adequate education nor routes into the workforce. We are turning those figures round—and they are the real figures.
Child Support Fees Regulations 2014
Baroness Sherlock Excerpts(11 years, 4 months ago)
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Baroness Sherlock (Lab)
My Lords, in speaking to these regulations I declare an historic interest as a former non-executive director of the Child Maintenance and Enforcement Commission until 2010, and a very historic interest as a former chief executive of the National Council for One Parent Families, which is now lost in the mists and merged with Gingerbread.
I thank the Minister for his explanation of these regulations, and I am grateful to other noble Lords who have spoken on this for the illumination they have added. Most of the time, when I face the Minister across the Dispatch Box, I would happily change places, but when he faces down the noble and learned Lord, Lord Mackay of Clashfern, he is welcome to that seat, at least for the duration of these proceedings. I wish him well in answering the points raised by the noble and learned Lord.
I thank all those organisations which sent in briefing, including Gingerbread and the Resolution Foundation and, indirectly, Families Need Fathers. We on this Committee are also indebted to the noble Lord, Lord Goodlad, and his Secondary Legislation Scrutiny Committee, which did an extraordinarily thorough job on these regulations. It identified gaps and question marks and pursued Ministers gently but persistently, drawing information from them bit by bit until it got answers. I put on record my appreciation of its intelligence, analysis and perseverance.
These are significant regulations, and despite the lengthy impact assessment, we all know that we do not really know what will happen as a result of both the new scheme and the charges being imposed on both parents. The Government’s aims for these reforms, which were set out clearly in the Green Paper, Strengthening Families, Promoting Parental Responsibility, were twofold: to achieve cost savings for the taxpayer and to create an incentive for parents to work collaboratively to make family-based arrangements rather than enter a statutory scheme.
The Secondary Legislation Scrutiny Committee’s excellent 23rd report of the current Session draws these instruments to the special attention of the House on the grounds that they may imperfectly achieve their policy objectives, so it is important for the Minister to reassure the Committee on this point. Specifically, the Select Committee says:
“we conclude that although the transfer scheme may make savings it may imperfectly achieve the overarching objective of providing financial support to children”.
The committee engaged in a correspondence with the relevant Minister in another place, which eventually drew more information out but in my view was not ultimately satisfactory in providing assurance on that point.
I shall ask the Minister to reassure the Committee on those broad points and then ask some specific questions. First, a number of noble Lords have raised behavioural issues. The impact assessment assumes that fewer cases will enter the statutory scheme as a result of the change, but also suggests that the proportion of arrangements affected will rise from the current 60% to 70%. The assumptions seem to be rather optimistic. The present pattern of compliance in family cases is one thing, but that is not necessarily a guide to what we may expect to see in future. As my honourable friend Kate Green put it in another place, at the moment we have parents who may be choosing positively to co-operate, but in future parents with family arrangements will be those who simply see it as the lesser of two evils. There will therefore be a different set of arrangements going on in family arrangements from those that prevail at the moment, so how confident is the Minister of those figures?
On the cost objective, the Government are clear that they expect to score substantial financial gains from the new scheme being introduced, especially as the result of charging fees. Fees both bring in income and reduce running costs, as parents are deterred from using the system. However, I looked in vain for a parallel level of ambition to increase the amount of child support that would actually reach children, a point made by the noble Lord, Lord Kirkwood. What are the Government’s ambitions in that connection? After all, the point of a child support scheme is not to be efficient. It should be efficient, but its point is in fact to get money from the non-resident parent to the parent with care. Presumably the Government have some ambitions for increasing the amount of maintenance that is going to be transferred to children as a result of the reforms. Could they help us on that point?
I also have some questions about the implementation of the new scheme, some of them touched on by the noble Lord, Lord Kirkwood, and some by the noble Baroness, Lady Howe. This is crucial as the Government always said that they would not introduce fees until phase one of the new system was working well. The Minister told us that the scheme started in November and that they aimed to move people on from next summer. Can he tell us a bit more, as the noble Lord, Lord Kirkwood, also asked, about how the new scheme has been performing so far? I will certainly be interested to hear the answer to the noble Lord’s question about how many cases have been paid in full.
How is the interface with HMRC working? I am particularly interested in self-employed non-resident parents. There is the issue of who is responsible for enforcement. I am assuming that that will lie with the CMS but it would be helpful if the Minister clarified that. A common complaint is when a self-employed NRP declares very low levels of profit on, for the sake of argument, his business but the parent with care believes, or has evidence based on his apparent lifestyle, that in fact a much higher level of income is coming in than might be suggested by the latest set of accounts made available to the taxman. At the moment, if she has that evidence she can go to the CSA and it can investigate that. If that should happen in future, does the CMS have the powers to investigate that or will it be left to HMRC? If the CMS has the powers, will it exercise them? If it is HMRC, what assurances has the Minister had that it will do this and prioritise it over the other workloads placed on its shoulders?
When does the Minister expect to be in a position to publish a full range of statistics on cases being dealt with by the CMS? Will these stats show how many cases transfer from direct pay to collect and pay? See—I have got the jargon. It would be helpful to know what was happening to cases going into the scheme.
