Pensions Bill

Public Bill Committee, 22 January 2008.

Nicholas Winterton (Conservative, Macclesfield)

The Committee has concluded its evidence-taking sessions. Now we start the clause-by-clause, line-by-line and, in some cases, word-by-word scrutiny of the Bill.

I welcome all members to this fifth sitting of the Committee. I hope you all had a restful weekend and a less troublesome return to London than I had. I do not intend to go into that now.

Clause 1

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 1, in clause 1, page 1, line 9, leave out ‘and under 75’.

Thank you, Sir Nicholas. It falls to me to welcome you back to the Chair. We are now in the more familiar proceedings of detailed debate in Standing Committee, although I would like to say that I found the evidence sessions useful. They added in many important ways to the debate and they will help us to scrutinise the Bill more effectively over the next couple of weeks.

The amendment is by nature a probing one. I do not intend to press it to a vote but it would be worthwhile for the Committee to examine it. Personal accounts are to be prohibited for everyone over the age of 75. There is the option for people to join a personal account between the state retirement age and the age of 75, which is absolutely right. That is their choice. If people want to go on contributing to a personal account between the age of 60 or 65—it will soon be 68—and the age of 75 that is absolutely right. Why, however, is there this blanket cut-off at the age of 75?

It could be that some people have not thought much about pensions or savings until quite late in their working lives. Maybe they are from a gene stock that is likely to give them a long working life. One example is the late Bill Deedes who died last year at the age of 94. He was working until only two weeks before he died. What if Mr. Deedes or others like him had not thought about pensions until their late 50s or early 60s? If he had reckoned that he was likely to live a long time why should he have been forbidden from contributing to a personal account, say between the ages of 75 and 77, or between 75 and 80? Had he done that he would have had 14 years in which to enjoy a pension income between the ages of 80 and 94. That would be a much longer period than many other people who retire at 65 or whatever and sadly only live for a couple of years.

I am curious, therefore, as to why there is this blanket cut-off at the age of 75. An employer such as Asda, for example, is well known for employing large numbers of older workers. B&Q also regularly employ people in their late 70s and 80s and find them extremely good and competent workers. Indeed, we have had members of this House who have been eminent members, Sir Nicholas, well over the age of 75. Who are we, therefore, to forbid contributions to personal accounts over the age of 75? It is presumptuous to have this cut-off and I am interested to hear what the Minister will say in response. This is a forewarning; there are one or two areas I would like to discuss in the clause 1 stand part debate, but they are not relevant to this amendment.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Thank you very much, Sir Nicholas. It is a pleasure for me to welcome you back to the Chair and to echo the comments made about the great value of our evidence-taking sessions, particularly on the some of the matters we will consider later on. I recognise that this is a probing amendment, but it does seem to be probing an area that is of some interest and importance, given some of the issues raised in the evidence-taking session on Thursday, relating to the way in which personal accounts will or will not work for people who start saving later in life.

The hon. Gentleman made an important point about the reason why the cut-off age of 75 has been selected. He cited some examples of Parliamentarians and others, and there are clearly more and more people now—given the quite correct and natural exhortations from the Government and all parties in the House—who want to work longer for their own good and the good of society. Though some aspects of the law such as those related to annuitisation do involve an upper limit around the age of 75, it does seem that, in circumstances where people over 75 are encouraged to continue working if they wish to—and many people of that age do wish to continue working—there should be within this Bill at least an understanding of the options for those people to continue to put money aside for their retirement. While many of us think that when we reach the age of 75, we shall want to retire, many other people—especially given that life expectancy now is in the mid-80s and may in the next few years reach the 90s—will have a number of potential years of retirement ahead of them and will want to save for them. That is the context of the question the hon. Gentleman is asking, and I look forward to the Minister’s reply.

Mike O'Brien (Labour, North Warwickshire)

May I, too, welcome you, Sir Nicholas, back to the Chair and to our deliberative sessions? I also found the evidence sessions very helpful and wish to extend my thanks to those who gave evidence to us. In terms of the amendment before us, the reason the age of 75 is in this particular clause is that 75 is the age at which annuitisation needs to take place, according to the tax rules. If we were to change this, we would have to look at the tax rules and that is something we would not want to do in this Bill, but in a Finance Bill.

Essentially, 75 is when pension tax relief ends, and pensioners are required at that stage to secure a pension income with savings from defined contribution schemes. So that is the reason why this Bill does particular things: it is not meant to make a significant change in tax laws.

Andrew Selous (Conservative, South West Bedfordshire)

I suspected that the Minister would reply along those lines. Perhaps he could let the Committee know—without making any specific commitment—whether the Government are willing to consider this area in a future Finance Bill.

Mike O'Brien (Labour, North Warwickshire)

The hon. Gentleman would not expect me to commit my colleagues in Her Majesty’s Treasury to any such consideration. All things in taxation are always under review. I am afraid that is all I can say in response.

