Pensions Bill

Lord McKenzie of Luton Excerpts

Monday 31st October 2011 Lords Chamber

Moved by

[Lord McKenzie of Luton]

As an amendment to the Motion that the House do agree with the Commons in their Amendment 1, leave out from “House” to the end and insert, “do disagree with the Commons in their Amendment 1 and do propose Amendment 1B as an amendment in lieu and Amendments 1C and 1D as consequential amendments”.

1B: Page 2, leave out lines 10 to 16 and insert—
““6th April 1955 to 5th May 1955 : 6th May 2020
6th May 1955 to 5th June 1955 : 6th July 2020
6th June 1955 to 5th July 1955 : 6th September 2020
6th July 1955 to 5th August 1955 : 6th November 2020
6th August 1955 to 5th September 1955 : 6th January 2021
6th September 1955 to 5th October 1955 : 6th March 2021
6th October 1955 to 5th November 1955 : 6th May 2021
6th November 1955 to 5th December 1955 : 6th July 2021
6th December 1955 to 5th January 1956 : 6th September 2021
6th January 1956 to 5th February 1956 : 6th November 2021
6th February 1956 to 5th March 1956 : 6th January 2022
6th March 1956 to 5th April 1956 : 6th March 2022””

1D: Page 1, line 8, leave out subsections (3) and (4)

[Lord McKenzie of Luton]

My Lords, I join the Minister and start by sending best wishes to Evelyn Arnold. We worked together, on and off, on pensions for at least a couple of years through some very interesting and challenging times. I thoroughly respect the expertise that she brought to that process and I wish her well in retirement.

The amendment gives us an opportunity, as the Minister identified, to revisit the changes to the state pension age, which we debated when considering the Bill. We can do this in the light of the Government’s amendments, which made some modest changes to what they originally proposed. Modest they may be, but it would be churlish not to give them at least a modest welcome and in doing so to pay tribute to all those who campaigned to press for changes to the original measures.

The position is as follows. Prior to the Bill, the state pension age for women was due to rise from 60 to 65 over the decade to 2020, so that it equalised with the state pension age for men. This was provided for by legislation in 1995 under the previous Government. The Pensions Act 2007 increased the state pension age for both men and women to 66 between 2024-26, to 67 between 2034-36, and to 68 between 2044-2046. There was political consensus around these measures. The Bill changed all this by equalising the state pension age earlier, in November 2018, and by completing the increase to age 66 for men and women by March 2020. As we discussed previously, these changes will have caused some 500,000 women to have their state pension age increased by more than one year, with approximately 300,000 experiencing an increase of 18 months or over.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank noble Lords who have contributed to the debate on my amendment. I will comment first on the Minister’s response.

I agree that there is broad agreement on the need to have changes to the state pension age that reflect changes to longevity, and that they must be sustainable. However, part of that judgment surely has to be the notice periods that people are given—that must be part of the equation. But otherwise, even taking account of that, we have a consensus on that issue.

The noble Lord responded to the noble Lord, Lord German, in respect of future changes to the pension system, and we still await that. The noble Lord, Lord German, tends to hide behind the prospects that come from that in defence of everything that the Government do. The noble Lord said that he was perplexed because this proposition has been defeated twice; he is absolutely right, it was defeated, and quite narrowly last time, but there is more joy in heaven and earth over a sinner who repents. Here is the Minister’s opportunity to do that.

My noble friend Lady Hollis made a telling point about the equality directive, if one listens to what the Minister said. She also made a point, for example, about higher rate tax relief. The noble Lord, Lord Boswell, I think, said that we wanted a medium-term strategy as well as a short-term deficit reduction strategy. I absolutely agree with that. Our proposition is that these issues of whether it is £30 billion or £20 billion should be very much part of that consideration of the medium-term strategy, together with issues such as the costs of tax relief, rather than to isolate and look at a juxtaposition of two propositions, to see if one has greater savings than the other, and therefore to condemn the one with the lesser savings.