By what precise criteria will the Government decide when to commence the full new regime? A Written Answer to my honourable friend Kate Green in another place on 23 January said that the Government will determine when the new scheme is operationally ready for the transfer of cases in accordance with the criteria of,
“the Department for Work and Pensions Project Change Lifecycle Framework”.—[Official Report, Commons, 23/01/14; col. 263W.]
I apologise that I am not immediately able to translate that for the Committee, but perhaps the Minister can do it for me. What does that mean and how will it be applied?
Baroness Sherlock
I thank the Minister for going through all those questions—I am very grateful. I still have a couple which perhaps he missed out.
The Minister has explained to us that the Government believe that there will be more children in receipt of maintenance and more effective arrangements. However, he did not pick up on the amount of money that will change hands. For example, it would be perfectly possible for someone who was currently getting the full statutory amount through the statutory system to have in future a family-based arrangement in which they agree to take half of that amount to keep each other happy. Will the Government also be monitoring, and set a target for, the amount of child maintenance that is changing hands, and will they monitor in particular whether the amounts for individual families go down? In other words, one could see a change in the mean—by, for example, people who are currently nil-assessed joining the system—but that might disguise a fall in other cases. How well would that be monitored?
I think that I asked a question about the media campaign that Steve Webb had promised in early 2014. Does the Minister have any information on that?
There is a piece of nuance for which I apologise from this side as a pedant. On the question of domestic violence, the Minister said that he is confident that a non-geographic option will be available. Could he reassure the Committee that where domestic violence is alleged or admitted, a parent with care will not be required to accept direct pay unless and until such a scheme is available to them?
Lastly, I want to be sure that I understood his question about enforcement and HMRC. I think that he is saying that it will become more difficult for a parent with care to raise the question of where they believe earnings have been underdeclared. HMRC may deal with the general question of whether enough tax has been paid but at the moment, as I understand it, and I would be grateful if he would tell me whether or not I am right, a parent with care can go to the CSA with evidence showing that the non-resident parent has higher income than has been declared to the CSA—for example, if the lifestyle in terms of a house, a car or money spent would not appear to tally with the relatively small amount of income declared—and it can investigate and address that. Is he saying that that will not happen unless HMRC decides in general terms to conduct a tax investigation?
Lord Freud
On the question of the amount of maintenance, our estimate at this stage is that more children will get maintenance. That is what I have said. How much that maintenance is in money terms is less clear at this stage. It is one of the things that we will find out. I need to remind noble Lords that assistance may take many forms to children—more shared care—so the question is not just about money. It is about the level of support. That is an area that we will be looking at closely.
On bank accounts, the parent with care will be able to dictate to which account the non-resident parent must pay. If that fails to happen, it will result in a return to the collection service, which I think in practice deals with the noble Baroness’s question.
At the moment, the CSA gets a complaint from the parent with care. The place where it goes to check is HMRC. That main checking area becomes irrelevant when there is a direct feed. Where she is suspicious—it is a suspicion—of, effectively, tax fraud, that is what we are talking about.
Baroness Sherlock
So the CSA does no investigating of its own? I am sorry; I must have misunderstood that point.
Lord Freud
No. Currently the CSA checks with HMRC. As now, it will be able to provide information to support its suspicions that all might not be well. This is a difficult issue more generally.
On the question about the campaign, we are planning a media campaign using social media and paid-for channels such as radio. We are still finalising those details. The intention is to raise awareness of case closure and to promote parental responsibility. We will get more details of that out in coming months.
With all the issues dealt with—perhaps not to everyone’s absolute satisfaction—I will commit to continuing to provide transparency in the delivery of this programme of reforms. We published a strategy for the publication of information about the 2012 scheme on 18 July last year. We plan to release official statistics once we are assured of the appropriate quality of the data; we expect this to be after April 2014, as I said. Ahead of this, we have used the management information that is available to release limited relevant data on a one-off experimental basis, published on 25 November last year. As I mentioned earlier, we will review the effects of the fees and regulations, and lay a report before Parliament following 30 months of operation. I commend the regulations to the Grand Committee.
Housing: Underoccupancy Charge
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Lord Freud
My Lords, less than half the overcrowding takes place in London. More than 30% of properties are actually one-bedroom and 108,000 have come up. We are adapting to the transition by using the discretionary housing payment system. The recent data on discretionary housing payments show that that is exactly how local authorities are using that money.
Baroness Sherlock (Lab)
My Lords, the Minister mentioned discretionary housing payments. The LGA survey says that 81% of authorities said that the number of applications for DHPs had increased greatly between April and November 2013 and that the social sector size criteria topped the list of reasons for this. The LGA has made the point that there are some areas where there is simply not enough accommodation, and therefore the amounts of money the Government have made available are not enough. The tenants are suffering and the local authorities are picking up the tab. Will the Government commit to reviewing this policy and giving local authorities and tenants the help they need?
Lord Freud
My Lords, we have a high level of discretionary housing payments, running at £180 million. More importantly, £20 million of that is to be bid for. I have currently had 67 bids and we are paying out. I am not sure whether local authorities will actually be using up all the discretionary housing payment at their disposal. As noble Lords know, a review is going on. I will be able to publicise the interim findings in the spring and the final version will appear next year.