Andrew Selous (Conservative, South West Bedfordshire)

I am not sure that we have learned a very great deal from the Minister, either in his speech or in response to my intervention. I have at least raised the general issue, perhaps for general consideration, perhaps for members of the Committee to take away and think about. Perhaps they might have a quiet word in the Corridor one night with Treasury Ministers. As people live longer they will perhaps need the extra years to provide themselves with extra provision in retirement. It was a probing amendment and I beg to ask leave to withdraw it.

Andrew Selous (Conservative, South West Bedfordshire)

Two other areas of clause 1 caught my eye and I would like to ask the Minister briefly about them.

The first is agency workers. I have been reading the excellent House of Commons Library brief on the subject, which makes it clear that according to case law an agency worker may be regarded as an employee of the agency for which he is working, as an employee of the client of that agency or, in some circumstances, as self-employed. That has significant implications for the administration of personal accounts. There is a good case for agency workers to be auto-enrolled as they need decent pension provision just like everyone else. However, there is a particular concern that it is the organisation responsible for the payroll administration of that employee that should have to auto-enrol and administer personal accounts. I foresee all sorts of administrative problems if that were not the case. It would be difficult for the employee, the employer and this country’s thriving agency worker sector, and we would not want to do anything to harm that sector.

I hope I am not expressing my ignorance, but the second unclear area was that of employees of British companies, or perhaps people in the armed forces, working overseas. Paragraph (a) says that a jobholder is an employee or worker

“who is working or ordinarily works in Great Britain under a contract”.

The employees of some of our multinational companies may have a home service type of employment contract but not be locally employed. Presumably they are not therefore ordinarily working in Great Britain. Does that mean that they cannot be auto-enrolled? For example, I am not sure whether the staff of HM Diplomatic Service are always paid under local conditions or whether they continue under the PAYE system and pay into their UK national insurance accounts. That aspect of the Bill is not clear either and I would be grateful if the Minister could elaborate on both those areas.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I would be grateful for the Minster’s thoughts on one further item in relation to clause 1. Subsection (2) states:

“Where a jobholder has more than one employer, or a succession of employers, this Chapter applies separately in relation to each employment.”

It must of course be right that for people with multiple jobs that reach the qualifying earnings limit each employment be treated separately, for the purposes of the Bill. I am concerned about that category of people—those in multiple employment—and I would be grateful for the Minister’s thoughts.

In my constituency, for example, there are people working in the tourism industry. Someone might have a series of seasonal jobs, such as a winter job in the skiing industry—for as long as it survives the ravages of global warming—and then several summer jobs in different tourism employments throughout the season. This clause states that the Bill applies separately to each job. If such people do not reach the qualifying earnings limits in each job, they will not be in a position to benefit from personal accounts, despite the fact that over the course of their three or four jobs they might well build up a total income of £10,000 or £12,000 a year.

The personal accounts delivery authority has pointed out that additional complexity of that sort adds to the cost and therefore reduces the overall benefit to people enrolling in personal accounts, which I understand. Can the Minister tell us how—if at all—he thinks that there is a way around that problem for those people? One suspects that the target audience will include people in multiple low-income employment who are not saving for themselves, for whom the only option is to take out a personal pension and to contribute as and when they can. It would be helpful if a way were found to enable such people to benefit from personal accounts without adding to the administrative burden. I have not tabled an amendment on that point, because I do not have a proposal. I simply want to hear the Minister’s response to the question how the Bill relates to that group of people, and this seems like an opportune moment to raise it.

Mike O'Brien (Labour, North Warwickshire)

I will deal with each of those points. As far as agency workers are concerned, where a person is employed is a matter of fact in law, and our view is that the primary obligation should lie with the agency. We want people to be automatically enrolled, and I think that the broad view in the Committee is that that is the right approach. Agencies often allocate staff to a number of employers over a short period of time. A catering agency, for example, might say “Go to this hotel one day, that restaurant the next day, and then another hotel.” We therefore need to ensure that the primary obligation remains with the agency.

Some agencies have an agreement with a particular employer to provide a number of staff over a prolonged period of time. For example, BMW has an engine plant in my constituency, and it gets staff through a particular agency, whom it then employs over considerable periods of time—years. The arrangement is that pensions can be paid by the direct employer, rather than by the agency, so provided that somebody is covering it, it is possible for the agency to pass the obligation down. We need to ensure that, provided that they comply with all the other rules, the person doing the work can get their pension, become automatically enrolled and have their opt-out, if they want it. Primarily, the position should be that they are in a pension scheme. The obligation will lie first of all with the agency. If there is an agreement, it can then be passed elsewhere, but the employee must be enrolled.