I very much agree with my noble friend Lady Drake; we are not against raising the state pension age, nor against accelerating the time when that happens, but there are issues around the manner and timing of any change. The noble Baroness, Lady Howe, said that there was more to be done for the group of women we are considering here, particularly in view of their caring responsibilities, and I very much agree with that. The right reverend Prelate the Bishop of Bath and Wells said that this was an issue of fairness and a moral imperative, and that is absolutely the issue here. The noble Lord, Lord German, has argued that this is an issue of affordability—and of course, affordability is part of it—but does affordability always have to trump fairness? I would contend not, by this amendment.

The noble Lord, Lord German, referred to intergenerational issues. If we look at the impact assessment and the difference of the intergenerational factors between our proposition and the Government’s, there is very little difference between the two. The noble Lord referred to the noble Lord, Lord Turner, going “further and faster”; yes, but one of the propositions of the noble Lord, Lord Turner, was that proper notice should be given to people.

The noble Lord, Lord German, and the noble Baroness, Lady Greengross, acknowledged that the Government had moved—the term “compromise” was sprinkled around the debate. It does not seem an incredibly big compromise to remove just the period between 18 months and two years for those affected, and shift those people into the “up to 18 months” category. It is some movement, and I am sure that it will be welcomed by the beneficiaries, but it does not address the fundamental problem.

I do not think that we will not have a meeting of minds on this issue—the Minister has made his position clear—and I would like to test the opinion of the House on this matter.

--- Later in debate ---

[Baroness Hollis of Heigham]

My Lords, I support my noble friend, particularly on the issue of orphan assets and the situation of deferred pensioners. As the noble Baroness explained, most men will have up to eight job changes and women will have something like 11 job changes in their lifetime, particularly when they are younger. For example, women in modest jobs, such as hairdressing or in the service industry, may at some points be self-employed and at other times be employed by different employers. They could very well end up with a pot in NEST, or its equivalent, of some £20,000 to £25,000, and several small pots of £2,000 or £2,500 from previous employments. Those little pots are too small to be annuitised, but there is no way to transfer them into the larger pot of NEST, and they cannot be trivially commuted because the NEST pot is over the £18,000 ceiling. Could the noble Lord share with the House his thinking about what women, particularly, on very modest earnings with very modest savings but with a possible multiplicity of small pots so that they can neither annuitise nor aggregate not trivially commute, are expected to do? Can the Minister assure us that he is making arrangements so that, at least at the point of retirement, they will be able to bring those miscellaneous small pots with orphan assets into the NEST pot to ensure that they get the best possible outcome in retirement?

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of this group of amendments, the helpful background he has given us and his kind words. As the Minister said, the amendments focus on the auto-enrolment provisions, and we put on record our support for the Government’s commitment to take these forward. My noble friend Lady Drake asked the question that I was going to ask, about timing. Could the Minister confirm that it is on track? I do not know whether the Minister can update us on issues around self-certification arrangements, and whether any progress has been made, but maybe that is a matter for correspondence outside the debate.

We remain unhappy with some of the changes to the scheme introduced by the Bill, particularly the hike in the earnings threshold, but now, frankly, is the time to make progress. Turning to the specific amendments, there are just a few points. Amendment 3 deals with continuity of scheme membership and achieves this by requiring automatic re-enrolment to take effect from the day after the day on which the jobholder ceases to be an active member of a qualifying scheme. However, the alternative of allowing a period of time for re-enrolment is preserved whereby the Secretary of State can allow for that period. Given the “day after” requirement, when is the alternative approach likely to be invoked? A similar point arises in connection with Amendment 7.

We support the extended protections dealt with by Amendments 4 and 8. My noble friend Lady Drake has given her welcome to Amendment 11, which has my welcome as well. She talked authoritatively about how important this issue is and about the changes happening in the marketplace. That is therefore a particularly important amendment.

We have no problems with Amendment 12, which deals with a test scheme for certain types of defined benefit schemes, or with Amendments 13 and 14, which deal with certification of schemes where the main administration is within the EEA.

A clarification on protections of back payments for jobholders enrolled into workplace personal pension schemes obviously has our support, but perhaps the Minister could provide us with a little more detail about the scope of Amendment 17, which provides a regulation-making power to exempt employers from auto-enrolment duties where a person is a European employer. What assurances do we have that employers would not be able to organise in such a way as to bring themselves within those “European employer” provisions and therefore be outwith auto-enrolment? An assurance on that point would be helpful but, subject to anything arising from these points, we are content and will support these amendments.

