Pensions Bill

My Lords, a decision by a jobholder to opt out completely undoes membership of the pension scheme into which they were automatically enrolled. Our position is that jobholders should neither gain nor lose by opting out. In addition, we do not want employers or their schemes to bear unnecessary burdens or risks; including any associated with interest payments on contributions that may be taken between the point of automatic enrolment and the completion of the processes for a jobholder who goes on to opt out. Clause 8(3) sets out the key issues that are likely to be regulated for in connection with the refund of contributions to jobholders who opt out. The amendment would extend that list to include interest payments to jobholders to compensate the jobholder if, following automatic enrolment, they go on to opt out, but some contributions have already been taken and there is a short interval before they can be refunded. We maintain that refunds should be restricted to the value of the contributions originally taken, and we have no plans to introduce interest payments. It would be premature to attempt a detailed debate about how refunds will work. However, we have started to develop our thinking about how to frame the processes and we have given an insight into the sort of timeframes involved. The key will be to strike an appropriate balance regarding the provision of sufficient time for jobholders to consider their options, ensuring that most if not all jobholders will have the chance of feeling the impact of workplace pension saving on their pay packet before the end of the opt-out period and minimising the need for refunds by enabling employers to be able to deal with the whole process relatively quickly. On current thinking, we do not expect the interval between automatic enrolment and the completion of any refund processes to be long, and certainly not long enough to result in interest payments of any meaningful sums. To recap, current thinking is that the enrolment process would have to be taken within 14 days, and it is within those 14 days concurrently that the information flow should be undertaken. From the date of active membership and the information being provided, there would be a 30 day opt-out period. In some instances, the opt-out might have happened before any contributions had been taken. I asked for someone to calculate the maximum amount of interest a weekly-paid jobholder could accrue between the point of automatic enrolment and the refund of all contributions taken following an opt-out at the last minute, including the time taken to make the refund. I am advised that for someone on a median salary of £24,550 a year, with a 5 per cent interest rate, it would amount to 60 pence. The equivalent for a monthly-paid jobholder would be about £1.50. I suggest that putting in place complicated arrangements and provisions to deal with that goes against the spirit of simplicity and trying to make the administration of this as effective as possible. We are currently on target to publish and consult on draft regulations during the early part of 2009. The resultant regulations will be subject to the affirmative procedure, which means that there will be plenty of scope for further debate about the detail in due course. I urge the noble Lord not to press the amendment. I understand that he is seeking to achieve equity in all of this, but for the potential sums involved—the amounts calculated were maximum amounts—having a bureaucracy to deal specifically with them is inappropriate.