The point raised by the hon. Member for South-West Bedfordshire is interesting, and it is covered in case law. Lawson v. Sercoinvolved an employee of Cathay Pacific Airways, which is a company registered in Hong Kong. The claimant’s permanent home base was at Heathrow, and the question was whether or not he was based in the UK. The court’s answer was that he was, so it depends where the employee is based. Diplomats are based in their country of origin, so those who work here for a time, if this is their normal base for work purposes, are based here. If an American who works for an American company were to work in the UK for a period, and if this were their normal base for the job, then they would be subject to the legislation in the UK. Broadly, that is the way in which the legislation will work. The key issues are the claimant’s home base and the normal place that they work.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

The Minister’s answer is clear, but I want to clarify one further point. In my part of the country, many agency workers work overseas—I am thinking particularly of those who work in the oil industry. Presumably, if the agency were located in the UK, those people would be automatically enrolled. Is that correct?

Mike O'Brien (Labour, North Warwickshire)

Yes. The agency is the home base from which the person operates. I am trying to think through some of the issues that the hon. Gentleman has raised, because, as a former Energy Minister, I know that the variations in employment patterns in the energy industry are considerable. Basically, such UK workers work for an agency. Where a UK employee works for a foreign company in a foreign country, however, they may not be covered by the UK legislation—they are not in the jurisdiction; they are not employed from here; they are not employed through an agency; and they may have enrolled abroad.

Another example involves an agency that employs people from abroad to work abroad—those people may come from one country and work in another, but the agency is based in the UK. The question is whether such people would be subject to automatic enrolment, and I want to think about that one a little.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I was not trying to catch the Minister out; the matter just seemed relevant. If he would like to write to me at some point, then that would be welcome.

Mike O'Brien (Labour, North Warwickshire)

I will think about my last point. I am afraid that my ability to find exceptions is a product of my previous training.

Nicholas Winterton (Conservative, Macclesfield)

If the Minister drops a line to the hon. Gentleman, then a copy will come to every member of the Committee.

Mike O'Brien (Labour, North Warwickshire)

Thank you, Sir Nicholas, I am aware of that.

I will deal with the hon. Gentleman’s point about his constituents with multiple employment. That is an issue of some concern. We have worked as hard as we can to see whether we can find an easy way of resolving the issue. If a person has multiple—perhaps seasonal—jobs, each earning less than £5,035, which is the current rate, then that person will not be automatically enrolled. There will be no obligation on them to have a pension scheme, just as they have no obligation on, for example, national insurance. There are a number of exceptions in relation to the lower level of £5,035.

One of the problems that we encountered in looking to find a resolution is that so many permutations are possible—other rules also apply below that level, such as for national insurance. Our view is that it would create more complexity and difficulty if a series of new obligations were imposed, and it would provide a level of deterrence on employing people. To ensure that such seasonal jobs remain, in the end our view is that complexity and administration difficulties for employers mean that we are better off not trying to change the law. If we were to change the law, we felt that employers would not be likely to employ people for a few weeks on low-paid contracts. Employers would probably find some other way of dealing with the issue, such as offering overtime to other workers, rather than employing people for short periods. In that way, we would interfere with the labour market.

If someone has a job that brings them more than £5,035, they would be entitled to automatic enrolment with that job. They could ask their other employers to make further contributions, but such contributions would be voluntary, and they could make voluntary contributions into personal accounts. That is how we deal with that point. I do not dispute that that is not an entirely happy situation, but it is, I regret to say, about the best we can do in a difficult circumstance.

Andrew Selous (Conservative, South West Bedfordshire)

The Minister has thrown a lot of light on that area. His comment about foreign workers—the example involved Americans—coming here for short periods and going back serves to underline the importance of looking at the issue of transferring out in a few years’ time, when someone is seconded to this country for, say, two years. Perhaps that American might be more interested in getting his contributions back out and putting them in his 401(k) scheme back in America, rather than leaving two years of contributions in the British personal accounts scheme.

I am also grateful for clarification on agency workers. My reading of clause 1(1)(a) is that what the Minister has outlined is not what is down in the Bill. Perhaps other parts of the Bill mean that it will be all right for an agency worker who is working overseas to contribute to personal accounts, if the agency is based in the UK. I hope that a legal challenge cannot be mounted on subsection (1)(a).

I am also grateful to the hon. Member for Inverness, Nairn, Badenoch and Strathspey for his points on workers having more than one job, and we will undoubtedly come back to that issue in other parts of the Bill. The Minister was reasonable in his response, and I am aware of the point that he was making.

Clause 2

Mike O'Brien (Labour, North Warwickshire)

I beg to move Government amendment No. 116, in clause 2, page 2, line 4, after ‘jobholder’ insert

‘, without ceasing to be employed by the employer,’.

