Pensions Bill [HL]

Baroness Drake Excerpts

Thursday 3rd March 2011 Grand Committee

[Baroness Hollis of Heigham]

My Lords, this amendment is about voluntary earnings. Who do we think NEST is for? It is basically for poorer people, mostly women, who are not able to save in conventional ways and have hitherto had no access to an occupational pension. The other two members of the Paul Johnson review team that produced the report Making Automatic Enrolment Work are very experienced people, but they come from the industry and employment side. Their report recommends that auto-enrolment begins not at the LEL of £5,204 but at the earnings threshold of just under £7,500. This means that 1 million people, mostly women, who would have been automatically enrolled will now not be. The expectation is that ET will rise potentially to £10,000, at which point 2 million people, mostly women, will not be automatically enrolled.

The report runs two arguments in favour of raising the threshold. I think that both of them are fallacious. The first argument that the report runs is that—it is, of course, true—very low earners have high replacement rates in retirement through benefits and so on, so that NEST is not necessary, unlike for higher earners, for whom state benefits by definition represent a lower replacement rate and who might therefore wish to take advantage of NEST. The second argument that the report runs—as you would expect from the industry—is that they do not want to handle such small sums. That is the basis of their argument and the Government have followed their advice.

The first of these is about replacement earnings. It is, of course, true that, if you have a low enough income from earned work, even the basic state pension backed by pension credit will come to much the same level as your wage and therefore you will have a high replacement rate. The statistics and percentages on this are all very well, but these women are still very poor. That is why their state benefits in retirement will perhaps just about equal their wage. They are still very poor, whether in work or in retirement.

A pension, however small, even if it is below the trivial commutation level, which it probably will be, gives the woman, through pension savings, a two for one to match her own—because she attracts the employer’s contribution and, to a minor degree, the tax relief, depending on where she is earning—which, perhaps for the first time, might allow her to retire with a small capital sum below the trigger commutation rate of perhaps £10,000 or £15,000, depending on how long she has saved.

I do not accept this argument. It is right that there are high replacement earnings in retirement, if you have a very low wage. However, that means that—this is the key fact behind it—both in work and in retirement you are likely be very poor indeed. This is why we need an option for NEST.

The industry’s second argument, which I also think is fallacious, although I understand it, is that employers do not want the hassle of handling small sums that, they say, would not be worth much to the employee once the means-tested benefits come into play. However, there is a profound flaw in their argument here, too.

The reason why the sums are small is that, wherever you set the auto-enrolment start line, whether it is LEL at £5,200 or ET at £7,400, the first £1,000 or £2,000 of earnings above any line that you set will by definition produce only a very modest increment in pension. That would be true whether you were on £10,000, £15,000, £20,000 or £22,000. The first £2,000 produces little additional revenue. That is why, while the argument is true that you might as well put it up to £7,500 because the difference between £5,200 and £7,500 is tiny, it is also the case for the first £2,000 of earnings above £7,500. It is true for wherever you set the threshold, so it does not apply to the figure of £5,200 as such; it applies to the fact that you have a threshold at all, which is not based on the first zero pound.

The whole of the report is fallacious, in so far as it hinges on that argument. Otherwise, if the woman is auto-enrolled at £5,200 with earnings of £7,400, her pot over 25 years, I estimate, with a levy on the £2,000 increment, will be about £10,000 greater than if she was enrolled at £7,400. But if she is enrolled at £7,400, and has earnings of £2,000 above that—say £9,400 or £9,500—she will still have the same size pot on the first £2,000 or so of income, give or take £100 or £200.

The additional pot argument, in other words, applies wherever you pitch the threshold—unless, of course, you are up in the £30,000 or £40,000 region, where by definition you have a much higher increment. Therefore, the argument that the pots are too small to be worth bothering about either is valid for wherever you set the threshold for low earners or is not valid at all. The problem is not whether it starts at the LEL of £5,200 or at the ET at £7,400; it is that it does not cover the earnings below the threshold—the first £5,200 or £7,400. Auto-enrolment on those would make the difference that matters. That is what this amendment is about.