Employment: New Jobs
Baroness Sherlock Excerpts(11 years, 5 months ago)
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Lord Freud
I am pleased to say that the regional position is pretty balanced. During this quarter, employment rose in virtually every UK region, with one exception. The north of England and the Midlands are doing particularly well. If one looks at the balance between the north and the south, since the election there have been 360,000 extra private sector jobs in the north—to take those four regions together—and 420,000 in London and the south-east.
Baroness Sherlock (Lab)
If that information is right, can the Minister explain the report from the Centre for Cities, which shows that four out of five private sector jobs are now created in London? For example, private sector employment grew by 2.8% in London year on year, but it fell in Sunderland and in Bradford it fell by more than 5%. Do the Government have a strategy for jobs north of, say, Witney?
Lord Freud
I hope that I made it very clear to noble Lords that this is a very widely spread recovery, that the north is doing very well and that the noble Baroness is misrepresenting the actual figures.
Housing: Underoccupancy Charge
Baroness Sherlock Excerpts(11 years, 5 months ago)
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Baroness Sherlock (Lab)
My Lords, the Minister has failed to address the core point made by my noble friend Lady Hollis and the noble Lord, Lord Best: why are the Government penalising people already in social housing, who took out their contracts when the current system was in place and before the bedroom tax came in? Why could they not protect people, as this House asked them to do during the passage of the Welfare Reform Act? If all else fails, will he join us in our costed commitment to abolish the bedroom tax?
Lord Freud
My Lords, the costings of the Labour Party in this area are fairly extreme because it seems to have used the same money many times over. This is a savings measure introduced in the emergency Budget, which applies to the existing case load and gives 33 months’ notice. The comparison is with the LHA changes introduced at the same time, for which there was less notice: 21 to 33 months. We have put in as support the discretionary housing payment system, as opposed to transitional protection.
Pensions Bill
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Baroness Sherlock
“(5) Regulations under this section shall not be made to exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.
(6) Regulations under this section shall be laid before and approved by resolution of both Houses of Parliament.”
Baroness Sherlock (Lab)
My Lords, Clause 37 is headed: “Automatic enrolment: powers to create general exceptions”. I am tempted to rest my case there but I will press on a little. I hope that this will be a relatively uncontroversial amendment that the Minister can accept.
If the Committee looks at Clause 37, it will see immediately that it is drafted very broadly—too broadly, I suggest. In effect, it gives the Government the power by regulation to create exceptions from the employer duties under auto-enrolment in a way or to an extent that could undermine the intention of Parliament in establishing auto-enrolment in the first place.
When this clause was discussed in another place, the Pensions Minister said that the Government needed the powers to make regulations in order to ensure that employers do not automatically have to enrol people whom it will be a waste of time to enrol because they will be immediately removed; for example, people who have resigned, are retiring or have used their lifetime tax allowance. Apparently the clause is broadly worded because, the Minister said in the other place, we cannot predict the future need for exceptions. I suspect that our Minister’s brief contains similar assurances.
Clause 37(2) inserts a provision into the Pensions Act 2008 which enables the Secretary of State by regulation to provide for exceptions to the employer duty that may,
“be framed by reference to a description of worker, particular circumstances or in some other way”.
We accept that there will be circumstances in which it will be inappropriate to auto-enrol someone who is likely to want to be removed immediately, but it is our view that the clause is unnecessarily widely drafted—a view that is shared by others, including the TUC and the CBI.
In Committee in another place, the shadow Pensions Minister, my honourable friend Gregg McClymont, quoted from a letter from the CBI in which it expressed support for the intention of the clause but said it was too broadly drafted because:
“The inclusion of ‘in some other way’ would provide too broad a power to government to change the scope of automatic enrolment at any time it saw fit. For instance, it would provide the Secretary of State with a secondary legislation power to exempt some businesses. This is a move the CBI could not support, as it undermines the consensus that was reached on pensions reform by giving exempted firms a cost advantage”.—[Official Report, Commons, Pensions Bill Committee, 9/7/13; col. 352.]
If the Government want to exempt a category of business, they should come back to the Floors of both Houses and amend their legislation. This is not fanciful. It is not long since the Beecroft report recommended that micro-employers be exempted entirely from auto-enrolment.
This amendment makes it clear that Clause 37 shall not be used to exempt entire classes of business, such as small or medium-sized employers. This will ensure that the Government’s apparent intention for auto-enrolment to apply to all categories of employer and business will be honoured. If the Minister is of the same view as the Pensions Minister on this point—in other words, if it is the Government’s intention that no such general exemption should be made—there can be no reason to resist this amendment. If he does, he has some explaining to do.
Lord McKenzie of Luton (Lab)
My Lords, I support my noble friend’s amendment. Auto-enrolment has, initially, clearly been a success and the Government deserve credit for implementing the policy. But we should recognise that we are just at the beginning: although it has been up and running for 18 months, we are just approaching the point in April this year when smaller and medium-sized employers, those whose largest PAYE scheme covers between 50 and 249 employees, have to commence their duty.