An employer will need to be able not only automatically to enrol people, but in certain circumstances to terminate participation in a pension scheme. The circumstances might well be involve ceasing to employ someone, so we thought that we should make it clear in the legislation that if someone is no longer employed, the obligation to continue to have them automatically enrolled in the pension scheme ceases. That was not in the original Bill, but when we considered the point we thought that we should make that explicit in case employers are in any doubt whether they are obliged to continue making contributions after an employment has ceased. The purpose of the amendment is to clarify the duty not to terminate active membership of a qualifying scheme, which does not apply when the action concerned involves the cessation of employment.

I hope that the Committee will support the amendment. It is a business-friendly amendment to ensure that current employment law and practices regarding the end of employment are not fettered by unrelated pensions obligations.

Nicholas Winterton (Conservative, Macclesfield)

Before I call the hon. Member for South-West Bedfordshire, I would like to point out that the experiment with explanatory statements is continuing and that this is one of the Bills involved. Therefore, you will see after the amendment the explanatory statement. Personally, I hope that all members of the Committee find the explanatory statements helpful—I certainly do.

Andrew Selous (Conservative, South West Bedfordshire)

This is a brief Government amendment, with which we agree. It is reassuring to find that the mighty Government machine with its expert advisers occasionally gets things wrong. If my hon. Friends and I were to table amendments that the Minister told us were not technically correct, we would not take that as a stunning rebuttal, given that even Ministers, with all the systems at their disposal, occasionally get things wrong.

The proposed amendment is entirely sensible and provides important clarification, as far as employers are concerned.

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 11, in clause 2, page 2, line 4, leave out ‘, or make any omission,’.

This is a brief probing amendment to clarify exactly what sort of omission the Government are talking about in clause 2(1). It is important to provide such clarity here, given that once someone has enrolled, they remain a scheme member. It is not clear in my mind what the employer might omit that would be either a problem or an offence under subsection (1).

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

This is a useful probing amendment to press a point about what sort of omissions the Government have in mind. Some omissions occur by accident and, while they will be prohibited by the phrase in the Bill, employers will want to make good their omissions straightforwardly and quickly. Equally, removing the reference to omissions, as the amendment proposes, would allow scope for unscrupulous employers to act by stealth and fail to carry out their obligations. By removing a reference to an omission, employers could fail to carry out their obligations and make it seem like an accident, which would get round some of the provisions in this Bill. That is my concern about the amendment, but I am interested to hear the Minister’s response to the points raised by the hon. Gentleman.

Mike O'Brien (Labour, North Warwickshire)

What are we seeking to ensure that the employer does not omit? The sort of omission we are talking about is if an employer fails to tell the pension scheme about the up-to-date details of an employee, which might be accidental. This will be a fairly light-touch regulatory regime, so the employer could be reminded and then provide the details. If the employer wilfully defaults, however, we cannot deal with it, unless we have this wording.

The phraseology means that employers will be obliged to do what employers who enrol people in pension schemes are normally obliged to do—they are obliged to provide information not only to the employee but to the pension scheme. The employee will get the basic information that they are enrolled and with whom they are involved. They will know what their pension scheme is—whether it is a personal account or some other scheme—and the pension scheme must also be given up-to-date details on the employee, as and when the details change. That will not be onerous, and we do not intend the provision to result in employers being subject to intervention by the state. The objective is to ensure that the employee reminds the employer that there is an omission and that the employer deals with it. If not, the matter could be reported to the appropriate authorities, and the employer could be reminded again. The obligation is not meant to be unduly onerous, but it is necessary for the purposes of the Bill. There need be no fear of accidental omission, but there needs to be an obligation to ensure that there is no deliberate omission.

Andrew Selous (Conservative, South West Bedfordshire)

That is exactly what I hoped to provoke by way of response and clarification by the Minister. I assure the hon. Member for Inverness, Nairn, Badenoch and Strathspey that this is a probing amendment, which I do not want to press to a Division.

I beg to ask leave to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

I would be grateful if the Minister were to tell the Committee what the Government’s intention is in relation to the “prescribed period” mentioned in subsection (3).

Mike O'Brien (Labour, North Warwickshire)

The Government’s view is that the prescribed period should be immediate: an employer should enrol an employee in a pension scheme when a period of employment starts. There are, however, exceptions if there are exempt schemes to which particular rules apply. We are anxious not to cause problems for employers who make contributions well in excess of the minimum required with automatic enrolment and who have an ongoing pension scheme that operates very well. Such employers should be able to continue with their schemes, and it may well be that in such situations it is possible to continue with the rules that operate at the moment. However, if the employer does not have a pension scheme, they will be obliged automatically to enrol employees to the minimum standard from the first day on which they are employed. That should be the way in which we proceed.

Clause 3

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I beg to move amendment No. 78, in clause 3, page 2, line 18, leave out from ‘reached’ to end of line and insert ‘the age of 50’.

