My Lords, it is now two years since the rollout of automatic enrolment began and we are seeing how it works in practice. Automatic enrolment is a blunt instrument, since everybody who meets the relevant tests is automatically enrolled. There is emerging evidence that we should consider refining and targeting, but it is impractical to make refinements by amending primary legislation every single time. A degree of flexibility is an integral part of future-proofing the policy. This clause provides that flexibility, with a power to exclude prescribed types of workers from the scope of automatic enrolment.
I should respond to the points made by the noble Baroness, Lady Sherlock, and the noble Lord, Lord McKenzie. The inclusion of all employers, whatever their size, is part of the broad consensus that continues to underpin support for automatic enrolment. That is
Her Majesty’s Government’s position. I will come back to the specific points, which have rightly been raised, at some point.
We need to take the oddities out of the system and this clause enables us to do just that. Automatic enrolment is not always appropriate. Indeed, in extreme cases, pension saving could lead to an individual incurring a financial penalty. Until now we have relied on opt-out as a solution: an individual can opt out of automatic enrolment if pension saving is not right for them. However, a problem remains: inappropriate enrolments, opt-outs and refunds still cause work for employers and frustration for the individual. We need to consider how we can remove, or at least reduce, the administrative burden in cases where automatic enrolment serves no purpose.
The Government’s consultation on technical changes to automatic enrolment last year shows significant support from employers, pension providers and financial advisers for limited, carefully crafted exclusions which help individuals where automatic enrolment has no benefit or makes no sense. We are currently looking at the evidence from that consultation with a view to publishing proposals when a power is on the statute book. So far, the evidence suggests some clear examples. One straightforward example is that people with enhanced or fixed tax protection status could face a tax surcharge if they make any further contributions into a pension. As well as this, automatic enrolment may be illogical for leavers, since it may make no sense to force an employer to enrol a worker into a company pension scheme if they are serving out their notice.
Any exclusion is likely to be sensible and uncontroversial which is why the Government suggest that a negative resolution in these circumstances is an appropriate use of Parliament’s time. In terms of the breadth of this power, we have been clear from the outset that the intention of this clause is not to exclude entire employment sectors from automatic enrolment or to carve out a particular size of employer; that is a specific statement in relation to this.
We know that undersaving is most prevalent among low-to-moderate earners, those who work for employers who have not provided an accessible pension scheme or those who do not pay into one. These are the core policy objectives on which the consensus was built and to which we are still committed. We are not considering exclusions to the automatic enrolment duty simply because some employers tell us automatic enrolment is an inconvenience. This is about exceptional situations where it makes sense to take a person outside the scope of the Bill, hence the exemption. Although I can understand the aim of the amendment, it is trying to stop the Government from doing something that we have no intention of doing. As noble Lords will know, it would not ultimately constrain future Governments in any event.
The noble Baroness, Lady Sherlock, mentioned Beecroft. We have already firmly rejected proposals to cut micro-employers out of auto-enrolment. Workers in those firms have as much right to save for their retirement as anyone else; we have been quite clear about that. Measures have been introduced, such as the timetabling for the introduction of auto-enrolment
meaning that smaller businesses, with fewer than 50 workers, are not affected by the reforms during the lifetime of this Parliament. This provides an additional breathing space. That is how we are seeking to tackle this and intend to make allowance.
On the words “in some other way” in the clause, which have been the focus of remarks by noble Lords, the power is there to exclude people for whom pension savings make no sense. We want to be sure that we can deal with future situations in which exclusion is clearly justified. The drafting of this power enables us to react to unforeseen circumstances. That is critical, particularly as we are dealing with such a complex and technical area. On what happens next with the power to make exemptions, the Government’s intention is to publish draft regulations for consultation later this year.
The noble Lord, Lord McKenzie, asked whether this was about saving tax, or tax relief. We are looking at the use of this power. Saving money for the Treasury will not be one of the factors we consider. Although, of course, general consideration of the management of fiscal balances is sensible, the primary purpose here is to ensure that employers of all sizes, and employees, take the opportunity to engage with pensions and save for their retirement. Ultimately, in the long-term, that is in the best interests of the Treasury, the Department for Work and Pensions—indeed for all of government—and, chiefly, the people themselves.
I understand the thrust behind the amendment and that it is important to get those remarks on the record, but with those reassurances, I ask the noble Baroness, Lady Sherlock, to consider withdrawing it.
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