National Employment Savings Trust (Amendment) Order 2013

Lord McKenzie of Luton Excerpts

Thursday 28th February 2013 Grand Committee

[Lord German]

My Lords, I have only one question in relation to the changes in this order. I suppose that I should declare an interest in that my wife works for a small charity which is seeking to become a member of NEST for its employees. However, I do not think that I really have an interest in the sense that I am relating my question to the technical change removing the requirement for the trustee to consider next of kin. Therefore, it is a general question rather than being specifically about me.

The Explanatory Memorandum talks about rules, with a small “r”, in England and Wales, Northern Ireland and Scotland, but further on it talks about doing something differently in accordance with Rules with a capital “R”. In terms of next of kin, what is being changed here in respect of those to whom payments should be made? Why is there a £5,000 limit on death benefits being transferred, and what Rules, with a capital “R”, will apply when the trustee looks at the question of those to whom they should pay sums of less than £5,000?

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing this order and I say upfront that we will be supporting it. Perhaps I may revert to an item touched upon by the noble Lord, Lord German, which I was going to raise in our previous debate concerning people’s expectations of pensions, the importance of auto-enrolment and certainly the importance of NEST as a key component of that. When the Turner commission looked at the prospect of auto-enrolment and how employer pensions were to be organised in future, I think that the criteria around contribution levels and the band of earnings to which they applied were struck so that over a working lifetime the required level of replacement earnings would be produced. I am bound to say that with what has happened to the band of earnings, contribution levels have not shifted. I have not seen an update of that calculation and I do not know whether there is one—I think that it is an adjunct to this order—but if there is, it would be interesting to see it.

I have one or two questions in respect of some of the detail. We understand why the discretionary period to allow self-enrolling members to be accommodated is necessary, but can the Minister update us on the current elongated process for enrolment? I do not have that fully in my mind. What is the position of new self-enrolling members at the end of that period? Do they have an unfettered right to enrol? Perhaps we can use this occasion, given that NEST has been up and running for a little while now, although with regard to auto-enrolment larger employers are involved first, to find out whether we have any early numbers for the employers and employees who are enrolled.

We support the lifting of the obligation dealing with cross-border obligations and the other essentially technical amendments. I have a small point on terms and conditions. The Minister said that the proposed change would mean that self-enrolment individuals, as others, do not have to agree to members’ terms and conditions, so what is the purpose of those conditions? What relevance do they have? As for multiple jobs, again we support the change that has been outlined, but what is the position on multiple jobs within the same employer group? There is a maximum of 4,400 but, if that can be exceeded and there can be multiple jobs, are there any constraints if those multiple jobs are within the same group, possibly on a specifically organised basis to circumvent the limit?

With those few small inquiries, I say again that we support the order and are pleased to see that NEST is making progress.

[Baroness Stowell of Beeston]

My Lords, I am grateful to the noble Lord, Lord McKenzie, for his support for this order and, indeed, for the support from my noble friend Lord German. I will try to respond to a few points, but I must say straight from the start that I will probably have to write to the noble Lord on many of his queries. This being quite a technical order with quite a lot of associated technical questions, I am afraid that I know my own limits. This one might take me beyond them, so forgive me from the start if I have to follow up in writing.

The noble Lord, Lord McKenzie, asked me for the latest figures about membership of NEST. I have those in front of me. It has been operating since July 2011 and automatic enrolment commenced, as we know, in October last year. We estimate that by the end of staging it will have 2 million to 4 million members and 750,000 participating employers. To the end of January, NEST has more than 200 participating employers, around 45,000 members and a little over £2.2 million in assets under management.

The noble Lord, Lord McKenzie, asked, in going back to the last debate that we had on the last order, about the percentage of average earnings that people will accrue as they enter retirement. If there is anything more that I can say on that, I will have to follow up in writing.

The noble Lord, Lord German, asked about next of kin and what is happening there. The requirement for NEST to have to consider next of kin is in line with the Administration of Estates Act 1925. In Scotland, a person is entitled to moveable estate on intestacy. These are very specific; the change allows NEST to determine who to pay survivor benefits to. The rules with a capital “R” are the NEST rules that support the order. On why the trustee’s discretion to pay survivor benefits is applicable to pots only under £5,000, the Administration of Estates Act specifies a limit on the amount of property allowed to be disposed of on death without the necessity for probate or other proof of title. That limit is currently £5,000.

The noble Lord, Lord McKenzie, asked about the position of self-enrolling members after the staging period. They will be able to join NEST, as NEST has an obligation to accept them. He also asked about what he described as the elongated staging profile. Currently, large employers have staged and medium employers will become subject to the duty from April 2014. Smaller employers will become subject to the duty from June 2015, and all employers will be in by February 2018.

The noble Lord, Lord McKenzie, also asked whether there is an update on the calculation of contribution levels. I think I am about to answer something that I promised to write to him about. In the hope that this answer will mean a shorter letter, if not another letter, the qualifying earnings band is from about £5,500 to about £42,500. A revision order has been laid in draft and will be debated shortly. The noble Lord is correct in saying that the contribution rates remain as in the 2008 Act.

[Lord McKenzie of Luton]

That is very helpful. I am specifically interested to see, if it is available, what that would mean if one revisited the original Turner commission’s calculation to see what, over a working life with that earnings band and those contributions levels, that would be likely to give in terms of the level of replacement income for somebody about to retire. There was a specific calculation that drove many of these parameters at that time. If there is no update, it is of no great moment, but if there is, I would be interested in seeing it.

[Baroness Stowell of Beeston]

If there is anything available that I am able to provide, I will do so. The noble Lord also asked whether there were any constraints on minimum contributions within the same job. Where there is an upper limit on contributions into a scheme, however expressed, the scheme can still certify as long as the upper limit could not result in contributions that are less than those required by Section 20. I think I am right on that one.

Since I have run out of pieces of paper in order to try to respond to the questions that noble Lords have generously put to me today, I will conclude by saying that I am grateful for those contributions. The changes in this order are consequential, minor and technical. They are deregulatory and will ensure NEST continues to operate efficiently for employers and members who use it. NEST is critical to the success of automatic enrolment. I am grateful to noble Lords for their support today. I commend this order to the Committee.