I am pleased that the Government have agreed that, following the Johnson report, wherever a woman wishes voluntarily to enrol between the LEL of £5,200 and the ET at £7,500, the employer must contribute. As I have suggested, although that is useful, it is not enough to make a really significant difference unless it is extended to embrace the whole of the earnings from pound zero.

My amendment adduces no new principle. The Government have already agreed—unless they have changed their mind and I have not picked that up—that young people below the age of 22 can voluntarily enrol. I welcome this. The Government have also agreed—I also welcome this as a concession following the report—that low earners earning between LEL and ET can also voluntarily enrol before they hit the auto-enrolment figure of £7,500. This amendment would allow the earner voluntarily to enrol on all her earnings from pound zero, provided that she was at or above the threshold—a threshold that I would like to be the LEL for the sake of consistency.

Therefore, no new principle is involved in this amendment. It would merely bring into NEST those employees who, if they were in a standard occupational pension, would have their earnings covered from pound zero. It would merely align NEST with best practice already in occupational pension schemes—nothing new or novel. Only NEST has the LEL threshold for voluntary entry at £5,200 and ET at £7,500 for auto-entry.

What does all this mean? Take a woman on half average earnings—say £11,000 a year. Only in NEST would a third of her earnings, between £7,500 and £11,000, be automatically pensioned. If she were in an OP, her entire earnings would be automatically pensioned. I emphasise that it would be voluntary for her to make the choice as to whether she welcomes and wants this form of savings going back to pound zero, given her family circumstances.

Why is it necessary? Some 40 per cent of women at retirement may not be married; they may be cohabiting and they may or may not be financially interdependent with their partner. As a result, they need to carry their own pension. I am sure that the Minister and everyone in this Room would agree with me on that. As it stands, only a third of her income would be automatically pensioned. Should ET rise to £10,000 and she is on earnings of £11,000, almost none of her earnings—a paltry £1,000—would be pensioned unless she chose voluntarily to go back down to the LEL. Not surprisingly, this would result in the small sums which the industry finds a hassle and the employee finds disappointing and which trap employees into benefit tapers.

I will repeat the statistics that I offered at Second Reading. Under these proposals, a woman has the right to enrol voluntarily below the LEL, so a woman on £11,000 after 25 years who voluntarily saved on all her earnings could end up with a pension pot of £40,000 over 25 years. If she relied on auto-enrolment and it were to kick in with an ET of £10,000, which is what the Pensions Minister, the honourable Steve Webb, is promising us, she would retire with a pot of virtually nothing. So the difference is between £40,000 or £1,000 or £2,000.

This amendment adduces no new principle. It is about voluntary enrolment in which the employer must contribute. That principle has already been established for young people and for the gap between LEL and ET. There would be no additional small pots. On the contrary, it could well double the pots and more, to the gain of all parties concerned, and make it worth saving, which is what we all want. I beg to move.

[Baroness Drake]

My Lords, to my mind there are two reasons why Amendment 16, tabled by my noble friend Lady Hollis, is attractive. First, it would enable people outside the lower limit on the band of earnings who want to save to be able to. Those of us who followed the debate know that a reason for the lower limit on the band of earnings, as distinct from the earnings trigger that is now proposed, was the consideration of the persistently very low-paid workers and whether it was appropriate for them to be nudged. However, as my noble friend said, this amendment is not auto-enrolling. It allows for the active choice of the worker—an active decision of someone on low earnings for a particular job. If they choose positively to make that decision, there seems to be a good and fair reason for the employer to make a matching contribution of 3 per cent, particularly because their incomes are low. The individual would still be a worker and the 3 per cent employer contribution would also assist with the arguments about de minimis levels of contribution and the consequential impact on costs and charges.

