Health and Safety at Work
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Lord German
My Lords, I thank the noble Lord, Lord McKenzie, for this debate today, because it gives us an excellent opportunity to pick up on some of the issues which were extensively debated on 25 November last year, when we discussed the report of the noble Lord, Lord Young of Graffham. Since the Government said that they were going to implement the report’s recommendations, the debate gives us the opportunity also to test how far they have gone. I am pleased to see that there has been considerable progress. In particular, the framework document before us, Good Health and Safety, Good for Everyone, lays down a shape for health and safety for the future. However, like all frameworks, it is has skeletal aspects, which give us plenty of opportunity to probe the Minister for some of the detailed answers that we require.
I welcome the appointment of Professor Löfstedt to conduct the review of legislation in this area. He is eminently qualified and it is a welcome step. However, I am somewhat mystified to read that his terms of reference are to be determined by the professor himself. Some of us may think that if you hand someone a blank piece of paper they will write down what their predispositions are, whereas clearly it is the Government’s predispositions which are important. It is not clear from the document but I suspect that the Government have laid out a framework in which these terms of reference are to be placed. As a starting point, will the Minister provide Members of the Committee with a copy of the fully worked-up and detailed terms of reference as soon as possible, together with a timetable for his work, so that we can have an opportunity to look at those matters further?
An overarching principle is that health and safety is not only for companies, workers and the health and safety representative but for everyone. It is for all of us in a working environment and it is not to be seen only as the province of one responsible person. We have gained a great deal in this country from the work that has been done so far, but there is still more to be done. Certainly a great deal of streamlining is necessary, and some of the corners in the system which have been difficult for companies to turn can be made smooth and straightened out.
I suspect that this is about trying to draw the appropriate balance between not having too rigorous a regulatory regime with too great a burden on employers and making sure that we protect individuals at work. This could be seen as a continuum between the risk averse at one end and the risk takers at the other. I prefer to see this as a new way of looking at the “risk intelligent” approach, in which everyone in the workforce—the employers and the employees—need to be intelligent about risk. Intelligence, of course, is a key word for more knowledge, more skill and more training. A better understanding is at the root of this.
At the heart of this new framework, on pages 8 and 9, are the main changes that are to be made. There are two clear focuses: first, on those who flout the rules; and, secondly, on high-risk locations. I shall take them separately. On the first point, it is difficult to know who flouts the rules without inspections; then you can know who is not following the rules. Can the Minister tell the Committee how you know who is flouting the rules? If it is to be through an enhanced whistleblower approach, that is fine by me. However, it needs to be spelled out more clearly because there are difficulties in whistleblowing alone, as people will not want to upset their employer, particularly in a small company where they are fearful for their jobs. We need to be careful and define more clearly how we outline the companies who flout the rules. It is easy, of course, if they have done it once and you know who they are, to come back upon people and to redouble your efforts. Under the terminology in the DWP press release, once these “rogue” companies are discovered and investigated, they will have to pay for being helped to put things right—which is perfectly appropriate—but how do we find the “rogues”?
On the second issue, regarding high-risk locations, I was tempted, and I set my mind to trying, to find a route through to something that is to be described as non-high risk. I came up with an opencast facility in Merthyr Tydfil, where they are moving six mountains; they are digging a hole, taking out the old slag, washing it, putting back the unused minerals and taking the material away for use in coal-fired power stations. The difficulty there is that transport has also been excluded. I happen to have been on that site, where use is made of possibly some of the largest vehicles I have ever seen. If I stood next to the wheel, it would probably have been twice my height—never mind the size of the overall operation. Yet quarrying—which is essentially what that opencast facility is—and transport are excluded. I wonder when and where we will get more definition of how these categories are to be arrived at and what criteria lie behind their choice. It is perfectly acceptable to see them as they are in the framework, but the framework is skeletal and perhaps need to be sketched out somewhat more clearly.
As the noble Lord, Lord McKenzie, has already referred to, in health and safety we concentrate very much upon safety and do not always look at health. I wonder whether that is because words such as stress and mental health are difficult to make tangible in order to understand their impact. For example, could we look at some hazards each year to try to anticipate the sort of changes that one might put within the workplace for those intangible health elements? Of course, there are far more tangible health elements which we now know about but which an employer would not have known about. The example there is asbestos. No one knew about its impact. We had a debate in this Room about mesothelioma, discussing its impact and the swift killer that it becomes based upon asbestos in the workplace. We know of that but there may be other silent killers which we know little about. How is that work to continue and who is going to do it?
Perhaps I might pick up on one particular interest: the loss of the Adventure Activities Licensing Authority, which is being replaced by a code of practice. I well remember why that body was put in place. Noble Lords may remember that it was when there was a series of accidents with children canoeing in a bay in Dorset. A lot of children were drowned when those canoes capsized. It is important that we are absolutely certain that the code of practice will not only be simple guidance but have the enforceability of law behind it, and that there is some form of checking to make sure that the code is put in place because the safety of young people is crucial.
I would like to touch as well upon the accreditation of advisers and consultants, which is very welcome. I went looking to see which of the advisers and consultants who are now on the register live near me. I understand that if you pay the money, you get on the register and there will eventually be an accreditation body to take on that responsibility. However, I would like reassurance that that accreditation body will also be sufficiently independent to examine appropriately whether somebody is doing their job well and to ensure that people are taken off the register if they are not. After all, one element that we talked about in the previous debate was of having people who had lacked the skills and qualifications in that crucial area. We need to ensure the highest possible standards, which it seems to me can be achieved without a great deal of money having to go behind them. However, that will require independence of action by a professional body.
In conclusion, there are still many questions to be asked and actions to be developed. The Government’s current progress is on track and I hope that they will achieve that balance which I spoke of earlier. That will lead to a risk-intelligent society at work in the future.
Pensions Bill [HL]
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Lord Stoddart of Swindon
My Lords, I have not intervened in these debates so far, and I hope that I will be forgiven for doing so now. I do not know whether the noble Lord, Lord McKenzie, will welcome what I am going to say, but he will be pleased to know that I will support his amendments. So far I have left things to people who are more expert than I am in these matters, but today I want to support these amendments. It is quite intolerable that women should be required to wait longer for a proper pension provision which was, as we have heard, promised to them in the coalition agreement.
We have heard quite a lot this afternoon about the cost. It is £10 billion apparently. It seems that the Government will find that difficult to find. However, I notice that, over the weekend, our Prime Minster committed the Government and the British taxpayer to a £7 billion bailout of Portugal. When money can be found for one purpose, it seems to be there, but when it needs to be found for another good purpose, it is not there. Not so long ago, we committed this country to loaning the Irish Republic £3 billion to help to deal with its economic circumstances. This is all very well if you have the money to do it. However, according to the Government, we have not got the money to honour the promise that was made to the women of this country. That is intolerable. However, there is more to it than that. I also noticed yesterday that the amount of our contribution to the European Union in net terms has moved up from £8.3 billion to £9.3 billion. That is not just for one year; that extra £1 billion will have to be paid from now on, so by 2018 we will have paid an extra £8 billion. We could almost meet this cost from the additional money that we have to pay to the European Union budget. However, that money will be found; it will have to be found, so why on earth cannot we find money for our own women in this country?
There is another point. The coalition agreement stated that the overseas aid budget should rise by £3.5 billion—I believe by 2012. That, too, will be an ongoing commitment, year in and year out. A lot of money is being spent to relieve other people but we are not prepared to do our own women justice. I know that I might be criticised for my remarks about overseas aid. I am a great supporter of overseas aid and believe that this country has made extremely good provision in that regard. However, it has to be shown to provide value for money. Noble Lords will have noted that a much more significant figure than myself—the noble Lord, Lord Mandelson—has raised this very point. He has said, and I agree with him, that the money which is paid in overseas aid must be subject to proper control, be seen to be value for money and should not go to the leaders of the relevant countries but to the people of those countries. Those words should be taken seriously.
I certainly support these amendments. In so doing, I believe that I am supporting the women of this country. The argument that we do not have the money is a spurious one, as it appears that we have plenty of money to give to other people outside this country.
