Pensions: Automatic Enrolment

Debate between Lord Freud and Baroness Anelay of St Johns

Thursday 10th June 2010 Lords Chamber

[Lord Freud]

I thank the noble Baroness. That is exactly what I was about to get straight on to. I will deal with her particular issues in that context. Before I get into what the review will cover, I start with the speech of the noble Lord, Lord Kirkwood, particularly what he said about employer attitudes and his concerns after meeting the people from AXA and reading their research. Evidence emerging from our research—a large survey of employer attitudes—suggests that 56 per cent of employers believe that these reforms are a good idea. Seventy-seven per cent believe that when they are already contributing 3 per cent or more. There is no doubt that the cost to employers of automatic enrolment is significant. The cost to employers—the smallest employers in particular—concerns me and is something that I want to look at closely in the review.

We are committed to getting the details right. That is why we are carrying out the review—to ensure that the proposals work properly. Several participants in this debate have asked about the details of the review, including the noble Lord, Lord Kirkwood, my noble friend Lady Noakes and the noble Lord, Lord McKenzie. We are finalising the details of the terms of reference, including who will conduct the review, its process, its reporting and so on. We hope to make an announcement encompassing those issues soon. To offer some reassurance, we are concerned about the impact on employers, particularly small employers. We also want to look at the position of older workers. We will review the contract for the NEST administration services, but with an open mind; if it fits with what is needed we will run with it. We aim to reach our conclusions quickly. Again, the detail is yet to be determined, but I expect we will know where we are with this before the House returns after the summer.

The noble Lord, Lord Kirkwood, asked about the NEST charging structure and whether we would keep it. He will infer, from my last answer, that that is a level of detail that we have not yet got to. The first question to ask is: does the scope of auto-enrolment work for both individuals and employers? Scope is key here. Secondly, given that, is NEST, as it is currently configured, the right intervention?

The noble Lord, Lord Kirkwood, asked about the certification process and whether that meshed with the BIS drive to reduce red tape. We are committed to recognising and maintaining existing high-quality pension provision. That means developing a process for employers with good money purchase schemes to show that their scheme meets the minimum requirements for auto-enrolment. This is called the certification process. In the coming months, DWP officials will work with the pensions industry and directly with employers to develop effective processes to support automatic enrolment. This includes straightforward ways for employers to assure themselves that their pension schemes qualify under the law.

The noble Lord, Lord Kirkwood, queried the four-year implementation period. We are fully committed to taking forward the automatic enrolment provisions under the Pensions Act 2008. However, the effects over the medium and long term will be huge. That is why we want to take stock of where things are; that is what the review is about and I do not want to prejudge it.

The noble Lord, Lord Kirkwood, concentrated my mind on wider savings incentives. It is critically important that people have confidence in saving towards their retirement if we are to deliver the step change in savings behaviour that we want. The department’s analysis is that more than 99 per cent of people can expect to be better off in retirement if they have saved than if they have not saved. However, we need to take seriously the possibility of someone facing a loss. The problem is that the people who fall into this category are not like leopards with spots that one can see beforehand; that situation emerges later, so it is a difficult problem. It is important that we allow people to take personal responsibility. However, the noble Lord, Lord Fowler, made the point that people are woefully ignorant in this area. I think that the noble Lord, Lord Kirkwood, said that he used the term “ignorant” in the best way in that regard. There is ignorance in this area, which means that it is very hard for people to take personal responsibility. Clearly, this is a vital area which we will address in our review.

The noble Lord, Lord Kirkwood, mentioned the costs of the Personal Accounts Delivery Authority and the impact of any expenditure cuts. The reduction of the deficit is a number one priority for the Government. Therefore, we will need to look right through the cost base to ensure that the costs are justified and that savings can be made where possible. I reassure my noble friend Lady Noakes that we will take a hard look at those costs and that we will not spend money unnecessarily.

It is vital that individuals have information about opting out. The noble Lord, Lord Kirkwood, is concerned about that. That will be critical to the success of the reforms. We are working closely with the Pensions Regulator to ensure that there is coherent and consistent information.

The noble Lord, Lord Fowler, and the noble Baroness, Lady Hollis, talked about the state of our state provision. The noble Baroness, Lady Hollis, again drew to our attention, as she did in her excellent speech last week, her booklet, A New State Pension. I was touched to think of her running on to the age of 95, and I hope that she does. However, it is slightly invidious to say that, statistically, only three noble Baronesses who were then present in the Chamber would do so, as I count seven who are now present, so it is a case of pot luck. There are clearly attractions in combining various elements of the state pension to introduce a single decent state pension. However, a large number of issues, not least one of them being cost, need to be considered before we introduce such a scheme.

I am very conscious that I am running out of time—unless noble Lords want to give me three more minutes.

[Baroness Anelay of St Johns]

No.

[Lord Kirkwood of Kirkhope]

Shame.

[Lord Freud]

I saw someone else obtain three minutes the other day, but this is not permissible. I will write to noble Lords on other issues that I have not managed to cover. I have a lot to write to noble Lords about; I apologise.

Our goal is straightforward—

[Baroness Anelay of St Johns]

That is it.

[Lord Freud]

I close by thanking all noble Lords who have taken part in this debate and I will write where I have not responded.