My second reason for finding this amendment attractive is that it extends the principle that the reforms should work for women because, although women are most likely to have earnings below the qualifying band, their household income may be such that they still want to make a pension contribution. That is very important. I declare an interest because of my involvement with NEST. NEST is designed to allow someone voluntarily to contribute once they have a NEST account, although I acknowledge that there are de minimis requirements because of the need to keep costs and charges low. However, I am sure that in most instances the combination of the employer contribution and the employee contribution would go above those de minimis requirements. It could also start to address the multi-job problem where women have several mini-jobs, because individual contributions per job look low but in aggregate could be much greater. Although I fear that many women in such mini-jobs will not have the confidence to overcome the barriers of inertia and voluntarily opt in—their needs will require more systemic change, as we discussed yesterday—none the less there will be women who will want to make the active choice and who will be in circumstances where that makes economic sense and where it will assist the asset accumulation for a pension in their own name. So the proposal certainly has attractions.

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[Lord Freud]

I do not need to write. I can confirm that. It does not have to be NEST. The pensions may or may not be NEST in each case.

[Baroness Drake]

If it was NEST, it would not be two pots; it would all go into one NEST account. But if the employer choice in each instance was a different pension scheme, by definition there would be two pots. To clarify on the previous debate, my understanding was that those earnings that came within the band—forget all other triggers—attracted an employer contribution. That is the critical thing. To get the employer contribution, the earnings must be in the band. If your earnings are below that band, you can opt in but you cannot trigger the employer contribution.

[Lord Freud]

That is exactly what I said, so I thank the noble Baroness, who is an expert in this area, for giving me the relief of not making a horrific solecism.

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[Baroness Hollis of Heigham]

This is an important amendment, not just for this but for all the other areas where we are looking at voluntary enrolment. I hope, therefore, that the Minister will reassure us on the employer making sure that the employee in the waiting period can voluntarily enrol into a NEST scheme before it becomes automatic. I hope that he will also reassure us that employees earning above the LEL, but below the automatic enrolment threshold will be made aware of their rights. That could involve quite a considerable number in jobs where, for example, very many women work part time; I am thinking of retail, where women might work two days a week and so on. I hope he can give us some reassurance as to how he is going to operate a nudge, where there is opt-in, as opposed to where there is auto-enrolment.

[Baroness Drake]

My Lords, I express my support for the sentiments and views of the noble Lord, Lord German, in moving this amendment. I, too, noted the Minister’s comments on regulation on this matter. As we move nearer to the commencement of auto-enrolment in 2012, I am also conscious that both the Department for Work and Pensions and the pension regulator will need to prepare for a major programme of communication and guidance to workers and employers. Can the Minister assure us that sufficient funds will be made available for this scale of communication and guidance programme? As the Minister said, this is the biggest ever example of asymmetrical paternalism, and, given the constraints on public expenditure, the old phrase about not spoiling the ship for a ha’porth of tar, is extremely important in this instance.

I, too, agree with the noble Lord, Lord German, that, if individuals are to be given the right to opt in during the deferral period, it has to be a meaningful right, understood both by the employer and by the employee. A meaningful right to me means three things: do you know you have it; do you know how to exercise it; and do you not suffer a detriment in exercising it? That is quite important if the three-month waiting period is to have integrity for the reasons given as to why a three-month period is needed and the individuals none the less can opt in. It is quite important that guidance and culture meet those three requirements. I hope there is guidance to both the employer and the employee that makes the opt-in opportunity meaningful.

[Lord Freud]

My Lords, I thank my noble friends for this amendment, which would require us to make sure that guidance is issued to employers and jobholders explaining their rights during the waiting period under Clause 6, including their right to opt in. Let me try to describe what our plans are in this area and explain why putting it in the Bill could potentially be counterproductive. We aim to specify in regulations how quickly the employer must give a notice to the individual about the waiting period. We will also set out in regulations what information that notice must contain, and any other accompanying information the employer must provide. In particular, this will include information about the right to opt in during the waiting period.