There have already been a range of changes to the process, implemented by regulations, resulting from a review of early live running. Those changes mostly came into force last November, although some are due this coming April. The consultation on the draft regulations also canvassed views on other changes, including the proposition of excluding a certain category of worker from auto-enrolment. It sought more information on three situations, identified that it had a substantive response to the use of an exception, and committed to publish the results, with government proposals and a further consultation. When will the results be published? Will it be before Report? At the very least, can the Minister provide us with a list of the circumstances being considered, if those extend beyond the three identified in the briefing note, which states:
“The initial evidence suggested that there is a case to re-examine the appropriateness of the employer duty in some, very carefully specified, circumstances”?
However, as my noble friend has clearly set out in the amendment, the power taken in Clause 37 is a very wide one.
The circumstances covering someone handing in their notice, where the notice spans the automatic enrolment date, and where an active scheme member gives notice of retirement and stops making contributions could, it is suggested, be the subject of specific amendment. As for those individuals with fixed or enhanced protection for their lifetime allowances, the Minister might tell us how an exclusion might be framed so that the employer could operate without input from the worker. That those circumstances need to be addressed to avoid detriment to workers is clear, but at present the encouragement from HMRC is to do so by opting out. If the system for exemption depends on the worker lodging the existence of enhanced or fixed protection, perhaps with some validation from HMRC, I am not sure that that is a more effective route than the worker simply opting out.
If the rationale for Clause 37 is based on just those three circumstances, I am bound to say that it is not overly convincing. If we are to understand that a range of other circumstances have been identified which justify the clause, we must be entitled to know what they are. The Government must be aware of them from representations that they have already seen. The briefing note sets down some core policy principles against which suggested exclusions are to be tested. One of these is:
“Are the individuals unlikely to benefit from pension saving?”.
This has echoes of some of the challenges to auto-enrolment when the policy was first originated and being developed, particularly around older women just approaching retirement.
It is entirely reasonable that there will be changes to the operation of auto-enrolment arising from practical experience, but we should be cautious of wide powers to remove the employer duty of enrolment. That is the cornerstone of the policy. Of course, we are mindful that the duty has already in practice been narrowed by aligning the starting point with the level of the income tax personal threshold, thereby removing thousands of the low-paid from its benefits. We are also mindful that there is a subtext to the overall Bill about generating savings for the Treasury, so my noble friend is right to be cautious about this clause.
Lord McKenzie of Luton
Nobody disagrees that there could be some limited and carefully targeted exclusions in particular circumstances, but I am trying to understand the circumstances that the Government have currently identified. They have laid out three of them in the briefing document, which suggests that they might have had representations on a whole range of other areas. I reiterate my question: can we know what circumstances, other than the three identified, the Government are focusing on that warrant an exclusion from the provisions?
In particular, one of those that has been identified deals with enhanced or fixed-protection provisions. I accept that there is a financial detriment for people who get auto-enrolment in those circumstances, but HMRC has advised them pretty clearly to opt out in that case. How, specifically, would the Government draft an exclusion to encompass that group of people? The enhanced or fixed-protection status of individuals would not be readily known to employers. Would an employee have to report it to an employer? How is that a better arrangement than the employee simply opting out?
Fundamentally, I am trying to understand how many circumstances the Government have identified where they think there might need to be an exceptional exclusion from auto-enrolment. I accept the Government’s good faith on that remaining the cornerstone of the policy, but how many other circumstances, given all that has gone on and all the representations and discussions to date, have been identified which warrant this power?
Baroness Sherlock
I have a question to add to that. I am grateful for the Minister’s explanation as to why the Government feel they need to have some flexibility to deal with circumstances as yet unknown, but I do not think that the Minister addressed what the problem is with the specific amendment I moved. After all, the amendment does not seek to prevent the Government from having those powers; it simply says that the Government may not make regulations in such a way as to exclude categories of business such as small and medium-sized businesses from auto-enrolment. What is the Government’s particular problem with this amendment?
Lord Bates
I will come to the noble Lord, Lord McKenzie, in the first instance. We have said that there are three categories, which he rightly referred to: tax protection, leavers and retirees. Those are the issues that we have identified. We are, of course, having a consultation. One of the challenges we invariably have is that we phrase a piece of legislation and make certain statements on the record in terms of the progress of that legislation through the House. We give certain assurances and then put something in to say, “This is to cover for unforeseen circumstances”, to which the legitimate question is: “What are those circumstances?”. The legitimate response to that has to be that they are unforeseen at present.
Responses to the consultation are currently being processed. They will be dealt with and published later this year and could reveal examples that we have not actually identified at present. This is a new policy and a new area and we therefore need to look at this. As I made my remarks about unforeseen circumstances, I gave examples of areas where it would be unacceptable to exclude people from the terms. We have rejected these exemptions and certainly would not want to introduce them. We have identified casual staff and teachers with second jobs, for instance, as being examples of people for whom we would not want this provision to apply. However, there will be further consultation on this issue and I ask noble Lords, if not quite to trust the Government, at least to accept that sufficient assurances have been put on the record. We recognise that there is broad consensus, but this needs to apply to everybody. However, this is a young policy in general terms and therefore flexibility is still required.
