Pensions Bill

My Lords, I thank the noble Lord, Lord Hunt, for his kind remarks at the start of his speech on the amendments and for the manner in which he introduced them. I am afraid that I cannot accept them, but I hope that on the way I can give him a degree of comfort on some of the points that he made. We recognise that the amendments reflect pension providers’ concerns about the impact that the quality standard will have on existing provision. Let me be perfectly clear: we want good-quality existing provision to continue unfettered. The noble Lord referred several times to fluctuating contributions. Again, let me be clear: the Bill does not require fluctuating contributions. As we said in our discussion on earlier amendments, it is the total quantum of the contributions measured over a 12-month period that is key. We want all workers who are currently accruing pension benefits either at or above those that would be required by the Bill to continue to do so. As I have said, we are still working with stakeholders to look at ways to address their concerns, but we do not think that the amendments are the right way to balance wider stakeholder needs. I hope that we all agree that the core purpose of the reform is to tackle not only non-saving but undersaving for retirement. The Bill achieves this by establishing a duty on employers to enrol jobholders automatically into pension saving that meets the minimum criteria set out in Chapter 1. The criteria for money purchase schemes include minimum standards of contributions. The noble Lord’s amendments would result in the establishment of two standards: the one envisaged by the current version of the Bill and the other a new lower standard for some existing members of money purchase schemes who would be denied the benefit of automatic enrolment into a qualifying scheme with a certain level of contributions. Under the amendments, an individual would have to decide actively to give up membership of their existing scheme in order to become eligible for automatic enrolment into a qualifying scheme. Given the challenge of undersaving, we believe that the converse should occur: an individual should have to decide actively to save in a non-qualifying scheme with lower contributions. It is therefore important that all jobholders are automatically enrolled. We have taken care to ensure that, should they wish, jobholders will be able to choose to save on terms that fall below the new minimum level of pension saving. I stress that nothing in the Bill prevents an employer from coming to a separate agreement with a jobholder outside the duty, provided that any movement away from the minimum level of pension saving is voluntary on the part of the jobholder and not coerced. I understand that there is concern that, as it stands, Clause 49 would prevent an employer from offering an alternative to a qualifying scheme or from advising an employee that membership of a qualifying pension scheme might not be in their best interests. That is not the case. The clause prevents an employer from making any statement or asking any question during the recruitment process that indicates that an offer of employment would be determined by the applicant’s decision on whether or not to opt out of membership of the qualifying scheme. Employers are free to offer alternatives to a qualifying pension scheme and to explain the benefits of membership of such an alternative to job applicants. However, we believe that they should not be free to indicate to applicants that they can work for them only if they are prepared to opt out of the qualifying scheme. Neither should any alternative offer be made available in a manner that contravenes Clause 53 on inducements. Clause 53 prohibits employers from attempting to induce individuals to opt out of or cease membership of a qualifying pension scheme. Amendment No. 44 would extend the protection offered by Clause 53 to exempt jobholders so that their employers would contravene the measure if they attempted to induce them to cease membership of the relevant existing scheme. This amendment flows from the ““exempt jobholder”” amendment. Because I cannot accept that, I cannot accept this for the same reasons. However, it might be helpful if I try to clarify matters. I believe that the intention of this amendment is also to allow new members to join the existing non-qualifying scheme without their employer having contravened the general inducement prohibition. If the employer simply offers an alternative to the qualifying pension scheme, they should not be at risk of contravention of the prohibition on inducements. To be found to have contravened this measure, an employer must have taken action for the sole or main purpose of inducing someone to opt out of or to cease membership of a qualifying pension scheme. Offering an alternative non-qualifying scheme and providing employees with information about the benefits of membership of that scheme should not in itself constitute a contravention of this measure. Even if the ““exempt jobholder”” amendment were to be accepted, I do not believe that this amendment to Clause 53 would be needed. Noble Lords mentioned guaranteed income schemes. Clearly, such schemes increase complexity and would not be appropriate to automatic enrolment products. However, there is nothing to stop those products being qualifying schemes, so long as they meet the quality test. An individual who has already taken an active decision to become a member of one of those types of arrangements, even one that fails to qualify, should be more than capable of understanding what is at stake. Following automatic enrolment, such individuals should be able to decide whether to remain in a qualifying scheme or in their current arrangement. As the House knows, the Government have worked long and hard to secure a position where the EC agrees with their view that under the employer duty automatic enrolment into a WPP is outside the consumer directives. We have reached this position, but it does not extend to the cross-selling of other products, such as insurance benefits, which would still be viewed as financial products and their sale would be covered by the DMD and the UCPD. The noble Lord proffered some heady numbers on likely returns, which were commented on by the noble Lord, Lord Oakeshott. I would be interested to discover where it would be possible to strike such advantageous deals in current times. But I want to stress that such jobholders, if they opt out of auto-enrolment and stay in or rejoin an alternative provision, would be entitled to opt back in at qualifying levels of pension saving at any time and would be caught periodically by the re-enrolment provisions. The individualised standard for money purchase schemes supports this approach because it means that a scheme can be used simultaneously as a qualifying and a non-qualifying scheme in respect of different members. In summary, we think that the principle of automatic enrolment into pension saving that provides minimum contribution should hold for all jobholders, but where an individual wishes to save on alternate terms, this will be possible under the reform. As I said, we understand that these amendments, like those tabled by the noble Baroness, Lady Noakes, reflect residual concerns about the impact of the qualifying criteria on existing money purchase provision. This and previous discussions illustrate that the issue is difficult to resolve and reaches to the heart of the reform. I hope that the amendments that we have tabled demonstrate our commitment to address this difficult issue and maintain the balance between the needs of workers, employers and schemes. We do not think that it is possible to move beyond these within the scope of a minimum standard for all, but in the light of stakeholder concerns we are considering options to go further. However, in assessing those options, we need to be satisfied that any solution will not have an adverse effect on pension outcomes for individuals or introduce unnecessary additional administration. If we are able to find a solution that does not open up significant risks to the outcomes of the reform, as I have said, we will bring forward further amendments at Third Reading. On that basis, I hope that the noble Lord will feel able not to press his amendment. Although I have explained that we cannot accept it because we think that the primacy of auto-enrolment is the proper way to proceed, that does not preclude the outcome that the noble Lord wants, which is that existing schemes can continue even though they are not qualifying, provided obviously that the hurdles of inducements are not breached. I hope that that is at least in part helpful to the noble Lord.