I want to use this probing amendment to discuss one of the central issues of this Bill: the questions whether and for whom it does or does not pay to save in a personal account. By adding the words “the age of 50”, this amendment addresses the question, which has been raised in both oral and written evidence, of the impact of those aged over 50 at the time of automatic enrolment. I stress that the Liberal Democrats strongly support the principle of automatic enrolment.

The Bill is clearly directed at a large target, including people who work in the private sector who are currently not making any provision for their retirement. In the oral evidence, particularly that given by Adair Turner and the other members of the Pensions Commission, the size of that group—potentially some 12 million people—was made clear. The potential benefits of the Bill for a large swathe of that group are therefore abundantly clear, and I certainly do not seek to question that. However, there are some people, though it is difficult at this juncture to know how many, for whom the question whether it will pay for them to save in a personal account for their retirement is at least an open one. That question relates in particular to how, when they want to “decumulate” and take as a pension the pot of money that they have accumulated in their personal account, that pension interacts with whichever means-tested benefits they are in receipt of—pension credit, for example. We know from previous pensions legislation that by 2050 there will be somewhere in the region of 30 per cent., by the Government’s estimate, or 40 per cent., by the Pensions Policy Institute’s estimate, of people in receipt of pension credit, and the taper is even steeper for housing benefit.

A particular issue relates to people over 50. They will potentially enrol in a personal account late in their working life, and they may therefore have only 15 years, 10 years or even five years in which to accrue savings in their personal account pot. The questions that I have highlighted about how relatively small amounts interact with the means-tested benefits system are particularly acute for that group.

I draw the Committee’s attention to the written evidence submitted by the PPI regarding its assessment of the risks for various groups. The institute broke down the risk into low, medium and high risk of personal accounts being unsuitable. A medium-risk group are single people in their 40s and 50s with low earnings and full working histories. A high-risk group, although they would not be auto-enrolled, which is an important caveat, is single people in their 40s and 50s in 2012 on low-to-medium incomes who are self-employed.

There are particular potential risks for those over 50 who enrol in personal accounts in terms of whether or not they would receive enough money back to make it worth their while. Later, we will discuss other groups and how the advice and information regime that is put in place around personal accounts can help people to make decisions.

I also draw the Committee’s attention to other evidence. Help the Aged, for example, also made the point that it is important to ensure that it pays to save for all those who are auto-enrolled. Help the Aged drew our attention to those people whose state pension records are incomplete, those whose private pension fund value is low and those who are still renting their home in retirement—we will come to the final point later. Help the Aged believes that more needs to be done to protect people in those scenarios.

By tabling the amendment to lower the auto-enrolment age limit, I seek to probe the Minister’s intentions, particularly with regard to those aged over 50, in relation to measures that he might have in mind to ensure through advice, information or changes to the Bill that such people are protected or advised not to get into a situation in which they start saving in a personal account only to discover in retirement that it has not been worth while.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the hon. Member for Inverness, Nairn, Badenoch and Strathspey for explaining his amendment. On the face of it, it is a pretty blunt instrument with which to try to bring about the effect that he has discussed.

We are moving the state retirement age up to the age of 68, so we would be talking about knocking out 18 years, potentially, of earning contributions. For many people at lower wage levels earlier on in their working life, these are very important years of contributions into their personal accounts pot—contributions that would make a significant difference to their lives in retirement. It is probably for that reason that the Equality and Human Rights Commission was worried when they saw this amendment and urged Committee members to vote against it, if it were pushed to a vote. In fairness, the hon. Gentleman has said that that is not his intention. He has raised the whole issue of when it pays to save and I think we will have further debates on this later on. I am happy to see that this is purely a probing amendment.

Mike O'Brien (Labour, North Warwickshire)

The hon. Member for Inverness, Nairn, Badenoch and Strathspey said this was a probing amendment and I am happy to respond to it on that basis. It is true that there is concern about the point at which it pays to save. One of the areas that some of the stakeholder groups have raised is people over 50. Someone on median income of about £24,000 would be making contributions into a pension of about 8 per cent.: 4 per cent. from the employee, 3 per cent. from the employer and around 1 per cent. from tax relief. It would take someone on that income about 11 years to get a pension pot of up to £16,000. A pension pot of less than £16,000 could be taken by way of trivial commutation. The result is that people in their 50s who have been saving—providing they do not go above the £16,000—are likely to be significant beneficiaries of this sort of pension scheme. Far from them being losers, they are likely to benefit from being able to take a lump sum and will also have, in terms of their pension credit, a disregard. Many of those who are automatically enrolled would actually benefit even though they are over 50 years of age.

However, what of those who are auto-enrolled, do not realise that problems could arise and have pension pots beyond £16,000? They would be able to take 25 per cent. of the pension pot in a tax-free lump sum; they are making a 4 per cent. contribution, so about half the contribution was theirs. They would then be able to receive the remaining three quarters of their pension pot by way of income. So it is the case that even they would be in a position where they would be able to benefit to some extent from the contributions of both the employer and themselves.