Lord Bates
The short answer is that it is not easy. As the noble Lord will well know, given his experience as a distinguished Minister in the previous Government, it is not easy precisely to craft provision in those areas. We will seek to produce further examples by Report, following the responses received to the consultation. However, I can certainly assure the noble Lord that none of the responses has suggested that small employers should be excluded from the scheme. I know that is at the heart of the concern and, I hope, is at the heart of the reassurances which I have sought to give.
Baroness Sherlock
My Lords, I thank the Minister for that response, but confess that I am still a little uncertain about what the Government’s position is. I understood him to say that it is the Government’s policy that all categories of employer should be included and that the Government are still consulting and categories of person may emerge who they do not yet know about who they may wish to exclude in the future, and therefore they need to keep this open. So the question I am left with is: are the Government open to the possibility that somebody may make a compelling case for excluding a category of employer by size? If they are not, there is no reason for them not to accept this amendment. If they are, then, frankly, their assurances are not worth the time that they have been given today. I am disappointed that the Minister has failed to address the specific amendment. However, as we are in the Moses Room, and I do not have the option to do anything other than withdraw the amendment, I beg leave to withdraw it.
Lord Bates
My Lords, these amendments allow for two simpler alternative tests for a scheme to demonstrate that it is of sufficient quality. These were developed following last year’s consultation on technical changes to automatic enrolment, asking for views on whether there is a simpler way to determine whether a defined benefit scheme is good enough for automatic enrolment.
As well as calling for a general simplification in these rules, responses to the consultation highlighted that once the contracting-out period ends in April 2016, all those schemes that are currently contracted out, and so considered good enough, must satisfy the test scheme standard. This is considered unnecessarily complex and burdensome, particularly as, until the end of the contracting-out period, the schemes will have satisfied the higher standard of the reference scheme test. The alternative tests provide for a scheme to be used for automatic enrolment if the cost to the scheme of the future accrual of benefits for active members would require contributions that are at least equivalent to one of two prescribed percentages of relevant earnings. The first will apply at the aggregate level, looking at the scheme as a whole, and the second will apply at the individual level and must be satisfied for at least 90% of relevant members. Moreover, in order to provide assurances about the quality of schemes satisfying this alternative test, the amendment ensures that the prescribed amounts will not be lower than 8% of relevant earnings, in line with the minimum level for total contributions into a qualifying money-purchase scheme.
We are mindful of the need to strike the right balance between increasing simplicity and flexibility and ensuring adequate member benefits across all qualifying schemes. This balance will be one of the key issues to explore as we consult stakeholders on the detail of the alternative tests, and will also be reviewed in 2017 to ensure that the legislation is working as intended. I beg to move.
Baroness Sherlock
My Lords, I thank the Minister for his explanation of these amendments. I have two questions. He may have answered them but, although I listened hard, it is hard to be sure. First, will he confirm whether the Bill, with these amendments, will qualify the existing accrued rights protections in any way? Secondly, will he assure us that, given the variations in definitions of pensionable pay, the new defined benefit scheme qualifying tests will be of no lesser standard than the certification alternative requirements used at the moment for employers using money-purchase schemes but using an alternative definition?
Lord Bates
I certainly give the noble Baroness the assurance that she rightly seeks with her second question: there will be that minimum standard. In answer to her question as to whether the amendments will qualify in any way the existing accrued rights protections, nothing that we are doing in this clause or in the regulations that we plan to make under it will have any impact on accrued rights.
Lord Whitty (Lab)
My Lords, in a Bill of extreme complexity, with a large number of amendments that are equally complex, this must be the simplest amendment on the Marshalled List before the Committee. Therefore, I assume it is one which the Government could easily accept or, alternatively, make a slightly different proposition in respect of. Most of my interventions in Committee have been on behalf of the interests of beneficiaries of pension schemes, which I think is right, but this amendment is on behalf of a subset of employers; namely charities, although it would extend more broadly to the non-commercial private sector.
Charities are providers of occupational pensions—in fact, the top 50 charities have pensions liabilities of more than £5 billion. Clause 45 provides some degree of protection for all employers engaged with the Pensions Regulator in restoring the affordability of pension schemes, long-term deficit reduction plans and related matters. It requires the Pensions Regulator to take into account the effect on the employer’s “sustainable growth”. That is obviously a very important issue for commercial private sector employers, but the aim of charities, and of certain other organisations that provide pensions, is not growth. The aim is to work on the object of the charity and, in some cases—for example, with the alleviation of poverty or the eradication of disease—the charity’s aim is to reduce that object and therefore to run down its actual activities in the long run.
“Sustainable growth” is not the appropriate term to give the equivalent protection to private sector employers and to charities and other bodies for which growth is not the objective. I am therefore suggesting that the broader term of “sustainability” should be substituted for “sustainable growth”. Alternatively, if the Government are not prepared to go along with that entirely, I suggest “sustained growth or sustainability”. Otherwise, charities which face equal and, in some ways, greater financial pressures than private sector commercial employers, because of the legal and trustee-type restrictions on how they can use their own money, will have difficulty running pension schemes in many respects. They need this protection, but appealing to this clause, which amends the Pensions Act, would not automatically give them that protection.