Lord German
My Lords, before I say a word or two about this particular group of amendments, I want to say a few words about the opposition to these proposals as a whole and the manner in which it has been expressed. I refer to the opposition outside this Chamber, not within it. It is interesting to note the advocacy that has reached our ears from a huge number of organisations that have put a lot of effort into researching and tackling the issues before us. In any normal protest, you hear two questions: “What do you want and when do you want it?”. I suspect that the answer to the second question, which is always “now”, cannot be applied to pensions. This is the issue with which many of us are having to wrestle. How do you plan for the future? How do you anticipate the future? How do you look at the future? How do you predict what will happen in the years to come? The standard answer is, “We would not be starting from here”. However, pensions reform in this country has been very slow in coming. Where it has happened, people have realised that they should have done it a lot earlier, so there will always be change and acceleration and the interests of a future generation will always have to be taken into account. It is that future generation that we have to bear in mind in this group of amendments. As the noble Lord, Lord Boswell, said, we are talking about intergenerational issues, and that is the issue that we will have to face—a smaller number of younger people having to pay for a larger number of older people. The question cannot be avoided; we have to answer it.
In Committee there were amendments to this section of the Bill not only from the Conservative Benches, but from the Labour Benches and from us, all of which were differently phrased, but all of which sought to look at some very specific issues. It would be nice to have gender-free pensions language, as the noble Baroness, Lady Bakewell, said. We cannot do that until such time as we have equality in the pension age. We have to arrive at that point before we can have gender-free language. It would be very nice for men to be able to contribute, and perhaps there may be a way for men to contribute in the longer term, which is something that we ought to be saying at this stage for the future. We may be able to look at those issues, and the Minister may be able to suggest some avenues.
Two specific issues were raised in Committee. It is the most vulnerable who are, of course, the least vocal in our society. Perhaps that is one reason why we have had not vocal protest but advocacy protest about some of these measures. It is the most vulnerable in our society who are going to be affected—those with no private pension savings, no partner’s pension to rely on, and for whom the personal state pension is the key. They are about 14 per cent of the women in the whole cohort and this 14 per cent of women shows why it is so important to have a good single-tier pension.
I welcome the announcement in the Budget of a £140 basic state pension because that is a huge rise. Can the Minister give us some more flesh on the bones of what the Chancellor said about this? He is smiling because this is an issue that I have constantly raised with him—that the replacement should be a basic provision for all which is both gender-free and acceptable to everyone: everyone can receive it. I hope that this big increase in the basic state pension will deal with some of the issues about the most vulnerable.
Secondly, there was the issue of inequity for the group of people who were born in 1953, 1954 or 1955. These are the people for whom there will be inequitable treatment compared with other women in their cohort. We have already heard about the sister; the right reverend Prelate gave the most extreme example earlier. We need to hear from the Minister that there is a solution for these people. Given the level of interest in this matter, how will he acknowledge and address this inequity? I hope that he will acknowledge it in his response to this group and a subsequent group of amendments.
A variety of solutions were put forward in Committee, some of which we will be debating and reflecting on today, but at this stage we must reflect the fact that this set of amendments will put more taxation on our children and those who follow us. They will have to pay for that intergenerational change and it is always going to be the same as this progresses. We have to make a judgment as to what is the right amount that our children should have to pay to make this easier.
Finally, if you are trying to predict at the moment what your pension might be and when your pension age might come and you go on to the Government’s website to find out, you will still find the existing proposals. It would be worth having the website reflect more strongly that changes are proposed and give some indication of what those changes might be, so that people who will be thinking about these matters during the course of the Bill will be able to see the changes that affect them. We need transparency and I hope that the Minister will address that.
Baroness Hollis of Heigham
My Lords, I will be brief because a lot of the arguments were effectively aired on all sides on the previous amendment. I support this amendment. I spent many hours—I will not say happy hours—last weekend trying to find a compromise, what I would call a fallback amendment, that would address the issue that we have all identified today. That issue is the women who are seeing an acceleration in the time that they have to wait—if that is not a reverse phrase—for their pension.
The Government are proposing to accept the existing timetable to 2016 but, instead of continuing it to 2020, to collapse it to 2018, so that what would have happened over four years is happening over two. That is what is producing the problems of bunching, the unfairness, the lottery, the roulette, one sister against another, one neighbour against another and the like.
We have heard the arguments. I tried, as I said, over many hours at the weekend to find a fallback compromise that overcame the problem of bunching without taking us up to 2020, but could not find one. What the noble Baroness, Lady Greengross, has done, for which she has our warmest congratulations, is none the less concentrated on the post-2020 period and reduces somewhat the period by which pensionable age would rise to 66. That produces the £3 billion of additional savings that the Government are so anxious to secure. It also protects the situation of women. It is smooth, as no woman waits more than one year for every additional year of her age. It is fair to all women. It is a compromise: we get to 66 somewhat earlier than I would like. None the less, it overcomes the basic unfairness of women having random times until which they must wait, according to the random month in which they were born. You cannot make state public policy on the basis of such a lottery. The amendment of the noble Baroness, Lady Greengross, addresses that issue, compromises on the later point and makes savings. I hope it will enjoy the support of the whole House.
Like others, I am thrilled by the proposal for a new state single pension of £140. I warmly congratulate the coalition in this House and the Ministers in the other place on it. Had there been eight bullet points, I would have agreed with eight out of eight instead of seven out of seven. I do not want to put this in a way that makes the noble Lord thump the Dispatch Box, but I hope he will today restore the honour of the coalition agreement by making it clear that he can accept this amendment or a version of it. The substance of what was promised in the coalition agreement by both parties forming the Government—that women’s pension age would not rise to 66 until 2020—will then be honoured, either through this amendment or the Government’s promise to come back with another. All sides of this House could then feel well content that they have protected some of the most vulnerable women, who rely solely on their state pension for their income in retirement. We will have treated them honourably, fairly and decently.
Lord German
My Lords, I echo the noble Lord, Lord Boswell, and the noble Baroness, Lady Hollis, in saying that we look to the Minister to address the issue behind the amendment of the noble Baroness, Lady Greengross, which is that no woman’s pension age should be accelerated by more than 12 months. That is the issue that I raised in the earlier debate. It is a concern about equity. I hope that, in the architecture that the Minister may describe to us, he might find a way of answering that question. Whether it is this or some other architecture, as the noble Baroness, Lady Hollis, just said, is not the issue at stake here; it is about the intention. It is the intention to create that level of equity that is important.
Unfortunately, I have a question for the noble Baroness, Lady Greengross, when she comes to answer this debate. It is on a very technical point. This morning we took the liberty of plotting the dates in her amendment on a graph. Unfortunately, there were two kinks in the graph, which meant that it was not a straight line. I wonder whether, in the second line of the amendment, “August 2018” should not read “July 2018”; and, in the third line, whether “October 2018” should not read “September 2018”. That would produce a straight line. However, in the context of seeking agreement—and of the Government’s intention that no woman should wait more than 12 months, which I think was the intention behind the amendment—I hope that the Minister can give some support and succour to the amendment and the intention behind it.
Lord McKenzie of Luton
My Lords, I will be brief. Like others, I warmly congratulate the noble Baroness, Lady Greengross, on tabling this amendment, which addresses an issue of wide concern. It does not go as far as most of us would like; it raises the pension age to 66 one year earlier than we would want and one year later than the Government would want. However, apart from a couple of minor kinks, it smoothes the position so that nobody has to wait for more than 12 months. It is a considerable achievement to craft an amendment of that nature. We should be very grateful to the noble Baroness.
The issues are very much as they were previously. However, I would challenge the Minister. If the response was, “We like the look of this; we’ll try to bring something back, but we’ll do it in the other place”, then it would not be a particularly satisfactory one. The reality is that we stand a better chance of getting amendments through at this end than at the other end. What further information might the noble Lord and his team need to be able to produce an amendment now or at Third Reading? The noble Baroness seems to have given us a very good platform for moving forward.
I was not sure about the costing; the noble Lord, Lord Stoneham, said that it was £7 billion. I would guess, from the Government’s point of view, that that is certainly an improvement from where we were on it. If the noble Baroness was minded to press the amendment, we would certainly go into the Lobby to support it.
Pensions Bill [HL]
Lord German Excerpts(13 years, 2 months ago)
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Lord German
“Occupational Pension Schemes (Investment) Regulations 2005
(1) The Secretary of State must publish guidance for occupational pension schemes on the implementation of regulation 2(3) of the Occupational Pension Schemes (Investment) Regulations 2005 (statement of investment principles).
