Pensions Bill [HL]

Lord McKenzie of Luton Excerpts

Wednesday 27th April 2011 Lords Chamber

[Baroness Howe of Idlicote]

My Lords, I congratulate the noble Baroness on her amendment, which shows us that there are very few people who know as much about pensions as the noble Baroness, Lady Hollis; we recognise her ingenuity, certainly, but above all her knowledge and her belief in getting the right and honourable thing for all pensioners. I too am extremely sad that we were not able to convince this House to amend the proposals affecting those women turning 57 in March and April this year who were going to be required to work an extra two years, a group of women who had far fewer opportunities for flexible working than women have today. I believe that an attempt in the other place will be made to return a more equitable answer to this problem, and I hope that it would be well received in this House. I too support the idea of the single state pension. It would go quite a long way towards a more equitable set-up for both men and women into the future. I would like to end by very much hoping that we will see a better outcome in many respects than we had first thought when looking at this Bill.

[Lord McKenzie of Luton]

My Lords, my noble friend Lady Hollis has been an initiator of thinking about, and a passionate advocate of, a single state pension for a number of years. She is truly a leader of the pack on this issue. As she explained, the nature of her amendment this afternoon is simply that it makes a request that the Secretary of State be required to lay a report before Parliament before the end of June 2016, which of course is the start of the timeframe for the acceleration of equalisation of the state pension age under the Bill. That would assess the consequences of the Bill on any proposals for the introduction of such a pension. This does not seem an unreasonable request.

From time to time during our consideration of this Bill, there have been references to proposals for a single-tier pension and the Minister acknowledged this himself at Report, when he referred to being challenged by his noble friend Lord German to say more about the single-tier pension. The Minister duly obliged by referring to a Green Paper, which was due to be published a few days later.

The Green Paper effectively consults on two propositions. One is accelerating the existing reforms so that the state pension evolves into a two-tier flat-rate structure more quickly; and the second, as my noble friend advocates, is a single-tier flat-rate pension set above the level of the pension credit standard minimum guarantee. The Green Paper, incidentally, also consults on proposals for automatically uprating the state pension age, but we are not focusing on that this afternoon. The consultation is just under way and not due to be completed until 24 June 2011. Which option, if any, the current Government wish to pursue may not emerge for a little while, but like all noble Lords who have spoken I will be interested to hear today’s thinking. Indeed, we as a party need to consider the outcome of this consultation, but see the thrust of the benefit of a single-tier flat-rate pension. A number of considerations will doubtless be brought to bear, particularly the voice of the Treasury. I think that it was the noble Lord, Lord Boswell, who made the point that we need to reflect on these in terms of long-term issues—pensions are about long-term issues—and, I suggest, of the need to drive consensus where we can. The Minister also referred to the contributory principle, and that is very much the same position that my noble friend is in, which is why she prefers the single state pension to a universal pension that would not rely on such provision.

--- Later in debate ---

[Lord Freud]

My Lords, I am pleased to be returning to the topic of certification and even more so to be moving a government amendment that I believe will address the concerns of the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. I understand those concerns to be twofold: first, on the scope of the Secretary of State’s powers and, secondly, on the risk of unscrupulous employers manipulating the certification test.

The aims of this amendment are: first, to strengthen the regulatory framework in which the alternative certification model will operate by imposing tougher preconditions before regulations can be introduced; and, secondly, to introduce an ongoing requirement for the Secretary of State to keep the test under review.

At the outset, before publishing any regulations, the Secretary of State must be confident that at least 90 per cent of jobholders will receive the same level of contributions under the certification test that they would have received if their scheme had satisfied the relevant quality requirement. This is more demanding than the previous requirement, which referred to,

“a majority of the individual relevant jobholders”.

In addition, the Secretary of State must periodically review the evidence base of the test. This is expected to involve analysing the dataset from the Annual Survey of Hours and Earnings, known as ASHE. These are the data that underpinned the development of the certification model and other relevant data on the rate of pension contributions required by schemes. This is tougher than the previous test, which relied on a snapshot of the data at the point of publishing regulations. If, as a result of review, we detect undesirable trends in pay and reward packages that suggest that more individuals than expected are receiving lower than minimum contributions, the Secretary of State can intervene to strengthen or repeal the test.

After the publication of the regulations, the review will take place first in 2017 and subsequently at least every three years. The review will form part of our ongoing evaluation strategy. Its publication will be considered in the context of the evaluation of the reforms. The noble Lord, Lord McKenzie, will note that we have pared back the Secretary of State’s power as far as we reasonably can, based on the available evidence. In view of this, I hope that the noble Lord will be reassured that the Secretary of State’s powers are proportionate to the task in hand. For clarity, I should add that the requirements fall to the Secretary of State and not to employers using the test.

The reconfigured regulation-making power aligns more closely with our dataset from the annual survey from ASHE, which we believe to be robust, representative and reliable. Thus, the Secretary of State will be able to deliver the certification model welcomed by employers and key stakeholders at the same time as affording scheme members the appropriate level of protection. A supplementary delegated powers memorandum has been sent to the Delegated Powers and Regulatory Reform Committee to reflect the tighter constraints on the Secretary of State’s regulation-making power.

