Pensions Bill

Lord McKenzie of Luton Excerpts

Wednesday 26th February 2014 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, we should thank the noble Lord, Lord Freud, for bringing forward this government amendment, which as far as it goes is a restriction on the power to create exceptions to the employer automatic enrolment duty. It responds in part, as the noble Lord has acknowledged, to the amendment moved in Committee by my noble friend Lady Sherlock and by Gregg McClymont in another place. We are grateful for the Government’s movement on that.

As we have heard, this amendment narrows the circumstances in which regulations can be deployed, and precludes them being used to provide an exemption for employers of a particular size. This will therefore appear to deny the exemption, whether size is determined by numbers of employees, profitability, turnover, capitalisation or asset base, or some other size criteria. Perhaps the Minister can confirm that that is how he sees it. Nevertheless, the Bill would still leave scope to carve out exemptions on a fairly wide basis. That could be by reference to a description of worker, “particular circumstances”, or “in some other way”, as the Bill provides—for example, by sector.

We accept entirely the assurances of current Ministers that the purpose of the government amendment is to offer employers more flexibility in a limited number of specific situations that affect only a small number of workers. However, even as amended the Bill is not so tightly drawn and opens up the prospect in the future of a wider impairment of the employer duty, which is the foundation on which auto-enrolment is built.

We acknowledge that the Government have consulted widely on the issue and rejected a number of suggested easements to the employer duty. Other than for four specific circumstances, the Government in their response to the consultation have concluded:

“We remain confident that the right to opt out remains the most suitable option for all other workers who do not wish to remain in pension saving”.

We agree with that.

The question therefore arises as to whether the four circumstances identified—and remember that that was after a very extensive trawl, including the experience of live running—warrant the potentially broad amendment which will remain in this legislation. The four circumstances referred to by the Minister—those with tax-protected status for existing pension saving, those on the brink of leaving employment, those who have given notice of retirement, and those who have recently cancelled membership after being contract joined—might well justify an exemption on automatic enrolment rather than rely on workers opting out, especially given the potentially large tax penalties which might arise for those with tax-protected status. However, until the practical consequences of putting this into effect are fully considered—and we welcome the commitment to consult on a draft instrument, albeit still a negative one—we cannot be certain that the “cure” is better than the “ailment”.

On reflection, a better way forward might have been to identify these four specific circumstances in primary legislation together with the power to introduce regulations for the exemption of the employer duty in all or any of these situations. This would have removed concerns over the Bill retaining the still potentially wide powers of exemption. If it is too late to consider this approach, as it might be, I hope that the Minister can give as much assurance on the record as to the intended use of what will remain of this clause.