Perhaps this is not the time to have the wider debate on the extent to which it pays to save, because this is a narrow amendment. But as far as people over 50 are concerned, our view is that the majority of those are likely to benefit. There may well be some who, in due course, might fail to benefit, but we are looking at a period into the 2020s before that is likely to arise to any significant extent, so the opportunities to deal with it over the longer term are evident.

I have some wider points that I wish to make in relation to the debate on whether it pays to save, but perhaps I will save those for another amendment.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I think, as the Minister says, we will have further opportunities during the course of this bill to debate the broader issues more generally, and on that basis I beg to ask leave to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 13, in clause 3, page 2, line 27, leave out subsection (5) and insert—

‘( ) Subsection (2) does not apply if there are prescribed arrangements under which the jobholder is entitled to become an active member, with effect from the automatic enrolment date, of a qualifying scheme which is a personal pension scheme of a prescribed description.

( ) An order will be made under this section to prescribe the terms under which it is applicable, and the basis on which its application may be withdrawn with respect to specific scheme providers or employers.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 12, in clause 3, page 2, line 27, leave out ‘may’ and insert

‘shall within three months of this Act receiving Royal Assent.’.

Andrew Selous (Conservative, South West Bedfordshire)

Amendment No. 13 is a probing amendment which seeks to press the Minister on how we are going to deal with the vexed issue of what are referred to as either group personal pensions or workplace personal pensions—GPPs or WPPs.

It is important to put on record the extent of GPP provision at the moment. The excellent impact assessment produced by the Department tells us that in 2005 there were 3.3 million employees who were members of workplace personal pensions, of whom 2.1 million were receiving employer contributions of 3 per cent. or more. The value of total contributions to workplace personal pensions was around £6.7 billion in 2006-07. By any measure, this is a substantial part of the current pensions saving landscape.

I know that the Minister will not want to do anything within the Bill to undermine what is good provision and is for many people—for those 2.1 million workers, in any case—above the minimum employer contribution limit laid down in the Bill. There is a real danger, as far as new employees are concerned, of levelling down—of employees being offered less good pension provision and less than a 3 per cent. employer contribution—if we are not able to find a means of dealing with the current European Union constraint on the UK, which prohibits auto-enrolment of employees into GPPs.

We had a roundabout discussion in the evidence sessions on what we could do about this. The Minister may have alluded to the fact that there are three possible solutions. Most of us, I think, would like the EU to amend current legislation to enable auto-enrolment into GPPs. It seems perverse, given that it was not the original intention of the Commission or of the European Union to forbid workers from being enrolled into good workplace personal pensions, that we have this extraordinary situation. This has nothing to do with being pro or anti-European. I think that many of us on both sides of the Committee, and from all parties, would like to think it possible, in a well-functioning Europe, where there have been some unintended consequences of legislation, that we have good enough relations with our European partners to go there, explain the situation and obtain for the UK some form of derogation.

I cannot believe that we do not have enough friends or influence within Europe to achieve that sort of result. I press the Minister on this point, and would like to hear what the Government intend to do. Neither of the other solutions put forward—involving master trusts or streamlined joining with a focus on achieving good participation levels—is perfect. Both have been attacked or criticised as potential solutions to this particular problem by major players within the industry. If the Minister gets up and wrings his hands and says that good as our relations are with our European partners, it will not be possible to amend the distance marketing directive and the unfair commercial practices directive before 2012, we need to hear now, or certainly on Report, his preferred means of ensuring that we do not undermine and level down this very significant and much-appreciated part of the current pensions landscape.

There are a diversity of views within the industry and among older people’s groups and consumer groups as to whether the Minister should go down the master trust route or the streamlined joining route. Of all the briefs I have read, there seemed to be quite convincing arguments about streamlined joining, provided the participation levels are high. It is for the Minister, however, to tell the Committee how he intends to sort out this particular problem and I look forward to hearing what he has to say in response.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Before I address this amendment, I would like to say to the Committee that if they wish to refer to my constituency using the word Inverness, I shall not be offended. I realize it is a tongue twister, much though I am grateful to the hon. Member for South-West Bedfordshire for his repeated efforts.

This amendment raises an important issue. It is carefully constructed to draw attention to a genuine difficulty which the Minister has been working hard to try to resolve. There are a number of conflicting pressures. One of the things this amendment would do—though the second part of it, by allowing the Department to withdraw the terms with which it is applicable, seeks to limit this—is nonetheless to dilute the principle of automatic enrolment. I accept that this is one way this issue could be addressed but it would not be my preference because the principle of automatic enrolment seems to be a central feature of this Bill. Ideally one would wish for the principle of automatic enrolment to be applied to the WPPs or the GPPs—I am not sure which is the best term to use.