We recognise the need to provide certainty as quickly as possible, as my noble friend Lord German pointed out. We intend to put out the draft regulations after what we call a “soft consultation” period in April. We intend in this way to inform employers of the requirements around waiting periods as soon as possible. To use the waiting period provision, employers will have to provide information to individuals about their right to opt in. It is essential that employers understand the operation of the waiting period and their obligation to provide information to affected workers. That will be done through the Pensions Regulator, who is developing clear guidance for employers explaining their duties under the reforms and including information about the waiting period. The Pensions Regulator plans to publish the guidance in the current year.

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[Lord Freud]

We have committed to monitor this situation quite widely, in particular how the waiting periods are working. It is essential to get it right. We have not developed the specification of that monitoring, but we will do so. We will watch closely that and other issues.

[Baroness Drake]

The three-month waiting period gives rise to concerns over bad employers. However, on the monitoring point, the Pensions Regulator has an obligation to monitor and look for non-compliance. One of the ways in which they will do so is by looking at the number of employees in a firm who have been auto-enrolled, because they will at least get a sense from the numbers involved whether there is a flashing red light over compliance. The problem is that the Pensions Regulator will focus on where the biggest risks are and look at the bigger employers first. If the compliance hazard is around small employers, there has to be discussion with the Pensions Regulator, because compliance monitoring is resource-intensive. Even if one was running the argument that the problem can be picked up in compliance monitoring, the requirement on the regulator to be risk-focused and therefore to target where they think the greatest non-compliance issues would be, or to get scale of coverage on non-compliance, could be a problem.

[Lord Freud]

I repeat that we are committed to looking at waiting periods and there is a general duty on the Pensions Regulator to look at compliance. If we suspect any kind of systemic abuse, our aim will be to find it in our monitoring. For example, we might look at it from the other end and survey individuals, perhaps those in the low-paid environment, who are at risk. However, this is an issue that we are alive to, and this debate has made us even more so. I therefore need to thank the noble Lord for raising it.

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Moved by

[Baroness Drake]

28: Clause 8, page 7, line 22, leave out “, 5(1)(a)”

[Baroness Drake]

My Lords, I shall also speak to Amendments 29 to 32. Please forgive me if I take a little of your Lordships’ time on this matter, because I feel strongly about it. The policy of auto-enrolment—or asymmetrical paternalism, because we should give the friend of the noble Lord, Lord Freud, his due recognition—has the broad support of all the main political parties and stakeholders. That broad support and consensus are important. However, let me capture our concerns which led to the tabling of this and the associated amendments.

The definition of the workforce who should be auto-enrolled into a workplace pension and benefit from the contingent employer compulsory contribution and the tax relief or credit is the product of both thorough analysis and the iterative process required to deliver such a widespread consensus. The definition of the workers to be covered by the new employer duty to automatically enrol, the band of qualifying earnings and the minimum contributions are all captured in legislation. The intended outcomes include the need to achieve a very wide coverage of the working population, including low-income to moderate-income earners, to facilitate them saving from a relatively early age given the long years of saving needed to achieve an adequate income in retirement, and for the design of the private pension system, as well as the state system, to work for women.

On taking office, the Government commissioned Paul Johnson and his colleagues to review the auto-enrolment policy and its provisions. I commend and thank the Government for holding to the main thrust of the policy that was enshrined in that consensus and captured by the previous Government through the Pensions Act 2008. I am sure that maintaining that position did not come without its challenges, not least, no doubt, in exchanges with the Treasury, so I would be the first to acknowledge my thanks to them for holding to the main thrust of the policy.