(2) In particular, such guidance must cover the type of information which may be provided under—
(a) regulation 2(3)(b)(vi) (the extent (if at all) to which environmental, social and ethical considerations are taken into account in the selection, retention and realisation of investments), and(b) regulation 2(3)(c), (the fund’s policy (if any) in relation to the exercise of rights including voting rights, attaching to their investments).”
Lord German
My Lords, I shall speak also to Amendments 54 and 54A. The first two of these amendments are identical because they relate to two different sets of regulations. In that respect they could be seen as the same, but they relate to two sets of existing regulations. All three are probing amendments because I want to see the Government’s view on these matters, which are important to pension fund members.
The amendments seek to do two things. First, they suggest guidance to help pension funds ensure that they are meeting the spirit of the law, not just the letter, when it comes to explaining their policy on environmental, social and governance issues, and on the exercise of shareholder rights. It is now 10 years since these rights were written in to law. There is a need to go beyond the generic statements that characterise many statements of investment principles to ensure that funds’ policies give their members meaningful information.
Secondly, the amendments suggest enhanced reporting on how these policies have been implemented in practice. I am grateful for the research by FairPensions and others which suggests that general statements to the effect that ESG issues are taken into account are not always matched by effective implementation. In addition, members can find it very difficult to acquire information about the exercise of shareholder rights attaching to their savings—for instance, information on how their fund voted on a particular shareholder resolution. The stewardship code makes it clear that asset managers should disclose their voting records. It also makes it clear that asset owners have a role to play in ensuring effective stewardship. If the purpose of stewardship is to ensure that the assets of the ultimate owners are safeguarded, there must be accountability to these owners on how stewardship responsibilities are being exercised.
Asset manager disclosure alone will not achieve this. Pension funds also need to play their part. There is no reason why this should amount to a huge increase in red tape. In many cases, the pension fund would need only to provide a link on its website to its asset managers’ disclosures. This would be a very small additional burden on funds, but an enormous improvement in accountability for members, whose money ultimately is at stake. The problem is that often funds state simply that decisions are delegated to fund managers, with no transparency about the managers’ voting intentions. Examples have been given to me of funds that do just that. Funds often direct members to their statement of investment principles, which is unlikely to provide any useful information that has been requested on any matter.
The third problem is that funds often respond as though taking into account an environmental issue, which might be the one being questioned, is in opposition to their fiduciary duty to maximise returns—even though the matter in question is solely business-focused, they are being asked only for disclosures about the financial risks associated with the projects, and the questions are backed by a number of institutional investors. This betrays a continued misunderstanding of responsible investment, and of the ways in which environmental, social and governance issues can be material to financial returns. Members increasingly bear the investment risk associated with their pension savings, and should have corresponding rights to scrutinise the management of that risk. This is particularly important given the growth of DC schemes.
There is an increasing consensus that social and environmental considerations are financially material. That is why a report from the United Nations Environment Programme finance initiative highlighted the reasons why trustees are required by law to take advice from investment consultants when preparing their SIPs. The report suggests that a tick-box mentality on the part of these investment consultants is a key reason for the inadequacy of current disclosures. Many consultants still regard the ESG as a client-driven, ethical preference and do not consider that they have a proactive responsibility to raise these issues with pension fund clients.
The amendments require the Government simply to provide guidance. While I appreciate that they have the power to provide guidance, I question whether they should provide guidance rather than simply have the power to provide it, and what matters might be included in that guidance—for example, a generic statement might say that the fact that a fund takes ESG issues into account will not normally meet the spirit of the law; that the statement should relate to the fund’s particular approach to circumstances and issues at stake; and that it describes elements of a best practice statement on social, environment and ethical issues. There are a range of areas that could be included in such guidance. The elements of a best practice statement on the exercise of shareholder rights, for example, might include whether it is the fund’s policy to vote all shares held; whether the fund delegates voting decisions to asset managers; and, if so, details of any specific instructions given to the asset managers, or the circumstances under which the fund reserves the right to make voting decisions itself. The fund’s policy on dealing with any member inquiries, of course, is particularly important as we move forward in this area.
We do not accept that the inadequate application of existing requirements makes for more prolific and prescriptive regulations. We do believe that there is a sensible approach to a set of guidance which will make the role of the fund, and the fund members, more important. We recognise that that guidance would not strictly require primary legislation, and so these amendments are probing in their character.
Finally, part of the purpose of public disclosure is to ensure better accountability to ultimate owners. The average pension saver cannot be expected to know which asset manager their pension fund uses. If only the asset manager discloses, the net improvement in transparency for the saver at the end of the investment chain is likely to be small. In most cases we think that all that would be required is for pension funds to provide that link to their asset manager’s disclosures, probably on their websites. In other words, members should be signposted to the relevant information. On the basis that this set of information would benefit transparency of process and put some flesh on the bones of the existing legislation, I beg to move.
Lord German
My Lords, I thank my noble friend for those comments. I dread to think of the asymmetric paternalism to which we keep referring. We shall probably have to continue to do so now, because if I can interpret my noble friend’s final remarks as meaning that he and the Government will give active consideration to the sorts of guidance that might help the companies, pension funds and their members to achieve the goals that we have elaborated on, I am very grateful indeed.
As the noble Baroness said, the move from pension trustees to contract-based schemes with trustees will change the fabric of the pension world. I hope that the pension fund for which I am a trustee has sought to get these matters dealt with more swiftly. However, given my own experience, I am not certain that the regulations as framed guarantee that members will get access to all the information on voting rights. I am grateful for my noble friend’s comments, which I will take in the spirit that I described. On that basis, I beg leave to withdraw the amendment.
Social Security Benefits Up-rating Order 2011
Lord German Excerpts(13 years, 2 months ago)
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Lord German
My Lords, perhaps I may follow that speech by the noble Lord, Lord Beecham, by also declaring an interest. I am in receipt of my basic state pension and I suppose that I should be thanking the Minister for his announcement that I will be earning, on average, £15,000 or more during my lifetime. However, I am particularly grateful that the measure increasing pensions restores the link with earnings. For many of us here who have campaigned on platforms at election time, the issue of re-linking pensions to earnings has been asked for on virtually every occasion when there has been an audience of prospective and actual pensioners who were concerned that the link had been broken and wanted it to be restored. I am therefore deeply grateful that the triple lock will replace the double lock.
I shall come to the issue of RPI and CPI in a moment, but I should first say that the orders demonstrate that we need a less complex system. Noble Lords on the other side have said on several occasions that this is a weighty document containing many changes. That reflects the complexity of the arrangements in our benefits structure and the calculations that flow from it. I welcome the simplification that will occur when the Welfare Reform Bill is enacted.
However, I agree that my noble friend will have to respond to the question of whether these measures will satisfactorily protect the worst-off in our society. That is the test we must put before him. Some measures that are not in the orders will support particularly the long-term employed—the Work Programme, more apprenticeships, and the more rigorous, enlarged and targeted work experience programme that will produce dynamic changes and have an impact upon the take-up of benefits overall.
I turn to the CPI/RPI debate. It is clearly difficult to produce a set of proposals that will be understood by people who are not in this Chamber and who want to hear a simple explanation. Geometric and arithmetic means are not words that roll off the tongue as you sit talking after watching the evening news on television. It is difficult to understand the complexity unless you can understand what lies behind it. What I take from this is what I call the old Tesco/Waitrose test regarding upper and lower shelves, whereby when you make a substitution, you might move shop or shelf when choosing products, in order to make savings in your weekly bill. There is something in that, given that the former Prime Minister, when he was Chancellor, said that CPI is a better measure of substitution. That is a matter which the mathematicians are beginning to grapple with.
However, it is clear that when compared with the UK no country in the western world has such a statistical difference between the two indices. The majority of other countries use the CPI index, but why is there such a difference here between the two indices? We need to understand why, and that was what the Royal Statistical Society was attempting to do. It is not just about whether there is something wrong with using the CPI, but about why there is a gap between the two indices that does not occur elsewhere. That again relates to the way that the formula is constructed. As we know, the formula includes a difference of between 0.5 per cent and 0.8 per cent, and we need to understand that better in future.