Andrew Selous (Conservative, South West Bedfordshire)

I do not know whether the hon. Gentleman will be coming on to this later in his remarks, but I wonder if he could address the specific issue of levelling down for the many people who have good levels of contributions. The average level of contribution is 6 per cent. in GPP schemes. That is double what personal accounts are proposing.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

The hon. Gentleman makes an important point that I was about to come to. The first point is to maintain the principle of automatic enrolment. The second is to not undermine the many millions of people—the hon. Gentleman gave the correct statistics—who benefit from high quality workplace personal pensions. If this Bill was to undermine that provision or to make businesses think that this was not an appropriate way for them to deliver pensions for their staff in future that would be seriously damaging. The Minister is caught between those two imperatives.

The way out of this—I am grateful to hear this from the Conservative Benches—has surely to be the European solution. The Minister has said in other forms, and he may say again today, that four years is not sufficient time to negotiate appropriate changes in the European directives. A Government clear in their commitment to the European Union and seeking to exercise influence by turning up to the relevant meetings on time and making its case, and who work closely with their European partners, surely should be able to negotiate such a change on the basis that this is an unintended consequence of European legislation which was designed for other purposes.

The two directives were not designed to prevent the sort of sensible pensions reform that has been proposed in this bill, but were introduced for good reasons relating to a range of other areas in the consumer sector. I know the Minister himself has raised this matter at European level, with the Commission and elsewhere. I do not know to what extent he has encouraged it to be raised at an even higher level, potentially even by the Prime Minister at European Councils. But an appropriate degree of influence and effort should be applied at the European level to get what is, technically, a complicated change, but nonetheless one which—though in the gamut of European legislation is relatively insignificant—has great importance for the people we are talking about in the context of this amendment.

I would like to hear more from the Minister about the steps being taken at a European level to win on this issue. It is also the case that the more streamlined processes that are being proposed in the reform treaty would help this sort of thing.

Nigel Waterson (Conservative, Eastbourne)

Given his own party’s enthusiasm for Europe, and in particular for denying the British people a referendum on the Lisbon treaty, is he not a little disappointed that our European partners seem so unwilling to move quickly on what is, in any view, an unintended consequence of one or two European directives?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I am not clear yet whether discussions have got that far, since I have not heard more from the Minister about the details of the negotiations he has had. It does not seem at all that this is something that has been blocked by our European partners: it seems to me that the sense of the scale of the task within the UK Government has led to an attitude of despair. They are saying that this is something we simply cannot do in time, and therefore we are going to have some discussions but not necessarily take it much further.

What I am arguing for is that, if necessary, it should be escalated up the diplomatic chain, so that more pressure can be applied. The European Commission—and this may surprise some hon. Members—can move quickly when it is under pressure to do so. I suspect that there are many other countries in the European Union that are caught in very similar situations to us in terms of the demographic change and the lack of pension provision and so on. They are not necessarily proposing the same measures, but we might actually see that the changes we are seeking to make would assist them too.

I do not, therefore, accept that this is something that has been blocked at a European level. I do not know, for example, whether the Minister has had conversations with people in the European Parliament, who deal with these matters in their committees, to see if there is a route through that body that could help us with this problem. As the hon. Gentleman has made absolutely clear, there are potentially millions of people who will be affected if we do not get this one right. I hope that the Minister will not give up on the European solution, and I would be grateful if, in answer to this debate, he elucidated in some detail the various steps he has taken to try to reach agreement at that level. That seems to be the best way to solve the problem which this amendment has rightly highlighted.

Mike O'Brien (Labour, North Warwickshire)

Clause 3 is very important—one of the most significant in the Bill—and deals with automatic enrolment and the duty on employers. Subsection (5) creates an exemption for employers using workplace personal pensions from the duty of automatic enrolment. We are not currently satisfied that under the distance marketing directive, and the unfair commercial practices directive, automatic enrolment is possible into a personal pension which is commercially based. It is possible in relation to a trust-based scheme and it is possible in relation to the scheme we are setting up, personal accounts, which is going to be trust-based.

However, in relation to contract-based schemes, there is a serious question about whether or not we can be satisfied that it is possible to enrol on that basis. I am choosing my words with care. I am not saying that it is not possible to do it. Let me again elucidate carefully what we have done in relation to the European Union. I am conscious that others will read what we say here and if hon. Members wish a fuller discussion it may be better that it take place through the usual channels.

The advice we got was that we needed to approach this with great care. In particular, we did not want insurance companies to take undue risks in relation to the contracts that they entered into. We therefore put the subsection into the clause to enable us to create an exemption. The principle of automatic enrolment is enormously important. Our preference is that employers should be able to automatically enrol into both trust- and contract-based schemes, basically insurance company pension schemes. Our concern about the two directives means that at this point we cannot give the insurance industry the reassurance that it would like, and which we would like to give.