Our concern, however, is that Clause 8 gives to a Secretary of State too great a power to significantly change the population of workers who will be the beneficiaries of auto-enrolment—in particular, the power to raise the age requirement for a qualifying worker above the current age of 22 and the power to raise significantly the earnings threshold at which a worker would qualify for automatic enrolment.

The purpose of Amendment 28 and those associated with it—Amendments 29 to 32—is to probe why and in what circumstances the Government would wish to raise the qualifying age. It is also to limit the Secretary of State’s powers on the extent to which he or she can increase the level of the earnings threshold at which the automatic enrolment of a worker would be triggered and to require the Secretary of State to provide an impact assessment to accompany any order to increase or decrease any of the amounts that he is empowered to increase or decrease under this clause.

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[Lord Freud]

All this is saying to me that, right now, uprating measures for entry and savings levels need to be flexible. Therefore, we want to maintain flexibility to consider a wide range of economic measures. Pensions cast long shadows. Pension law has to last for the long term. We believe it is prudent to build in maximum flexibility for all eventualities, as regrettably we do not have 20:20 foresight.

I sympathise with the intention behind the amendment and I understand the concerns about any unfettered discretion or an unrestrained dash to a £10,000 trigger. However, the primary aim here is to ensure that we target the people who should be saving, while excluding those who should not. If, at the same time, we can align with a threshold that employers are already familiar with and minimise administration burdens, so much the better.

Automatic enrolment has to be sustainable. My worst fears are that we set rules which scoop up people who cannot afford to take a hit on their pay packet. If we get the trigger wrong—if we set it too low—we risk high levels of opt-out. Once we do that, we turn people off pension saving, even if we have applied asymmetric paternalism to get them to save. To get the trigger right, we need flexibility.

Today’s debate is further ample evidence that the automatic enrolment earnings trigger is a matter of deep interest and concern to this House. For that reason, we want to ensure that the House has an ongoing opportunity to debate this issue. We recognise that including such a flexible power to amend figures that appear in primary legislation represents a very broad power, and that is why the uprating order will be subject to an affirmative resolution procedure. It will mean that this complex issue, and the exact rates set for the launch of automatic enrolment, will be the subject of a full debate to ensure complete transparency.

It would be unusual to commit to an impact assessment in the Bill, as requested by the noble Baroness, Lady Drake. However, I make a commitment to provide an impact assessment for the next five years, up to the 2017 review and shortly afterwards. This will allow time for the reforms to bed in and for us to understand the wider landscape. Therefore, there will be full information on the uprating order as a basis on which the House can conduct the debate.

I hope that I have been able to set out the case for flexibility and the need to future-proof these provisions. I also hope that I have provided the reassurance on transparency that noble Lords are seeking with their request for an impact assessment. However, I regret that I cannot give a guarantee that the trigger for pension saving will in future be set in complete isolation from prevailing personal tax thresholds. I am afraid we are unable to accept the amendments and I ask the noble Baroness to withdraw this amendment.

[Baroness Drake]

I thank the Minister for his response but I am not persuaded by his arguments to feel confident. I come back to the point that I made in moving the amendment: the UK has a history of making what it feels are good incremental adjustments to the design of the pension system for short-term considerations. Inevitably, 10, 20 or 30 years downstream, there will be a sub-optimal outcome in the strategic sense, and there will then be a rush around to try to find plasters to deal with that. I worry that the ease with which the earnings threshold could be raised so significantly is a potential example of the same error being made in the future.

The Minister said that the Government wanted to retain flexibility. I do not think that I am arguing about the Government not retaining flexibility; I was seeking to put a limit on the extent of that flexibility that can be addressed through an order, because I think that the threshold for earnings is so significant. The Minister said that he had listened to employers and pension providers. That is good, because employers are very important in this new settlement. However, there are also consumers and citizens whose views and interests in this matter are equally important. These reforms represent a contract with citizens, whereby the Government are expecting them to take greater responsibility for providing for their own income in retirement, and also for removing the state from any responsibility for any earnings-related second-tier provision. It is therefore very important that the employers’ views are engaged because they are part of the tripartite delivery of this. I do not demur from that at all. Equally, the view of the citizens, or those who are able to speak for them, is also to be represented. Something as significant as the trigger for the earnings threshold will be very important for them and for the outcomes of their saving activity.