I hope that the Government can consider this amendment and accept it, or at least make it clear, in an amendment of their own, that the broader objectives of organisations are also covered by this otherwise very valuable clause. I beg to move.
Baroness Sherlock
My Lords, as my noble friend Lord Whitty has explained, the purpose of this amendment is to ensure that the objectives of the Pensions Regulator, as set out in the Pensions Act 2004 and as to be amended by Clause 45 of this Bill, can be applied appropriately to charities.
We on these Benches are sympathetic to the aims of Clause 45 and recognise that there is a balance to be struck between the requirement on the Pensions Regulator to ensure that there is enough money in pension funds to meet their liabilities and the need to ensure that burdens are not placed on employers, with requirements so tough that they are effectively forced out of business and thus rendered unable to make any future contributions to said pension funds. However, as my noble friend pointed out, there are real concerns among those responsible for managing the finances of charities and other non-profit organisations over whether the clause, as drafted, is fit for purpose.
Charities have charitable objects that effectively circumscribe their purpose and activities. I declare an interest as the chair of some charities now and having been formerly chief executive of three different charities. I also remind noble Lords of the interest I declared previously as a non-executive director of the Financial Ombudsman Service.
As my noble friend has pointed out, charities do not necessarily aspire to grow as companies do. They may happen to grow, if demand is there and money is available to fund their activities. They may aspire to grow, to increase the number of people that they work with in line with their charitable objectives. However, they may not. In my time, I have presided over charities that grew but I have also taken decisions that effectively reduced charities by refocusing them on core objectives and ensuring that they were sustainable. While charities generally do grow, they also need to be sustainable, and that is what my noble friend is addressing here.
This is not a negligible issue. Registered charities employ around 850,000 people. The voluntary sector, according to the Charity Finance Group, contributes £11.6 billion to UK gross value added, compared, for example, to the contribution made by agriculture, which is just £8.3 billion. As my noble friend pointed out, there is a significant issue with charity pension funds. The Charity Finance Group estimates that the top 50 charities are carrying almost £5 billion in liabilities. I am advised that those liabilities, and the actions that have been required to flow from them, are driving a significant number of charity mergers. This is having an effect on the architecture of the sector, not just on the individual charities and their employees. Those charities are understandably nervous about any shift in direction or emphasis that is not appropriate to their circumstances.
I have personal experience of the fact that charities have often suffered at the hands of legislation or public policy that was based on the assumption that most organisations were either public or private and did not take into account the often quite different structure and funding arrangements of charities. The noble Lord has had significant involvement with charities and will understand that point.
If the Government are not minded to accept this amendment, can the Minister tell the Committee how the Government envisage “sustainable growth” being applied by the regulator to charities? What reassurance can he give to worried finance directors of charities? Can the Minister remind the Committee of what relationship, if any, there is between his department and the regulator when it comes to deciding how best to interpret their objectives as set out in statute?
Lord Bates
My Lords, this amendment relates to the proposed new objective for the Pensions Regulator. The Pensions Regulator oversees the scheme funding regime for defined benefit pension schemes. This regime requires, among other things, the regular evaluation of a scheme’s funding position and a formal recovery plan to plug any deficit identified.
In undertaking this evaluation, the Pensions Regulator is guided by a number of objectives set out in the Pensions Act. It is therefore important, in reference to the remarks of the noble Lord, Lord Whitty, and the noble Baroness, Lady Sherlock, that when we talk about this new requirement, it is placed in the context of the six or seven different measures that the Pensions Regulator will take into account in determining the funding rate that is necessary for the scheme to make up any deficit. While some consideration of sponsoring employers is implicit in these objectives, the new objective will make it explicit that the regulator must consider them, alongside members and the Pension Protection Fund, in deciding upon the suitability of deficit recovery plans and other decisions related to scheme funding.
The new objective responds to concerns expressed by sponsoring employers which felt that they needed to be recognised in the regulator’s statutory objectives, given their importance to defined benefit schemes. The current wording of the objective refers to sustainable growth, as the Government believe that the best protection for scheme members is a strong, healthy employer standing behind its scheme now and in the future. Whether that is a charitable organisation or a commercial organisation, its health must be the first objective in order to keep a sustainable body behind the scheme. Sustainable growth can benefit both the organisation and pension scheme members via a potentially stronger employer covenant underpinning the pension promises made.
Lord Bates
My Lords, the four amendments I will speak to fall into two groups of two. The first two, Amendments 64A and 72A, relate to the application of the PPF compensation cap to individuals who have entitlement to both an occupational pension and a pension credit arising from a divorce or civil partnership dissolution settlement. It has come to light during the drafting of the Bill that the way in which the PPF currently applies the compensation cap to this group, while in line with the policy intent, does not comply with legislation. When compensation is calculated, these two entitlements are kept separate. It was the intention that the compensation cap would also be applied separately and this is what the PPF is currently doing. However, the legislation, as currently worded, requires the two amounts to be added together and the total capped, leading to a significantly lower payment. These amendments simply bring the existing legislation into line with the policy intent and the actual practice of applying the cap separately. They also allow the change to be applied retrospectively to cover past calculations and for them to come into effect from Royal Assent to reduce the period in which the practice and the legislation are out of alignment.