Therefore, it is not a question of which is the better index, but of which is the right index. It is not that one is a good index and one is a bad index; we are looking for the right index which measures inflation and how prices are rising. It may well be that we have not got that right in the past and that we are now looking for a change. However, I note that the opposition party in the shape of its leader, and reinforced here tonight by the noble Lord, Lord McKenzie, is prepared to accept CPI as an interim but not a permanent measure. That means that there is a sense that they generally agree with the former Prime Minister that there is a role for this index, although they may disagree about its long-term purpose.
What we do know, as international comparisons tell us, is that CPI is a much more stable measure. I was interested to hear the remarks of the noble Lord, Lord Beecham, concerning the pension. One effect of the methodology used by the previous Government was that the pension rose by 75 pence a week. Of course, it is not reasonable for people to be told that prices have not risen appropriately in that period. We need a stable measure which reflects people’s understanding of how prices have risen during the year.
As we heard from the Minister, housing is reflected in CPI in terms of rent but not mortgages. Work is now being done to improve the involvement of house prices and housing measures within CPI, although we know that only 7 per cent of pensioners have a mortgage. It is important to reflect on the value of the basic state pension, to note that in future the triple lock will work to the benefit of pensioners, and, if I read the newspapers correctly, that the basic state pension will be uplifted even further, which will give people a basic entitlement in tier 1. I hope that that will occur.
Lord McKenzie of Luton
I hope that the noble Lord will forgive me for interrupting. I accept what he says about the triple lock on the basic state pension, but does he acknowledge that applying CPI to S2P on a long-term basis would reduce what would otherwise be payable?
Lord German
The basic pension is bigger than the additional pension. In the long run, the earnings link is worth 2 per cent more than prices, and CPI is 0.8 per cent less than RPI. Therefore, the increase in the basic state pension can be set against the change which will occur with CPI for S2P. It is very important to see the connection between the two. Of course, as the noble Lord, Lord McKenzie, will know, there is much talk in the ether about an improved single-tier pension, and I think that that will be the test. Not only would it benefit people through the measure that I have just described but in the future it might improve matters even more.
Lord McKenzie of Luton
I am sorry to interrupt the noble Lord again, but how would he factor into his assessment occupational pensions which, in terms of future indexation, could be subject to CPI rather than RPI?
Lord German
I was very grateful that the Government did not put the override in place, because of course it should be up to occupational pension schemes to make up their own minds according to their rules. Clearly, if RPI were written into the contract that already existed, that would apply and the schemes would be able to stay with that. Most pension schemes will be able to make that choice, and I hope that there will be a debate among pension fund members about the way in which that might be put into place. It is also very important that pensioners with accrued benefits under RPI should have those benefits maintained and that, if the choice is made to change, CPI should occur only after the CPI regulation hits the deck.
Going slightly beyond this issue, I want look at the packages in the round and I also want to ask the Minister some questions. I am pleased that there was no override, and I wonder whether the Minister can confirm what I have just said regarding accruals for occupational pension schemes. Will the switch to CPI see the pressure on occupational pension funds reduced? I know that some figures have been produced regarding the reduction in pressure on some occupational pension funds. I should be grateful if the Minister could update us on the current thinking on that matter and on the current analysis of who is going to move and in which direction.
My final question relates to the much bigger world of the reforms proposed by the noble Lord, Lord Hutton. What are the Government’s thoughts about the direction of travel of the matters that we are discussing today, and how will that impact on the public sector pension funds? Will the Government be responding to the noble Lord, Lord Hutton, and in what timescale? People will want to understand the Government’s direction of travel, both on the basic pension and on public service pensions, which I imagine are a cause of concern to many people at present.
Lord Kirkwood of Kirkhope
My Lords, I should like to make a few comments at the end of what is always a very important annual occasion. There have been occasions in the past when colleagues in the House have not considered it appropriate to look at social security benefit uprating orders, but these orders are extremely important for the people whom they affect and it is right that we should spend time looking carefully at the provisions. I am not surprised that more colleagues do not participate in these debates, as they are extremely complicated, particularly this year when we are contemplating wholesale changes in the benefit system. It is particularly difficult to foresee the impact that some of these announced changes will bring in future.
It would be helpful to receive some reassurance from my noble friend on the Front Bench on a couple of points. I agree with the comments that have been made about the pension provision. That is one area where substantial progress has been made, for which I am very grateful.
I want to pick up an important point made by the noble Baroness, Lady Lister, who is probably the only person in this Chamber who has been doing uprating orders for longer than I have—she advised me about them when I was elected to the other place in 1983, which was not yesterday. She has a huge amount of experience and knowledge and she will be a great asset to this House in considering these issues in the future. She raised the point about freezing child benefit until 2014. Of course, that is against the background of deficit reduction. I defer to no one on the necessity to attack the important financial circumstances that we all face, but how will that affect the child poverty strategy? In the legislation that we passed in the dying days of the previous Parliament, the Child Poverty Act 2010, we set out the requirement for a child poverty strategy. I anticipate that that will be unleashed on us quite soon. These changes will have a dramatic impact on the staging posts of 2015 and 2020 in the child poverty strategy.
Deficit reduction notwithstanding, I hope that the Government do not make these changes in a way that makes it impossible to get to a more comfortable place on child poverty by 2020. If that were the case, I would be very concerned. I think that redistribution is still necessary. The noble Baroness was absolutely right to say that this benefit was a tax allowance in the days before it was converted. It is extremely important that we keep the pressure up. People like me are uncomfortable about freezing child benefit. If the Government continue to freeze it, I shall be more than uncomfortable; I shall be very upset. A word of comfort about the fact that there is a child poverty strategy in gestation and about to be unleashed on us would send me home a happier bunny this evening.
We shall return to the CPI/RPI debate, and at great length. For me, there is some conflicting evidence. My noble friend dealt with the substitution effect. I think that he is right about substitution and I concede that he is right about geometry and not arithmetic. However, I do not necessarily concede that, therefore, CPI is an appropriate measure. I think that the IFS is on his side when it comes to substitution but, on whether this is an inflation experience that is adequate and appropriate for the client group, it is on a different side of the argument. The press release that I have in front of me, dated August 2010, suggests that it believes that,
“only 23 per cent of benefit claimants are unaffected by increases in mortgage interest payments and council tax”.
Therefore, the rest will be caught by the reduction. We cannot ignore that. I want to think about that more carefully and I shall study, with care, what my noble friend says about it, if not tonight then at another stage. I think that the jury is out. I think that he has won the argument about substitution but I do not think that that necessarily means that it is a safe measure in perpetuity. You only have to ask the Library not just about the short-term effects but also about the long-term effects to see that reductions in domestic household incomes are stark. Over a 20-year and a 30-year period, they are unconscionable. I hope that we in the coalition Government are not lashed to the mast on some of these things. If the CPI in the middle-to-longer term—five to 10 years—starts to pinch in a way that I think it may, I hope that we will be big enough to look again at whether it is an appropriate measure.
Autism: Disability Living Allowance
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Lord Freud
My Lords, that is a key point. One of the main changes we are making to the work capability assessment is exactly about this sensitivity. Professor Paul Harrington, who is conducting the reviews, made a series of recommendations as to how we should adjust this assessment that we inherited to make it more sensitive. We will have learnt those lessons, and will ensure that we pull that over into the personal independence payment.
Lord German
My Lords, is my noble friend the Minister right to say that the previous scheme used for the migration to the employment and support allowance would not be appropriate for this form of assessment in the future successor programme to the DLA? Given that so many people were assessed and then went on successfully to appeal against their assessment, we surely now need a different system. Can the Minister tell us whether we have cracked the nut about how we assess people with the sorts of disabilities that autism presents over such a wide spectrum?
Lord Freud
My Lords, I thank my noble friend for what is actually a very complicated question to answer briefly. This is a different assessment. The personal independence payment is looking at what people need to function in their daily lives, whereas the work capability assessment is designed to look at whether people are capable of working. They are different. We need to make sure that we do not have too many tribunal cases. At the moment, under DLA, tribunal cases are at 11 per cent, which is too high. One of the attractions of going to a consistent, coherent new personal independence payment is that we can have criteria which make it much less obvious that people need to go to tribunal.