In the amendment, we were seeking to give the Government the flexibility which at least kept broadly constant the proportion of the population covered by automatic enrolment, with some degree of variation either way. But if there is to be a major change in the threshold, I do not believe that that should be done by an order—even by an affirmative order. It is of such significance to the outcomes to the pension reform programme over time and there should be a high level of awareness of the consequences. People should understand the impact and all interest groups should be involved in that decision.

The Minister referred to a possible change in the state pension system in the future. Speculating, the change will be accelerating the flat-rating of the state second pension and integrating and bringing forward the two into a replacement single state pension. Presumably that would strengthen the argument that raising the earnings trigger, other than by reference to earnings or comparable situations, should not be raised significantly.

I remain concerned because the arguments deployed by the Government for wanting to retain the level of flexibility that will allow them to raise the earnings trigger so high are not very persuasive. I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

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[Baroness Drake]

My Lords, I share the concerns of the noble Lord, Lord German, and I am pleased that he has tabled this amendment, as it allows us to debate a matter which is of increasing concern to consumer groups, such as Which?.

There is a real issue of how the Secretary of State exercises his powers under the 2008 Act in terms of setting qualifying standards. Here, we are seeing two tensions coming into play. With higher levels of scheme membership, which automatic enrolment will bring, increasingly employers will not want to retain former employees—the leavers—in their trust-based DC schemes. They will prefer to transfer them out or default them into some form of personal pension. That is not necessarily an irrational position for an employer to take but the former employee—the leaver, the deferred member, the not-contributing-to-that-pot member—will move away from the preferential charges structure that their employer may have negotiated into a personal pension scheme with a much higher level of charge.

Where the employer workplace pension is delivered by a contract-based provider, both the employer and the contract provider may have an interest, for different reasons, in defaulting a departing employee or leaver into a personal pension which will very likely have higher charges, the employer motivated by not wanting to be responsible for a former employee and the insurance company because it does not want to maintain the lower charges for a non-contributing former employee. As the noble Lord, Lord German, has said, we have already seen instances of insurance companies offering active-member discounts, which, like Which?, I always say can be described as inactive-member premiums in terms of the charges raised. I know that this is something preoccupying the National Association of Pension Funds because it wants to set a quality mark and it knows that this is a particular problem.

In a world of auto-enrolment with an average of 11 job changes over a lifetime and the prospect not only of the difficulty of achieving a transfer but sometimes the costs involved in transferring and consolidating pension pots, there will over time be an increasing number of individuals who will have pension pots into which they are not actively contributing. It is this status of not actively contributing to the pension pot which leaves people vulnerable to the high or higher charges and the consequent returns on their pension contributions.

Therefore, whether the Secretary of State uses the opportunity of an amendment such as the one tabled by the noble Lord, Lord German, or the powers reserved to him in the 2008 Act, he will need to think about what he chooses to do to control the vulnerability of workers to escalating charges on pension pots where they are not actively contributing because they have changed their employer. I am confident that that problem is not going to go away. Which? is seized of it, as is the NAPF, and it is something that the Secretary of State is going to have to address. It is not just a case of looking at the charges when somebody is actively contributing and accruing; there is the question of what is happening to the charges when people are no longer actively contributing into that pot because they have gone to another employer and may be saving into another scheme. It is a growing and important issue, and certainly consumer bodies are very alert to it.

[Lord Freud]

My Lords, my noble friend Lord German has tabled an amendment to give the Secretary of State powers to make regulations to issue guidance on the level of charges made by defined contribution pension schemes to deferred members. These deferred member charges, as he called them, are called “active member discounts” by the industry. Effectively, they offer lower charges to active members as an incentive, and perhaps a reward, for continuing loyalty.