The second set of amendments—Amendments 67A and 67B—relates to the provisions in the Bill that establish a long-service compensation cap in the PPF. Those provisions in Clause 47 already make provision for how the long-service cap will apply in the calculation of PPF compensation for individuals in the PPF when the long-service cap legislation is commenced. The amendments deal with how the long-service cap should be applied when a scheme is either undergoing assessment by the PPF or winding up when the long-service cap is introduced. When the legislation commences, a scheme could be in the PPF assessment period—that is, being considered for entry to the PPF, or the scheme could be in wind-up.
Members of schemes in the assessment period will see their payments increased to reflect the long-service cap. However, any valuation of the scheme’s liabilities as part of the assessment period will continue to be based on the current cap structure. Any scheme that winds up outside the PPF, after being in assessment or not, will allocate its assets against the current cap structure. I hope that is absolutely clear. I beg to move.
Baroness Sherlock
My Lords, I thank the Minister for that very helpful explanation of these amendments. He may have answered the question that I am about to ask in his final sentence but I did not quite catch it, and I apologise for asking him to repeat it. In relation to the cap, for schemes currently in assessment, do the current PPF rules and levels of benefits or the more generous rules apply?
Lord Bates
The answer is that the current provision applies if a scheme is wound up outside the PPF. Schemes will increase payments where appropriate to reflect a long-service cap. However, the scheme’s liabilities will continue to be measured against the old cap. This is to prevent the actuary having to recalculate the scheme valuation, leading to delays and extra costs. I hope that that is helpful to the noble Baroness and thank her for raising the point.
Baroness Sherlock
“National Employment Savings Trust transfers
(1) In relation to NEST, the Government must by 30 August 2014 notify the European Commission that it wishes to lift the ban on transfers and the contribution cap.
(2) The Secretary of State must make a statement to Parliament within 14 days of the Government notifying the European Commission in accordance with subsection (1).”
Baroness Sherlock
My Lords, the amendment in my name and that of my noble friend Lord Browne would require the Government to lift the restrictions on the National Employment Savings Trust, or NEST, on transfers made before 30 August 2014, and to notify the European Commission that they wish to lift the ban on the transfers and the contribution cap. Following this, and within 14 days of the notification, the Government would be required to make a Statement to Parliament.
The Government’s decision to legislate now but not to lift the restrictions on NEST until 2017, and to refuse to lift the ban on transfers in and out until pot follows member commences, is cause for real concern. Crucially, it cannot be in the public interest for the Government to proceed in such a way. Incidentally, I am sure that the Minister has noted the recommendation from the Work and Pensions Select Committee that the restrictions be lifted without delay.
I agree that there was a good case for having restrictions before it was clear how the market would progress, but these restrictions are no longer justified. The auto-enrolment market is now well under way and NEST has not taken all the business, which had once been a concern among some. Indeed, the restrictions have meant that NEST has been able to get less of that low and medium-earning segment than it otherwise would have done, which will contribute to the increase in the number of small dormant pots.
While the contribution limit will be lifted from 2017 by legislation, the restriction on individual transfers in and out of NEST will be left to coincide with the beginning of pot follows member. Whether the income cap is such a problem up to 2017, the continuing ban on transfers in and out will be. The DWP’s own research found that more than 80% of employers want one provider. However, the ban means that any employer who is thinking about using NEST but currently has a pension scheme of any type will be discouraged from using NEST because they cannot transfer in the pension assets in their current scheme. The Government are encouraging employers to use NEST but, by refusing to lift the ban on transfers in and out right away, they are discouraging those employers who currently have a scheme elsewhere. In this way, NEST is being disadvantaged against many of its market competitors.
Our amendment would enable employers who currently have an existing pension scheme to take their employees with their existing savings into NEST. While there remains a ban on transfers in and out, those employers cannot use NEST, or can use it only by leaving any existing pension pots in a stranded place, with a different scheme. Has the Minister considered that aspect of the Government’s decision?
It appears that what the Government are actually doing is ensuring that the restrictions on NEST remain until every employer has staged. By the time the NEST restrictions are lifted, auto-enrolment will be complete. There are a number of significant problems with the Government’s position. First, as the pensions industry acknowledges, NEST provides best-practice standards, which has obliged the insurance companies to improve their standards. Yet NEST is disadvantaged in competing for many of the low and medium-earning savers for whom it is designed. That may well result in customer detriment for many of those workers. Secondly, the Government’s proposals fail the public interest test. If large numbers of low and medium-earning employees cannot use NEST, it is thereby being prevented from delivering its public interest obligation. Thirdly, restricting NEST impacts on its financial position and makes it harder to pay back the state aid earlier and thereby allow it to reduce its charges even further. This again undermines NEST’s public interest obligation and its mission to deliver a low-charge, high-governance pension proposition. Finally, the rest of the industry is reported in the pensions press as increasingly not having the capacity or, possibly, desire to cope with all the employers who are still to stage in. Having had, it is said, the advantage of the NEST restrictions in place while larger employers move in, the rest of the industry is perhaps less interested in the smaller end of the market.