Pensions: Britons Living Abroad
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Lord Freud
My Lords, I am happy to congratulate the noble Lord opposite on those changes, which I know that he was involved with. I think they have been valuable. The point about costs in the current environment is that this change to uprating in the frozen areas would cost us £620 million a year, and in the context of the austerity position that we are in—all noble Lords will be very familiar with the terrible dilemmas that we face as we look to get the budget under control—we should consider how much that £620 million represents.
Lord Skelmersdale
My Lords, would my noble friend accept that what matters when paying British pensions to pensioners in places such as Canada is reciprocity? In other words, if the Britons in Canada are paid the Canadian pension and the Canadian pensioners in this country are paid British pensions, that would be regarded as a fair deal. What discussions on reciprocity are going on at the moment between his department and overseas Governments?
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2011
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Lord Jones
My Lords, I support the regulations, and I thank the Minister for his considerate and detailed exposition. I certainly welcome all that he said. However, it was daunting to hear of the number of deaths; those details are very sobering. We are all glad that there is compensation—that persons can receive payments of between £12,040 and £77,506. Surely we are all glad that lump sums of between £7,524 and £40,335 can be paid to dependants, and that the Secretary of State of the day can put his signature to these regulations.
This is a dreadful disease. When a diagnosis is made and the facts imparted to the patient, death is usually never far away. It is very good that British Governments can come forward with such compensatory schemes. The regulations are the printed details as referred to in the Explanatory Memorandum. However, they cannot describe adequately the humanity of these desperate cases, or the ignorance which existed then, or the bewilderment, the suffering or the familial anxieties. Surely the departmental staff teams can take some credit, at the very least, for presenting these regulations.
I very much appreciate that the 2008 scheme is wholly funded from compensation recovery, whereas the 1979 Act and 2008 scheme payments are recovered from any subsequent civil damages paid in respect of the same disease. I also understand that consultation is not necessary, because there is no change in policy and no scope to change the outcome, and that these increases are at the rate of inflation as measured by the consumer prices index, in line with other social security benefit rates which are increased under the existing statutory provisions. With regard to regulating small businesses, can the Minister say why the legislation does not apply? Can he, for the record, spell that out?
Finally, there is a history to these regulations. I recollect, first, Mr Harold Walker, the Member of Parliament for Doncaster. He and I served in the Wilson and Callaghan Administrations in the 1970s. Mr Walker was the Minister of State in the Ministry of Employment, as I think it was then called. In that decade the department was very busy and pressured—the old smokestacks fell; the Upper Clyde shipyard was occupied; Rolls-Royce was bankrupted, and then nationalised by the then Mr John Davies MP; the OPEC nations quadrupled the price of oil; and then there came forth a great inflation and many industrial and labour disputes. That was the context whence came the concept that led to these regulations. However, the plight of the workforce in the coal and quarrying fields made it necessary to address these diseases. The menace of asbestos was also demanding compensation.
Harold Walker MP subsequently became Chairman of Ways and Means, then Lord Walker in your Lordships’ House. In his Commons role, he assessed how our departments—the departments for employment and for Wales, in which I served—might jointly address the challenge of those diseases and the demands of families and of sufferers. What should be done in that context of high inflation, industrial labour disputes and all manner of impediments to statecraft, if I may put it like that? There were Ministers looking at these specific problems who wanted very much to address the challenge of these lung diseases.
Mr Walker told me of a tragedy. He had previously been a craftsman and a shop-floor union leader. At a location at Hebden Bridge, he had met workers who had innocently had constant contact with the deadliest of asbestos, which is the blue. Those poor men had literally waded in the blue stuff and kicked it about. They had played snowballs with blue asbestos, throwing the deadly stuff at each other. At that time in our industrial society, nobody had warned them, nobody had briefed them and nobody had considered them. That was taking place across the nation. Now, with the benefit of hindsight, those poor men at Hebden Bridge had frequently gone all the way.
There was no health and safety at work Act. At the time of those great confrontations in British society, as measured in the House of Commons and in disputes throughout the nation, there was a need for consideration about how to make work safer. It was the then Minister, Mr Michael Foot, who brought forward health and safety at work measures. He also brought forward an employment Act. I believe that those measures helped to protect men and women at work. I think that those Administrations who brought them forth and enabled the workforce of Britain to benefit deserve great credit. I would like to put on record that Ministers sought to address these problems brought about by asbestos. I welcome the Minister’s exposition and the team that backs him in enhancing and widening these regulations.
Lord German
My Lords, first, I welcome the Minister’s statement this afternoon in respect of these regulations. I thank him for the manner in which he delivered them, the understanding with which he delivered them and, more importantly, the way in which he has supported what has been for many people an almost lifelong campaign to ensure that we bring some retribution for the damage caused to so many members of our society by diseases at work. For me, pneumoconiosis is almost a household name. It became the natural word that would roll off your tongue, especially recently. Visiting constituents and seeing men sitting in the corner of their homes with an oxygen bottle alongside them, the last vestige of their survival as individuals, was a frightening and disgraceful comment upon the nature of our industrial landscape of many years ago. For many of us, it is ingrained within us to see the way those people have been dealt with in such a cruel way by these diseases.
As the Minister pointed out, we have not yet seen the peak of these diseases because, while the industrial heritage may have moved away, the diseases are still firmly implanted within the bodies of those people working within those industries. I welcome the fact that these regulations are being dealt with today and that the Minister has chosen—there is no obligation on the Government to bring forward these regulations—to follow the current practice of uprating on a yearly basis.
There are a number of short questions that I would like to place before the Minister. The first concerns dependants, who have been referred to earlier. Will my noble friend tell us the effect on the gap as a result of the changes we are seeing today? With more and more of these sufferers dying as we reach the peak, the dependants will be becoming more and more dependent upon the payments that are made to them. I wonder whether we have some feel for the direction of travel on that gap at this time. Is there any prospect in future of dealing much more with the dependants? For very tragic reasons, that is where we are going to be ending up with this disease.
My second question concerns the issue of tracking down the employment and the vestiges of the employers. Does the Minister have any knowledge of the split between those who have worked for public sector bodies—in the area where I reside the National Coal Board was probably the biggest problem—and the private sector employers around the country in both the coal and asbestos areas of industry?
No matter how often we come forward with compensation schemes and how much work is done on this matter, and although the changes that have been brought about bring comfort to people, nothing can alter the fact that many in our society have died, and are dying, as a result of industrially related diseases. It is pleasing to note that we have moved on so far in understanding such diseases and what happens in the workplace, and in protecting people. Let us hope that we do not have to introduce any other scheme of this nature in the future.
Women: Assistance in Pregnancy
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Lord Freud
My Lords, I share the noble Earl’s great concern for children in care and take his point about the relatively much higher rate of pregnancy. I shall look closely at what we can do in that area.
Lord German
My Lords, there will be a moment of time between the outgoing regulations and the incoming regulations in respect of budgeting loans to which the Minister has just referred. Given that most people will be looking for low-cost, low-interest loans to buy such things as a buggy, a pram or a cot, what advice is the Minister giving to his department on exercising flexibility in this regard to ensure that the current regulations may be as widely accessible as possible so that people are not disadvantaged during the short period between the old and the new regulations?
Lord Freud
I thank my noble friend for reinforcing this important point. There will be a gap, probably of around nine months, before we can formally change the budgeting loans. We are making the very firm point—I made that firm point formally in the Chamber yesterday—that we are encouraging people to use the scheme to the utmost extent that they can and to apply it to slightly wider items than those around budgeting for the baby.
Social Fund Maternity Grant Amendment Regulations 2011
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Baroness Gale
My Lords, I support the Motion of Regret of my noble friend Lord Touhig.
That word “regret” is important. The Merits of Statutory Instruments Committee, in its devastating report of 3 February, made a number of points relating to the withdrawal of the Sure Start maternity grant for most pregnant mothers. One of the points it made is that the Office for National Statistics survey found that,
“less than 10 per cent of second and subsequent children were born more than five years after the first or subsequent child”.
The effect of this means realistically that the grant is now paid only for the first child because, if there are children in the family under 16, in no circumstances will the maternity grant be paid.
The Merits Committee also suggests that,
“The House may wish to seek clarification of why age 16 was chosen as the threshold as opposed to say age 5 or 10”.