[Lord Freud]

First, I thank noble Lords for their stamina in listening to this debate on a very technical set of amendments indeed. They are about making sure that the legislation works, as the devil is in the detail. I repeat my thanks for all the help and support that I have had across the House on some of that detail. The important principle underpinning these refinements to automatic enrolment is that we ensure that individuals are preparing and saving for their retirement. Automatic enrolment will mean that 5 million to 8 million people will start newly saving, or saving more. This is a positive move, on which I know there is consensus across the House.

Turning to the specific questions, I will start with timing, which was raised by the noble Baroness, Lady Drake. She asked when the new duty for employers will come in. I am happy to confirm that automatic enrolment will begin, as planned, next year. On self-certification, which was raised by the noble Lord, Lord McKenzie, we recently finished a formal consultation on draft regulations, which are on track to be in place for next year.

On the issue raised by the noble Baroness, Lady Drake, of the deferred member charge cap, we are extending a reserve power which we have to set a charge cap for pension schemes used for automatic enrolment. This reserve power is intended to be a safety net and to allow the Government to step in and protect all members of automatic enrolment schemes from inappropriate high charges. I am sure noble Lords will agree that it is not right that members are charged higher fees just because they move jobs. We remain vigilant about charges in the pensions industry. We see the market as broadly competitive at the moment, with the majority of workplace pension schemes having annual management charges of less than 1 per cent. We expect NEST and competitive forces to keep the downward pressure on charges but this power will enable us to intervene if necessary and make sure that members are not charged excessive fees. The stakeholder group Which? has strongly supported this amendment. I thank the noble Baroness for her support on this important issue and am confident that it will gain support across the House.

The noble Baronesses, Lady Drake and Lady Hollis, raised the issue of small pension pots, which perhaps goes slightly wider than this set of amendments and on which we spent a lot of time in Committee. On average, individuals will change employers 11 times during their working lives. DWP modelling suggests that after 2017 this will lead to in excess of 200,000 small pension pots of less than £2,000 being created each year. We want to ensure that people can get control of their pensions, build up a single substantive pot and be able to purchase a good annuity. In the interim government response to the call for evidence on regulatory differences that we have published, we have committed to setting out a decision on short-service refunds and addressing small pension pots. We know that this will be difficult, which is why need to work with employers, the pensions industry and consumer organisations on tackling this. For this reason, we intend to publish the full set of proposals in the autumn and to consult widely on possible options. These will include considering whether an individual’s pension pot could follow them from job to job as they move employers. The action for this would be behind the scenes and would require little action from the individual. Perhaps it is too early to say whether this will be possible, but this is an important issue, as the noble Baronesses pointed out, and one that we need to get right.

I turn to some of the more technical issues on which the noble Lord, Lord McKenzie, sought assurances. Continuity in automatic enrolment is covered by Amendments 3 and 7 to Clause 4. They create the default position that, in continuity of scheme membership cases—where an individual ceases to be a member of a qualifying scheme through no fault of their own—an employer must automatically re-enrol the jobholder from the day after the day on which they ceased to be a member of a qualifying scheme. The clause, as amended, still allows for a period to be prescribed during which the enrolment must occur. We do not intend to prescribe a period. This is purely a precaution in case it becomes clear that circumstances exist in which it is not possible for an employer to comply within the one-day timescale.

The noble Lord, Lord McKenzie, was also looking for an assurance on cross-border provision around Amendment 17. The amendment provides for a power to make regulations. It does not change our policy on automatic enrolment. If the power is exercised, the regulations will exclude a jobholder from automatic enrolment only if they are an individual in relation to whom their employer is a European employer, as set out in regulations under the 2004 Act. An employer is a European employer only if he has worker who, by virtue of his contract of employment, is sufficiently located in another EEA state for the social and labour laws relevant to the occupational pensions of that state to apply. The risk of a jobholder being in this position is relatively small. The definition does not cover workers who are posted to another EEA state for a limited period to work in that state for their UK-based employer.

[Lord McKenzie of Luton]

I think the Minister said that auto-enrolment was due to start on time next year? Could he confirm that the proposed and published timetable for staging will remain as it is?

[Lord Freud]

My Lords, yes, I can confirm that we currently plan to move along the timetable as set out.