I trust that the Minister will be able to explain why the Government have so far refused to lift the restrictions. However, whatever has been said in the past, I urge the Minister to accept this amendment; but if he cannot do so today, I hope that he will take it away and reconsider before Report the strong case for these restrictions to be lifted—not in a few years’ time but now, before auto- enrolment is complete. I beg to move.
Lord Bates
My Lords, I thank the noble Baroness, Lady Sherlock, for giving me the opportunity to update the Committee on all things NEST.
As noble Lords know, the National Employment Savings Trust was established to support automatic enrolment, providing access to a quality, low-cost scheme for a target market of low-to-moderate earners and smaller employers. We are now just over one year into automatic enrolment and NEST has around 800,000 members and 2,500 participating employers. Opt-out rates are low, with only 8% of individuals enrolled into NEST choosing not to save for their retirement. NEST is already very successfully doing what it is there for—supporting automatic enrolment.
However, we are approaching a peak in the staging profile. Between April and July this year, 27,000 medium-sized employers will start to enrol their workers, and from April 2015 more than 1 million small employers will do the same. We anticipate around 65% of these small and medium employers will use NEST. By the end of staging we expect NEST to have admitted around 750,000 employers and to be providing a pension saving vehicle for between 2 million and 4 million members.
This implementation challenge is what we need NEST to focus on. We need to ensure that the millions of people currently not saving sufficiently for retirement are provided with an opportunity to do so, and that NEST plays its part in starting to make pension saving the norm rather than the exception. For this reason, during the implementation of automatic enrolment, it is critical that NEST focuses on the key task of getting employers and workers on board without distraction. That is why we announced that we will be lifting the annual contribution limit and transfer restrictions currently placed on NEST by April 2017, when implementation for all existing employers is complete.
I am pleased to advise the Committee that, following an invitation from the European Commission, the Government submitted a formal notification earlier this month of their plans to lift these two constraints. The Commission will provide its response in due course. Once this has been received, the Government intend to consult on draft regulations and bring forward secondary legislation later this year to lift the constraints in 2017.
These regulations will provide certainty that beyond 2017 NEST will be on a similar footing to other providers and its members in the wider pensions market. It will enable NEST to support the successful implementation of automatic enrolment but will send a clear message to employers that these constraints will not have any bearing on them in the longer term, helping them to make an informed decision about automatic enrolment scheme choice for their members.
The Government are committed to ensuring that the introduction of automatic enrolment is a success. Effective implementation is important for building and maintaining consumer confidence in the reforms. Removing the annual contribution limit and transfer restrictions by April 2017 is the right approach.
The noble Baroness asked if the ban on transfers stopped employers from choosing NEST. NEST already has 800,000 members and 2,500 participating employers. Given that the overwhelming majority of employers that have staged so far are large employers, the evidence suggests that the constraints have not unduly deterred employers from choosing NEST.
This is an operational capacity issue for NEST. The restrictions on transfers in and out of NEST were designed to enable NEST to focus on its primary objective of supporting the introduction of automatic enrolment. Between April and July this year, an anticipated 10,000 to 15,000 medium-sized employers will start to use NEST to meet their automatic enrolment duty. It will not stop there, with more than 1 million small employers starting to enrol their workers from 2015.
I hope that those comments and updates, and the responses to the questions that the noble Baroness rightly raised, will enable the noble Lord to withdraw his amendment.
Lord Bates
The noble Baroness makes a important point in relation to this and I would not dissent from it. NEST has a vital role to play and we want it to be a success. However, it is new, and a new system is coming online, so this ought to be done through learning from experience in a gradual and incremental way rather than as a big bang, of the sort which has had its problems in the past.
Baroness Sherlock
My Lords, I thank all my noble friends who have contributed to the debate and am grateful to the Minister for his graciousness in revising his position. It is quite possible that my noble friends are in a better position to decide what the Labour Government intended by these measures than he perhaps is, despite his knowledge and his current position, since they were involved in shaping it.
Lord McKenzie of Luton
I look forward to the letter and its contents in due course. We were relaying the origins of NEST in the first place. These issues—the restrictions—were not intended by the then Government that introduced it to avoid NEST being distracted.
Baroness Sherlock
I thank my noble friend for that. First, I am disappointed that the Government decided to go ahead and stick with their current position. I would have liked the House to have the opportunity to discuss this further, as I do not think the Minister took on seriously the arguments made from this side. There was no reference at all to the question of scale. If the reports one hears from the industry are correct, it is possible that some of the big players may, this year or next, shut their doors to new members. We should do everything possible to enable NEST to build an appropriate level of scale and to enable it—far from distracting itself—to do precisely what it was set up for: to fulfil its public service obligation by delivering a high-governance, low-charge offer to those who can benefit from it.
The Minister made reference to employer choice but of course, by definition, the constraints actually reduce employer choice. Employers who want to go into it are unable to because the restrictions remain in place. I am disappointed that, despite the pressure from this side of the House, the Government have not revised their position. However, given that we are in Grand Committee and I can do nothing else, I beg leave to withdraw the amendment.