The DWP has done some robust research on defined contribution schemes sold in the 2008-09 financial year. That showed that—somewhat to our surprise—charges typically do not exceed 1 per cent across the market, including trust-based and contract-based schemes. Where different rates were applied to active and deferred members, this tended to be in the form of even lower rates for active members, which begins to suggest that a true discount is emerging for active members, rather than a penalty for deferred members. It may be that consumer groups are saying that, as the pressure on charging comes down, the gains are taken by active members rather than deferred members. That might be one way in which we would like to look at it.

[Baroness Drake]

Even though the evidence that the Minister refers to shows that he is referring to 1 per cent, on a base load contribution of 8 per cent we aspire to charges of the order of 0.3 per cent and 0.4 per cent. A charge of 1 per cent is not a statement of success. We are trying to deal with two things. The inactive or non-contributing member should not suffer a disproportionate penalty, which they would not suffer in NEST. Equally, at the same time, charges should be brought down overall. I would not be very content if we were willing to settle on something of the order of 1 per cent. One would hope that, with mass auto-enrolment, the market generally would move to 0.3 per cent. If not, perhaps the provider should not be in the market providing products.

[Lord Freud]

I thank the noble Baroness, Lady Drake, for her market insight here. I choose my words carefully. It is clear that the capping has had an effect on charges. We are concerned that the pressure on charges should be maintained. That is why we have committed to monitoring levels of charging in the marketplace as automatic enrolment is introduced. We will publish guidance on default investment options in automatic enrolment schemes later in the spring. This sets out guidance for suitable charging structures. The guidance encourages appropriate charges, which match members’ interests, and protects individuals from charges that are excessive in relation to the product they are paying for.

Let us not forget, as the noble Baroness has just pointed out, that we are introducing a major change to the pensions landscape. NEST is being set up to offer low-cost pension provision to individuals on low to moderate earnings. We expect this, as does the noble Baroness, to act as a benchmark across the pensions industry, as well as to help millions of low to moderate earners to save. We are also looking seriously at how transfers can be facilitated across the industry so that savers can shop around for better charge rates more easily. As I described in my response to a previous amendment, HMT recently held a call for evidence on early access, including a specific question on ways to improve the transfer process. The DWP, as I have already described, has recently published a call for evidence on the regulatory differences between occupational and workplace personal pension schemes. In this, we are seeking solutions to address existing rules that could impact on the success of the reforms. Those include rules on early scheme-leavers and disclosure.

We are actively seeking to identify ways to facilitate the best possible deal for savers across the areas of charging and transfers. Therefore, I do not believe that regulations to make guidance are necessary at this time. I urge the noble Lord to withdraw the amendment.

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[Baroness Drake]

I am conscious of the time and do not want to hold anybody up, so I shall try to be brief. I understand the issues that the Minister is trying to address, but I repeat that low levels of charges—for example, 0.5 per cent or below—are fundamental to the success of this asymmetric paternalist product. Somehow accommodating business models for suppliers whose charges hover around 1 per cent will not deliver the necessary strategic outcomes.

[Lord Freud]

I reassure the noble Baroness, Lady Drake, that if the research shows that charging levels are creeping up, we have the power under the Pensions Act 2008 to regulate to set a charge cap for qualifying schemes and auto-enrolment schemes. NEST will offer low-cost provision to individuals on low to moderate earnings. As the noble Baroness knows better than anyone else in the world, the annual management charge will be 0.3 per cent. If the contribution charge is taken into account, the overall annual charge is the equivalent of about 0.5 per cent. That will provide a clear benchmark for pension providers.

Given the safeguards that will be in place, and in light of the assurances that I have been able to give on Amendment 40, I urge my noble friends Lord Stoneham and Lord German not to press their amendments.