I therefore ask the Minister why the age of 16 was chosen. It is highly unlikely, for example, that if there is a 15 year-old child in the household—or even a 10 year-old—any equipment from that child could be used for the new baby. The expenditure would be very like having a first child, but with no help whatever from this Government.
The charity Gingerbread, commenting on the emergency Budget of June 2010, said:
“A family having a second child could be over £1,200 worse off this year than last year. These cuts will be deepest for the most vulnerable families”.
The charity Family Action said,
“low income families will find it tough to meet the needs of their newborn children and families returning to work will be stung by cuts to tax credits and childcare costs. We know from talking to the new parents who access our services how vital these funds are in giving families and their children the best possible start in life. Now they’ll be on the back foot from birth, thanks to the Government’s policies”.
In his statement on the Social Fund Maternity Grant Amendment Regulations 2011—published in the Act paper—the Secretary of State for Work and Pensions says:
“Around 150,000 families in receipt of a qualifying benefit at the point they have a second or subsequent child will be affected by this measure. In order to help mitigate the effects for some of these families, the forthcoming Welfare Reform Bill will include a measure to open up the Social Fund budgeting loan scheme to enable loans for maternity items to be made available. However, due to the discrepancy in timing between the introduction of the changes to eligibility to Sure Start Maternity Grants in April 2011 and the date the provision in the Bill comes into force (expected to be early 2012), families will not be able to take advantage of the extended access to Budgeting Loans during this period”.
The Government saying that “families will not be able to take advantage” must be the understatement of the year.
This is the coalition Government’s timetable; they are in charge of it. They could do something about it but they have chosen not to. This means that there will be no government help available for women who are expecting babies between 11 April 2011 and some unknown date in 2012. What are these mothers expected to do? Do they go without? Do they go to a charity or to their church to see whether they can get some help? Perhaps they may be able to get a loan from a bank. If not, perhaps, as my noble friend Lord Touhig said, they may be able to take out a loan with some organisation where a very high interest rate will be charged. What a worry for a pregnant mother.
Of course, depending on the age of the first child, there may be some items that can be used, but there are always additional costs for every child and this can be a strain on a family budget. However, as things stand now, there is no chance of help from this Government. I ask the Minister to listen to the charities which have expertise in these matters and to reconsider what help can be given from April to the date when the Welfare Reform Bill will be enacted.
We know this legislation has been rushed through, allowing only nine days for consultation by the Social Security Advisory Committee, and without proper consultation and scrutiny it is lacking in evidence. I am not aware of any impact assessment and I wonder why there has not been one. I ask the Minister to take careful note of what has been said and the effect that this proposal will have on the families that once qualified for such support under a Labour Government but will no longer receive such support.
Lord German
My Lords, I should like to take a rounded view of these regulations and put them in the context of the activity of the Government in terms of poverty. There are some issues which noble Lords on the Benches opposite have raised which require some answers from the Minister and I shall raise one or two myself.
First, it is important to recognise that these regulations have the effect of providing a level of savings within the DWP budget—that is undeniable—and that these types of decisions are never easy. At face value, of course, this could be simply seen as yet another cost-saving exercise, which is the thrust of the previous three speeches. However, it should also be looked at in the broader context. I shall examine both sides of the issue in my contribution to the debate.
I preface my remarks by posing a question to the noble Lord, Lord Touhig, the mover of this Motion of regret. I shall not correct him on his Welsh mutations; I shall explain to him afterwards—
Lord German
Yes, the “d” should be a “t”.
The question is about the level of savings that he and his party are looking for in the public finances and whether they are put back into good order within five years or, as I understand it from his party, within seven years. Perhaps he can tell me because I have been struggling to find the answer to the question. What is the level of interest on the loan that the country now has and the debt that we have to repay if it is to be spread over seven years rather than five, which I think was his party’s policy? At the moment we have to repay £120 million a day in interest for the next five years. If we went for the seven-year position, what savings would we need to look at from within the budgets of all the departments in the country? I still fail to understand that. As we all know, it is easy to stand up and say, “Do not cut this or that”, if in the end the summation does not add up to the figure—which I understand is the position of the Labour party at the moment.
However, I recognise that this is part of a package designed to save money and that, if the circumstances for the country were appropriate, we would not have wanted to do this. If the finances were strong, I doubt whether this would have appeared on the horizon. Fundamentally, the judgment here comes down to the question of whether this particular set of regulations fits within the whole scheme of reforms and changes to our work and benefits regime, in the context of the economy as we find it. You cannot see one particular benefit set in isolation without considering the rest. Right from the beginning when the universal benefit regime was talked about in your Lordships’ House, and through the discussion and questions about it here, I have always been attracted by one of its fundamental aims—a fundamental aim of the whole revision of the benefits structure from its current complex base to something much more straightforward and simple—which is to lift people out of poverty. The impact assessment produced by the Government showed figures which, frankly, would have made everybody around this Chamber smile.
The principal aim of the universal benefit Bill and the new work programme is to lift people out of poverty. That programme itself requires investment: it has a £4.5 billion price tag. Part of that has to be funded from within the savings that can be made from the department, and part is coming from new money that the Treasury has made available. In making this change in these regulations, are we ensuring overall that the poorest and most vulnerable are being supported while helping to lift large numbers of our people out of poverty? That is the fundamental question against which you set these regulations. If the answer to that is yes, then, clearly in the context of that whole regime, you have to move forward upon that basis.
There are some problems and concerns, and some of them have been raised already. I echo some of them and pose a new one in questions that I hope the Minister will answer at the end. First, we have this interim period between the universal benefit Bill passing through your Lordships’ House and its becoming an Act in our country. In that interim period, the current interest-free loans will no longer be available. There is a danger that the people who find themselves put in most difficulty by these regulations will turn to high-cost lenders. What comfort at all can the Minister offer for where these people might turn in that interim period so there will be no difficulties for them? It is a short, one-off period before the new loan arrangements for purchasing, say, a cart, buggy and all those matters are in place.
Secondly, as has already been alluded to, what happens when a second child is born in a family and there has been no claim for the first child? You can imagine the circumstances where that might happen. Someone who is in work, has appropriate leave and reasonable funding behind them, might decide that it is not worth the effort, hassle or for other reasons—it might be that parents provide some of this equipment—and do not apply for the grant. Then perhaps there is a period of no work and when it comes to the second child it is difficult to find that sort of money. What happens when this is the first application within the family but the application is for the second child? Again, I would value an answer from the Minister.
Pensions Bill [HL]
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Lord German
“Deferral period
The Secretary of State shall by regulations issue guidance to employers and jobholders explaining the rights of employees during the deferral period, including the right to opt in to the scheme during this period.”
Lord German
My Lords, I will not keep the Committee long, given that the Minister has, in his response to a previous debate, accepted this amendment in that he has said he will introduce a requirement for the correspondence that is sent to employees to include a statement of the rights of that employee under this provision. Therefore, the only argument that I wish to retain in this discussion is about whether the rights of the employee should appear as an item in the Bill, rather than simply relying on the important statement that the Minister has just made.
At the moment, the protection for this matter in the Bill relies entirely on proposed new Section 4(1)(b) in Clause 6(2), which says that,
“any prescribed requirements in relation to the notice are met”.
That is obviously as broad as you could get. However, the purpose of this amendment is to ensure that those jobholders whose waiting period is being enacted are informed of the rights to which they are entitled, particularly the right to opt in to the scheme as soon as they wish. I understand that this information will be provided by regulation. I am absolutely certain that that will happen, given the Minister’s commitment. However, I have always been of the view that in any Bill, where the rights of an individual are at stake, it is important to uphold those rights in the Bill itself. That means that it should be a very simple statement. It means establishing that those rights will be communicated and that there are rights to be had. It is a very important agreement, which one should have in front of an employee at the time.
I know that we have to ensure that everyone is aware of their rights, and that it is important that what is enshrined in the Bill is communicated properly. However, we must remember that this will all be very new. It will be new for employees and new for employers. The very fact that this will be enshrined from the beginning—from the date that the Bill becomes an Act—means that it is important that a signal is sent to every employer and employee that they have rights in this matter. It is important not just to have it in the Bill but to ensure that we get it right from day one. There is a great expectation that this will happen. It will be difficult for many very small employers to adjust to the changes that are coming. What I am looking for is a form of letter, with a standard set of words, which an employer can hand to their employee and that will remove any extra bureaucratic burden.
