National Employment Savings Trust (Amendment) Order 2015

Lord German Excerpts

Thursday 29th January 2015 Grand Committee

I genuinely do not make a political point, because I know that the SI will stand, but I ask whether, between now and whenever the full freedoms come into place, more could be done to reflect on these inefficiencies.

[Lord German (LD)]

My Lords, as always, the noble Baroness, Lady Drake, raises interesting issues in great detail which are always worthy of further examination. I hope that my noble friend will reflect on them. This is a bit of replay from the debate that we have had in the Chamber on the Pension Schemes Bill on an amendment that was simply about the date. It is the date issue that I want to say a few words about. The two arguments evinced to support an earlier date are that it will affect transfers in and that we do not have to worry too much about the European Commission and state aid rules. I am not a lawyer but I know my noble friend is a lawyer and I hope he will be able to rebut that argument.

However, the debate around the European Commission issue relates to the Altmark judgment, which my noble friend has just mentioned, and the second criterion, which is that NEST receives no economic advantage that may favour the recipient undertaking over competing undertakings. It is my understanding that NEST received quite a substantial degree of financial assistance from the Government. If it had not been for that financial assistance, NEST would not have existed. Therefore, the role played by that financial assistance is still important for the task set out, which is yet incomplete. My noble friend mentioned it: 1.2 million of what we call small and micro companies to be auto-enrolled by 2018 is a substantial task. That is one of the tasks for which NEST was set up. Many of the small companies that I have spoken to—this may be anecdotal—have in the past paid no consideration whatever to a pension scheme for their employees. This will be the first time that they are doing it. That is probably the case for nearly the whole lot. If so, the exceptions—the people already enrolled who may want to transfer in—will be an almost invisible statistic. If that is the case, surely the challenge facing NEST is to deal with that huge array of small companies that are going to need more help from NEST in order to undertake the work.

Noble Lords who have talked to NEST will know that their advisers go out and talk to companies, and it is more difficult to talk about these issues to companies with only three or four employees. They do not necessarily have the time to slot it in, and it is much more difficult for smaller companies to work towards a solution. For most of these employers NEST will be the easiest, most competent, most reliable and most appropriate source for their pension scheme. Surely, therefore, that task is one of the tasks set in train by this application to the European Commission. If the reason for providing state aid was to give a financial inducement that would allow it to undertake that job, and that job is not complete and a huge number of companies are still to be engaged with, that, surely, is the challenge that NEST has.

In relation to the European issue and the year, perhaps my noble friend could indicate in his response whether, if it took more than a year to make an application—based on the information provided by the previous Labour Government on the date at which the restrictions on NEST would be lifted—will it be more difficult to do it in advance of that date? Would it be any easier than the more than a year that it has taken so far to get approval for 2017? If it is going to be the same period or longer, we are not talking about this year whatever happens. Even if the Government were to go back right now and start this process all over again, even if they thought that they had a strong case and that no economic advantage was being provided, it would still take until 2016—some way into 2016—and then until the appropriate start date for this. So, even if that were the case, we would probably be talking about, I guess, a gap of 10 or 11 months. It is my understanding, however, from the criteria that my noble friend read out in his opening remarks, that NEST has been given economic advantage, which is continuing, because they are the doing the same job as the one described to the European Commission at the start.

In conclusion, it might be interesting to ask whether the timetable for this activity of NEST in the original submission to the European Commission is roughly the same as the curent activity—in other words whether it was anticipated that this range of companies would be coming in towards this final period of the original application to the European Commission. If the timetable was right then, surely it is right now.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of this order, and the noble Lord, Lord German, and my noble friend Lady Drake for their contributions.

As the Minister indicated, and the noble Lord, Lord German, reminded us, we had a fairly good canter around this issue on Tuesday, on Report stage of the Pension Schemes Bill. Therefore, noble Lords may be relieved to hear that I will not rehearse all the arguments at the level of detail we went into on that occasion. That said, we cannot allow this order to go through without challenging the core point we made then. I want to look at two things in particular. I would like to push the Minister a bit further as to whether he really believes that there is no problem caused for NEST by the restrictions on transfers remaining until 2017. He suggested that there would not be a problem; he will be unsurprised to know that we disagree. We are concerned that NEST would be unable to sign up employers if any of their employees already have pensions, given that most will not want to use two pension providers or more. Of course, if the company cannot bring everybody in the company into NEST—those already in the workplace pension scheme and those coming in under auto-enrolment—that is a huge deterrent to go in with NEST at all. The DWP’s research suggested that 80% of employers will want one pension provider. Does this not mean inevitably that the ban on transfers in will hold NEST back? The argument against is that DWP research in 2013 that found that 84% of employers with fewer than 250 employees do not provide a workplace pension and would not be affected—a point indicated by the noble Lord, Lord German.

When this order was debated in another place my honourable friend Gregg McClymont pointed out that recording based on employers is not a good proxy for the number of employees who cannot access NEST on that basis. He made a powerful case that the number of employees potentially excluded from going into NEST because of the ban on transfers in is in fact closer to 11.5 million. Will the Minister not accept now that the ban on transfers in is a significant drag on NEST? Also, can the Minister clarify if lifting the ban on transfers will apply to pots accumulated before auto-enrolment or only to auto-enrolment pots?

We are delighted that the Government have continued Labour’s policy of auto-enrolment. We want it to be as successful as possible and it is clear to us that lifting restrictions as rapidly as possible is the best way to achieve that. It would ensure that millions more employees could access NEST, a body we all regard as a success and which is leading the way in driving the cost of pensions down while driving up quality. Why can it not happen now? I am not going to open up a lengthy debate about the degree to which the Altmark criteria will apply. As the Minister will know, in a debate in another place my honourable friend Gregg McClymont said that in practice the Altmark judgment makes clear that once NEST is up and operational its target market no longer counts as state aid, in any case. He is welcome to come back to that but we will not resolve it today.

I want to know more clearly what efforts the Government have made to find out if they could have brought in these restrictions earlier. Whether or not they wish to do it now, they still need to account for their decision to go only in 2017 and not earlier. The Government blame the EU and pray in aid state aid rules and say they are waiting until 2017 because otherwise there would be a legal challenge. Surely the Government have not been told by the European Commission not to lift restrictions until 2017. Rather they asked not to lift them until 2017 and were told they could do so. This was a point I did not feel came out adequately on Report. There is a difference between being told you can do X and claiming that you have been told that you cannot do Y. The Minister indicated that it was the Government’s own judgment that they would be unlikely to get permission for an earlier date. Can the Minister tell the Grand Committee whether the Government went to the European Commission and asked for the restrictions to be lifted before 2017, and if not, why not?

In terms of legal challenge, can the Minister clarify that if the Government amend the Pensions Schemes Bill that is still going before Parliament to lift the restrictions it would not be open to a UK court to challenge that? That is another argument that has been made against doing so. Surely any speculative attempt to mount such a case would be struck out. I would be interested in his reply.

Finally, can the Minister tell the Committee when he responds to the noble Baroness, Lady Drake, whether the Government have addressed these points in the past? She raised a very interesting point about the position of employers with closed schemes or, of course, ex-employees. Is that something the Government have addressed in their deliberations or reviews and what evidence do they have on that point? I will be interested to hear his response to the noble Baroness’s questions, and the points made by the noble Lord, Lord German and me.

[Lord German]

My Lords, it was remiss of me not to declare an interest in this matter in that my wife is a pension saver with NEST.

[Baroness Sherlock]

I am not sure it is relevant but, in case it is, I remind the Grand Committee of my interest as the senior independent director of the Financial Ombudsman Service.