I say in conclusion that we have ended up with the outcome broadly envisaged by the amendments that the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, tabled on Report. I thank both noble Lords for the expertise that they brought to bear on the issue. The Bill has been improved by their intervention and I am grateful for it. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for his introduction and explanation of the amendment, and for his generous attribution. As he explained, when making regulations about the alternative certification test, the Secretary of State is required now to be satisfied that 90 per cent of individuals eligible for automatic enrolment will receive contributions to the level they would have received had the scheme satisfied the relevant quality requirement. The Secretary of State is required to be so satisfied when regulations are first made and at subsequent reviews. We support the amendments because they represent a significant tightening of the Secretary of State's regulation-making powers.

As we detailed, we support a certification process which gives employers an incentive to retain existing good-quality schemes, provided that it does not undermine the opportunity for relevant employees to benefit from auto-enrolment. We acknowledge that the certification scheme on which the Government are consulting appears already to be drawn within the parameters of the amendment. Perhaps the Minister will update us on that, and in particular on the phasing of employer contributions. Presumably such phasing now will have to be consistent with the amendment. Notwithstanding the constraining of the Secretary of State's powers, we should not lose sight of the fact that the Bill still allows the prospect of up to 10 per cent of jobholders missing out on contributions to which they would otherwise have been entitled.

We stated from the outset that we support the Government and congratulate them on their decision to proceed with auto-enrolment and with NEST. I do so again today. However, we do not do this with unconstrained joy, because a number of provisions in the Bill erode the intended coverage of the arrangements. Some employees might miss out because of the certification process under Clause 10; the three-month waiting period in Clause 6 could reduce an individual's accumulated years of savings by nearly three years; the introduction of the earnings trigger in Clause 5, as currently set, would exclude some 600,000 individuals; and the broad uprating powers in Clause 8 would allow the Government to achieve their aspiration of a trigger of £10,190. As my noble friend Lady Drake pointed out on Report, this would exclude a further 800,000 workers each year, three-quarters of whom would be women.

Collectively, the measures hit the low paid and those working part-time, especially women. They run counter to the overarching objective of auto-enrolment, which is to enable low and moderate earners to save. Should the trigger reach the level of £10,000, the reforms would begin seriously to undermine their original intent. All of this compounds the central unfairness in the Bill, which is the disproportionate way in which women are affected by the raising of the state pension age. As we have had no further comfort from the Minister on this issue today, the parliamentary campaign now moves to the other place.

I conclude by thanking the Minister for the concession that is embodied in the amendment, and his team for their efforts in enabling the matter to be dealt with at Third Reading. They have removed the potential for severe diminution of coverage via the certification process, which is to be welcomed. We look forward to the reviews of how the alternative requirement is working in practice. As this is the last time I will speak on the Bill, I will take the opportunity to thank the Minister for his open approach to handling this important piece of legislation, and the Bill team for the way that they have stepped up to the mark and been helpful to the Opposition as well as to the Minister.

[Lord Freud]

My Lords, I thank the noble Lord, Lord McKenzie, for that response. He had, as ever, a couple of questions—that is rather a low number for him. I shall do my best to summarise my answers.

On phasing and parameters, I can assure the noble Lord that it does work. Phasing will be consistent with the amendment, which probably does not surprise him. At the moment the figures are comfortably within the parameters, so there is a safety margin. Clearly, if they fall out of those parameters, it will be due to changes that we need to look at. The certification model will be reviewed in 2017 when the phasing of the contributions has ended.

As a result of this amendment the preconditions before the Secretary of State to make regulations will be a better check and balance on his powers due to two factors—that the percentage of job holders that must potentially receive at least minimum contributions is high, at least 90 per cent; and that the strength of the alternative certification requirements will be periodically reviewed. As there might be concern that this will add to the burden on employers, I should repeat for absolute clarity that the requirements fall to the Secretary of State, not to employers, using the test.

Although the government proposal will be more demanding for the Secretary of State, it should maintain the right balance between flexibility for employers and safeguards for individuals. I am very pleased that we have been able to reach common ground on this issue. In my turn, I must commend the close scrutiny to which the Bill as a whole has been subject in your Lordships’ House. The quality of the debate has demonstrated noble Lords’ accomplishment and high level of expertise. Once again, this House has performed its role with the distinction and spirit that are expected from it.

While I have the Floor I must take the opportunity to thank in particular those noble Lords who have made a significant contribution to the Bill’s journey through this House, notably, of course, the noble Lord, Lord McKenzie, in his role as opposition spokesman, and the noble Baroness, Lady Drake, for her accomplished performance at the Dispatch Box. I also thank my noble friends Lord German, Lord Stoneham and Lord Boswell, my noble and learned friend Lord Mackay, the noble Baronesses, Lady Greengross, Lady Hollis and Lady Turner, and the noble and learned Lord, Lord Falconer, for their participation in an active and often challenging debate. Finally, I thank my noble friend Lady Garden for her proficiency in covering a number of clauses in the Bill. I also thank the Bill team, who have supported the Bill throughout this process with the right material at the right time. I am very grateful to them.

The Bill now passes over to the other place, and a number of noble Lords have presaged a little of the activity that they expect to see there on particular matters. I am just grateful to get rid of any prospect of having to look at PUCODIs again.

Let me reiterate the principles of the Bill which I set out on Second Reading, as they are still absolutely applicable. We need a fair, sustainable and balanced system that adequately and accurately reflects the society we live in. Saving for retirement should not be a thought which occurs only when you first spot that grey hair. It should be a process that begins when you enter the labour market as an adult and continues over the years. The Bill does just that while not losing sight of the key tenet of providing a decent income for the individual in retirement.