Pensions Bill

My Lords, I am grateful to both noble Lords for their support for the thrust of this amendment. I am particularly grateful to the noble Baroness for providing me with an opportunity to explain the significance of subsection (2) of the government amendment, which sets out what the certificate must state. Subsection (2) requires a certificate to state that in the opinion of the person giving the certificate the scheme is able to meet the minimum contributions standard for all its active members throughout the certification period. This subsection effectively achieves in the legislation the first of the policy principles I set out earlier; namely, that an employer must be confident at the point of certification that the scheme will provide minimum contributions for everyone participating under the duty. This is crucial if we are to ensure that certification may be used by employers with good schemes only. We do not want to leave open a risk that some individuals could be enrolled in schemes where it was clear that from the outset they would persistently save below the minimum level. I am sure we have common cause on that issue. The noble Baroness indicated—I accept that her amendment is a probing amendment—some concern that subsection (2) could drive employers to undertake individualised checks of their membership in the same way as they would under the existing test. Let me reassure her on this matter. Certification enables an employer to look at its scheme once a year and, provided it is confident that it meets the minimum standard at that point, to proceed for the coming year in the knowledge that it will remain compliant even if individuals go on to experience minor or sporadic shortfalls. In that sense, certification reduces the need for an employer to consider whether to future-proof an existing scheme in case of unexpected changes to an individual’s pay. While the standard that must be met at the start of each certification period relates to all members, we envisage the process in part being a matter for regulations. I accept that some of the important detail is yet to come through in those regulations, particularly what de minimis will mean in this context. We anticipate that the process will include scope for discretion on the part of the employer or connected person; for example, in relation to the extent of the analysis he must undertake before signing a certificate. In that way, employers or connected persons who are confident of the quality of the scheme could elect not to conduct fully individualised checks. It will depend on the circumstances of the individual scheme and in part on the level of contributions that are paid under the existing scheme and on the number of employees whose pay is comprised of components that are not covered by the existing scheme arrangements and perhaps on how sensitive outturn pay is to the varying business levels that are undertaken. Although there will probably be a degree of prescription in the regulations, it will be important for employers to have discretion about the extent of the work they need to do to gain the assurance that they believe is necessary to go through that certification process. I hope that on that basis the noble Baroness will feel that she need not press her amendment. There is still some detail to be worked out. We want continued engagement with stakeholders. It has been important in taking us from where we were to where we are. In relation to subsection (9) and the opportunity to repeal, it was put in place, at least in part, because we believe that there is a reasonable prospect that, once auto-enrolment gets under way, employers will be less inclined to follow this route, and it will be easier for them down the track to establish that their schemes are compliant. From another point of view, if, in the event, the certification process is not working satisfactorily and is throwing up persistent undersaving by people, we would not want to proceed with it, but we want to give it a fair wind and work with stakeholders to see whether we can complete the detail. As the noble Lord, Lord Oakeshott, said, it is important to strike the right balance. This is part of the arrangement that we are putting in place to avoid levelling down, which is crucial, especially at the current time.