There is no additional bureaucratic burden established by this amendment, but it gives a clue as to the preparation that will be essential. If I were a small employer, having heard about this in whatever way in the coming weeks and months, I would want to know fairly quickly what I am going to have to tell my employee If an employee can say to an employer, “What about me?”, I would want to know that there was somewhere where I could download the appropriate piece of information about rights, particularly in this respect. As we wish simply to express in the Bill the rights of the individual, I beg to move this amendment.
Baroness Hollis of Heigham
This is an important amendment, not just for this but for all the other areas where we are looking at voluntary enrolment. I hope, therefore, that the Minister will reassure us on the employer making sure that the employee in the waiting period can voluntarily enrol into a NEST scheme before it becomes automatic. I hope that he will also reassure us that employees earning above the LEL, but below the automatic enrolment threshold will be made aware of their rights. That could involve quite a considerable number in jobs where, for example, very many women work part time; I am thinking of retail, where women might work two days a week and so on. I hope he can give us some reassurance as to how he is going to operate a nudge, where there is opt-in, as opposed to where there is auto-enrolment.
Lord German
My Lords, my amendment would simply have enabled the guidance to be provided. The Minister has described what will happen, so I shall avoid dancing on the head of a pin. However, anyone here who has been in any way involved in questioning Ministers will be wary of the words “we will bring forward regulations as soon as possible”. I remember “summer” turning into “late summer” and then “early autumn”. The seasons will just vanish. I wonder whether at some stage we might come back to a precise timetable for enacting the guidance. However, on the basis of the very detailed description of what will be provided, I beg leave to withdraw the amendment.
Lord German
“Automatic enrolment date
The automatic enrolment date will be no later than a cumulative period of three months’ earnings above the threshold, whether consecutive or not.”
Lord German
My Lords, this is a relatively straightforward amendment to provide some certainty in a situation where an employee could have their auto-enrolment deferred more than once because they failed to reach the earnings threshold in one or more months in the three-month waiting period. Perhaps it might be sensible if I gave an example. A jobholder works for two months and their pay is above the threshold, but in month 3 their pay falls below the threshold. Then, when month 4 arrives and their pay perhaps goes back to being above the threshold, it is not clear whether that triggers a new three-month starting period or adds to the two months when it previously happened. Whether the waiting period begins again in month 4 or concludes is the key question here. Should the three months’ earnings be cumulative or consecutive?
This could be the case for many workers in the leisure and tourist industries where work is perhaps seasonal and in the catering trade where it is often related to the number of customers and people are called to work more or fewer hours according to the demand on their services. So a situation where people may not reach the threshold in one month but have reached it in the previous two months is not unlikely. It seems quite unfair if, as soon as they fall below, they have to start again. I remember somebody who formerly worked for me who then went off to train as a barrister and it took him many months to get his final qualification because he could not get to the number of dinners that he had to achieve in the right order. Every time he missed one, he had to start again from dinner number one. It seemed a strange mechanism and we do not want this archaic methodology in this Bill. I beg to move.
Lord McKenzie of Luton
My Lords, the noble Lord, Lord German, has raised an interesting point, which I hope the Minister can clarify. I assume that the situation is that, if you have got to month 3 and you do not have qualifying earnings, there is nothing at that point to trigger automatic enrolment. When you next have your qualifying earnings is presumably when you would be automatically enrolled. Certainly, if you had to start again, that would add injustice to something about which we are already not very happy.
Lord Freud
My Lords, I thank my noble friend Lord German for this amendment, which would restrict an employer to using one waiting period per worker and would ensure that automatic enrolment would take place once a worker’s earnings had reached the earnings threshold for three months, whether those three months were consecutive or not. Thus the single three-month waiting period could be accrued over a far longer period of time where the individual’s earnings fluctuate. I should take this opportunity to clarify for the noble Lord, Lord McKenzie, how it would actually work. If you had low earnings for the first two months and hit the target at the third month, you would be auto-enrolled. However, if you did not hit it in that third month, you would effectively be back to your dinner problem and have to start again. That is how it would work.
As I explained, Clause 6 introduces the concept of an optional waiting period into the automatic enrolment process. This is central to our commitment in this Bill to rebalance the administrative burdens on employers while ensuring workers’ access to pensions saving. The waiting period is designed to meet employers’ requirements by being simple and easy to understand and use. This is clearly crucial to its success. At the point at which the employer applies a waiting period, they will not be required to undertake a check on whether the worker is eligible for automatic enrolment. The employer must check eligibility at the end of the waiting period and we are keen to avoid them having to check it twice or more.
The waiting period consists of a single block of time, regardless of whether the individual’s eligibility for automatic enrolment fluctuates during that period. If the worker satisfies the automatic enrolment eligibility criteria at the end of the period, they will be enrolled into the employer’s scheme on that date. If not, the employer will monitor the worker’s status until they satisfy the eligibility criteria. At that point, the employer may apply a further waiting period if they wish. It need not be for the full three months.
We recognise my noble friend’s concern that workers with fluctuating earnings could miss out on pension saving due to the use of multiple waiting periods. While it is difficult to estimate the likelihood of this occurrence, our analysis suggests that few people are likely to have fluctuating earnings around the level that they traverse in and out of automatic enrolment eligibility. Are we, therefore, devising something very complicated for a problem that is pretty small, which is what our analysis suggests? It is also the case that, for those on sustained low earnings throughout their working life, state benefits can replace most income in retirement. Common sense suggests that it would not be rational to lever such people into private savings. It is important to remember that they will have the right to opt in at any point during the waiting period.
This amendment would add a substantial additional burden and complexity to the waiting period process and would not be easy for employers to understand and use. It would require the employer to monitor an individual’s automatic enrolment eligibility continuously throughout the waiting period and to keep a record of the period of eligibility accrued during the waiting period.
Employers requested the waiting period as an administrative easement. To make the process so burdensome would negate its value. At this stage, it is crucial that we get the reforms bedded in and that we ensure that employers find it easy to comply with these new duties. It is therefore critical that the processes are simple for employers to understand and use. In the absence of any persuasive evidence of a problem, we feel that it would not be right to introduce greater complexity and a significant burden to a process whose very purpose is to offer administrative easements to employers.
I offer noble Lords my assurance, however, that we are committed to fully evaluating the effects of the reforms and how they are delivered. As part of this, we intend to monitor employers’ use of waiting periods and the effects on workers’ savings. I urge the noble Lord to withdraw this amendment.
Lord German
My Lords, I am still a little confused over the explanation. I understand fully the point about somebody hitting the relevant target in the third month. However, my question was the other way round—where someone hits the target in months one and two but does not hit it in month three. In seasonal worker terms, this could happen if someone was picked up and employed in May, perhaps worked through May, June and July and found a bad—wet or something—August, for which they could not get the money in. The important issue is simplicity but also understanding. It may be that a three-month period applies, but it was not absolutely clear from the Minister’s reply when, once you have a first waiting period, the second test would occur. What if you fail to meet the criteria that he has just described in that first three-month period? You will then need to have another piece of information made available to the employee to say, “You have not quite done it but this is the way you go next”. It seems to become far more complex if you cannot have it in some way accumulatively worked out. I will obviously withdraw the amendment. However, I hope that the Minister will come back at some stage with some further explanation of the anomaly of the people who are in the position that I have described, in which they pass the threshold in months 1 and 3 but not in month 2, yet wish to maintain their position within the company.
Lord McKenzie of Luton
Before the noble Lord withdraws his amendment, I wish to follow up on that point. I was somewhat surprised by the answer that the Minister gave. There is a simpler process. Somebody becomes employed; they have their three-month waiting period and, at the end of the three months, you look to see whether they have qualifying earnings and need to be auto-enrolled. If they do not, presumably they are in the same position as everyone else who has been around for a long while—you continue to monitor them at an appropriate date to see whether they have qualifying earnings or if they have reached the age of 22. It will be the same for everyone. Is that not the simpler way to do it? I do not understand why there is the need to start the cycle again, which is what the Minister said. That seems to be fundamentally wrong and not the simplest route.
Lord Freud
I repeat that we are committed to looking at waiting periods and there is a general duty on the Pensions Regulator to look at compliance. If we suspect any kind of systemic abuse, our aim will be to find it in our monitoring. For example, we might look at it from the other end and survey individuals, perhaps those in the low-paid environment, who are at risk. However, this is an issue that we are alive to, and this debate has made us even more so. I therefore need to thank the noble Lord for raising it.
Lord German
My Lords, I would normally be swayed by the persuasive eloquence of my noble friend the Minister, but the more that I ponder the issue, the more it seems to me that there are routes for escape that do not err on the side of the rights of the employee. My amendment proposes a simple solution: that, in relation to the threshold, the three months of the waiting period should be cumulative. It is as simple as that. It would then be quite easy for a jobholder who believed that they should be enrolled to prove it, because the information would be there in front of them. We are going into a cycle of repetition. On this issue, I am afraid that I am not quite as convinced as I should be by the Minister’s argument—although I am convinced that he will reflect on it further, because the discussion around the Committee has raised more questions than answers.
The whole point of the auto-enrolment process is to challenge inaction, to get people saving and to make it the right thing for everyone to do, both employers and individuals. In withdrawing the amendment, I express the hope that my noble friend will reflect on the words that have been spoken around the Committee today and perhaps give us some sense of security when he comes back with any further changes that he wishes to make to the Bill at the next stage.
Lord Freud
Perhaps I could just interrupt. What I have not made adequately clear, for which I apologise, is how big this problem might be. The universe of people who earn between £7,000 and £7,475 is 140,000 people, so we are talking about very small numbers. Moreover, they would have to be fluctuating at the wrong time. We could be setting up a very complicated system to look after a very small number of people. We cannot quantify this exactly but I give an order-of figure to give noble Lords a feel for it. We are talking about between 8 million and 9 million extra people going into pensions, so this may be just too much of a burden relative to the potential number of people whom we are protecting.
Lord German
On that basis and in the spirit of asymmetric paternalism, I am grateful to accept the Minister’s review of this matter and his confirmation of a simple fix if one can be achieved. I beg leave to withdraw my amendment.
Baroness Hollis of Heigham
I think that many of us would like the annual cap of £4,200 on contributions to NEST to be removed. However, I again understand the industry’s worries about losing funds under management from the better-off. I accept that a person would have to be a reasonably high earner to hit that cap of £4,200 each and every year. The amendment would simply allow the making-up of missing years—I am rather keen on making up missing years whether in the basic state pension or in NEST. The person concerned may have enjoyed a small legacy, perhaps on the death of a parent and the sale of the parent’s home. They may have had a small lottery or premium bond win. He or she may have traded down their home to somewhere smaller while in their fifties and have thought that it made very good sense to add some of the modest equity available to their pension fund as a form of saving. They may have divorced and received from it a modest financial settlement of a few thousand pounds or so, some of which they would like to put in their pension to make up for the years that they missed. I make it clear that there is no suggestion of there being any parallel employer contribution; the amendment would simply allow an employee, if they wished, to add to their pension pot. The money would not come from any other savings, nor would it be a transfer. It would be, so to speak, new money. Although I doubt that it would occur very often, being able to add to their pension pot in this way would still offer women in particular, whose financial and, frankly, personal and private lives are highly unpredictable, some extra flexibility in the way in which they build their NEST pension. I beg to move.
Lord German
My Lords, I want to say a brief word about Amendment 38, which is in the group. Clearly, the Johnson review looked at this issue and having weighed up both sides of the argument, recommended that the Government should proceed to legislate. The words of the recommendation were quite ambiguous. It said:
“We are therefore recommending that the Government legislate for the removal of the contributions cap in 2017”.
One could read that as recommending legislating in 2017 for removal of the contribution cap, or as recommending legislating now. Actually, the text of the Johnson review does use the word “now”—in other words, it should be part of this Bill—but because neither the Minister nor the Government are on record yet as saying why they have not chosen to follow that advice, it would be very helpful if this amendment could be probed in that manner.
Lord McKenzie of Luton
My Lords, perhaps I may comment briefly. I can see the thrust of my noble friend’s amendment. I remember that, when we debated the cap, we debated whether there should be an additional lifetime element as well. I think that, at one stage, we debated whether there could be a two or three-year period when one carried forward the unused amount. My recollection is that, other than the annual cap, which is as it now is, all that fell by the wayside, but the Minister may be able to update us on it.
It seems a good idea to me to be able to use the headroom in respect of unused bits, although I do not think there is anything that precludes someone who is, or might become, a member of NEST making a voluntary contribution up to the limit. The limit is not, as I understand it, an employee and an employer limit; there is a limit in respect of contributions for an individual. Certainly, for the reasons that my noble friend advances, if there were opportunities to use some headroom to get more into NEST, that would be good, so far as the removal of the cap supports the thrust of that. Again, given the consensus that was there and the existence of the cap, everything that has the potential to disturb that in the interim makes life a bit more difficult, although it would be good if it could go at the earliest opportunity.
Lord German
“Deferred charges
The Secretary of State shall by regulations provide guidance on the level of deferred pension member charges.”
Lord German
My Lords, this amendment relates to deferred charges, and it deals with the part of the benchmarking of quality of schemes into which jobholders will be automatically enrolled.
As we have discussed on many occasions, a major segment of the workforce for whom auto-enrolment is aimed are likely to be frequent movers between jobs or, indeed, those holding multiple jobs during the year. One practice that is current in some personal pension schemes is increasing charges when people change jobs. An example of that might be where the current employee who is an active member of a pension scheme is actively contributing to a pension scheme, paying perhaps about 0.5 per cent in management charges. However, a former employee—that is, a deferred member of a scheme—is charged 1.5 per cent, which is much more than NEST will charge. Interestingly, the pension companies operating in this manner describe this as an “active member discount”, but the consumer association Which? describes it, more appropriately, as a “deferred member charge”.
These charges clearly penalise people who regularly switch employers, and it is particularly appropriate for many of the employees for whom auto-enrolment is targeted. Therefore, the concern here is that there should be a set of guidance, instructions or regulations to ensure that, in assessing the quality of schemes which may be alternatives to NEST, these issues are benchmarked appropriately.
Alongside this, there are concerns relating to the FSA proposals to allow employers to negotiate a consultancy charge with their advisers and then deduct those charges from the employee’s pension pot. The general purpose and thrust of the amendment is to guard against excessive charges and to ensure that the Government benchmark the sort of quality that they want in schemes which are to operate alongside NEST in the open market. I beg to move.
Lord Freud
I thank the noble Baroness, Lady Drake, for her market insight here. I choose my words carefully. It is clear that the capping has had an effect on charges. We are concerned that the pressure on charges should be maintained. That is why we have committed to monitoring levels of charging in the marketplace as automatic enrolment is introduced. We will publish guidance on default investment options in automatic enrolment schemes later in the spring. This sets out guidance for suitable charging structures. The guidance encourages appropriate charges, which match members’ interests, and protects individuals from charges that are excessive in relation to the product they are paying for.
Let us not forget, as the noble Baroness has just pointed out, that we are introducing a major change to the pensions landscape. NEST is being set up to offer low-cost pension provision to individuals on low to moderate earnings. We expect this, as does the noble Baroness, to act as a benchmark across the pensions industry, as well as to help millions of low to moderate earners to save. We are also looking seriously at how transfers can be facilitated across the industry so that savers can shop around for better charge rates more easily. As I described in my response to a previous amendment, HMT recently held a call for evidence on early access, including a specific question on ways to improve the transfer process. The DWP, as I have already described, has recently published a call for evidence on the regulatory differences between occupational and workplace personal pension schemes. In this, we are seeking solutions to address existing rules that could impact on the success of the reforms. Those include rules on early scheme-leavers and disclosure.
We are actively seeking to identify ways to facilitate the best possible deal for savers across the areas of charging and transfers. Therefore, I do not believe that regulations to make guidance are necessary at this time. I urge the noble Lord to withdraw the amendment.
Lord German
I am grateful for the statement that the Minister has just made. Apart from the actions that he has described, I should be interested to know how in future you can actively promote to the companies and individuals concerned the sort of changes that the Government wish to see. I do not suggest that the DWP should set up its own confused.com-type of operation, but it may well be that we need some form of open process by which both employers and employees can see the benefits of different levels of charging by the different companies and whether there is transparency in the operation. I welcome the Minister’s statement on that and beg leave to withdraw the amendment.