We are looking at the directives with great care. One of the directives is due for reconsideration in—I think—2011. However, reconsideration involves consultation in a number of European countries, agreement on any changes and then implementation. That would probably take us beyond 2012. That is why we want the provision here, to see if we wish to go down the route of an exemption for the insurance-based schemes.

WPPs are an enormously important, and a growing, part of the pensions market. As the hon. Member for South-West Bedfordshire indicated, they account for around 47 per cent. of current private pension membership. That represents around 3.3 million employees, involving total contributions worth around £6.7 billion each year. There are 2.1 million members of WPPs with an employer contribution in excess of 3 per cent. While the hon. Member for South-West Bedfordshire is right in relation to a 6 per cent. average, some employer contributions are actually less than 3 per cent, and some of them are considerably more than that. WPPs vary considerably in quality, but they will all be obliged to comply with the 3 per cent. minimum employer contribution.

The discussions that we have had more recently with Europe are a little more optimistic than our earlier indications. I am always cautious in approaching institutions to ask a question because the answer may be broader than the question asked. Therefore, we want to have some view of the likely answer if we are to pursue, with any degree of pressure, the question suggested by the hon. Member for South-West Bedfordshire. In other words, are we able to go ahead with insurance company contract-based signing up and automatic enrolment?

We wish to make further approaches and see if we can find a way through to the conclusion that we all seek. In the meantime I am engaged in some detailed and helpful discussions with the ABI to see if we can reach an agreement with regard to an exemption. The discussions are going well and I am hopeful that we will be able to reach an agreement, although we may not be able to do so. However, I can give no undertaking in relation to that. We need to talk not just to the ABI but to other stakeholders. When we heard evidence last week, it was clear that a number of witnesses had serious concerns about breaching the principle of automatic enrolment. I am very conscious of the extent to which those people have concerns. We need to take those concerns into account in the negotiations that we are having with the ABI.

We need the exemption to enable us to have the opportunity to complete negotiations with the ABI—to see if it is possible to create an exemption. The exemption would only be necessary if we could not automatically enrol into contract-based schemes. We will continue to look at the issue with the European Union—again, I am being careful with my words as far our discussions are concerned. In due course, we may take a view that it is best to wait until 2011 and have the discussions then, or it may be that we can move forward and have some discussions in the coming weeks. I will attempt to keep the Opposition spokesmen informed, through the usual channels, of the extent of those discussions, as and when they take place. That is essentially where we are.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Before the Minister leaves the European point—I appreciate the care with which he is choosing his words—the Liberal Democrats would be happy to discuss the involvement of MEPs in the different groups to try to advance a solution more quickly, should it prove helpful to go through the European Parliament.

Mike O'Brien (Labour, North Warwickshire)

I am grateful for his offer, but we are dealing with a legal issue rather than a case of political negotiation or pressure and we need to look at it in that context. That is not the primary issue, which is what the directive obliges us to do, and whether we are able to do certain things within those terms. It is, essentially, a legal issue.

Andrew Selous (Conservative, South West Bedfordshire)

Like the hon. Member for Inverness, Nairn, Badenoch and Strathspey, I am grateful for the Minister’s full response on the matter, because the issue is important. The Minister said a number of times that the directives are not due to be reconsidered until 2011. That is a full three years away. Many of us in the Committee are surprised that there does not seem to be a mechanism for pushing something up the agenda if it is a significant issue to many millions of people in this country. Is he able to say anything further to the Committee about how we could perhaps bring forward the reconsideration of such matters?

Mike O'Brien (Labour, North Warwickshire)

We would only want to do that if our current discussions led us to a conclusion that we did not want. Let us take this step by step. Let us investigate the legal issue and whether or not it is possible to get some comfort from our discussions with the Commission. If we can, it may well be that we do not need to do what he suggests.

In any event, is it possible to raise things before 2011? Yes, it is. It is obviously much more difficult, because we have to engage all the members of the EU, to get their agreement and then to push it up the agenda. That of itself takes significant amounts of time, and we would probably run into 2011 in any event. My concern now is that we have insurance companies out there that want to know where they stand. They do not want to know where they stand in 2010, 2012 or 2015; they want to know now. They want to know during the course of the next few months and years. Are they able to expand their business significantly? I want to give them as much reassurance as I reasonably can. Our aim is to maintain good quality pension provision. Often that is likely to be insurance-based as well as trust-based. We want to ensure that the issue of levelling down is not presented to employers. It is an issue here.

If an employer were making a contribution in excess of 6 per cent. to a good-quality, contract-based pension scheme and, as a result of the way in which these particular clauses operate, was obliged to change significantly the way in which his pensions were dealt with, he might well decide to level down. My objective, therefore, is to see whether we can minimise, in so far as we reasonably can, the prospect of levelling down.

The aim is to see whether we can keep things pretty much as they are for cases where there is a good-quality pension scheme with an employer contribution above about 6 per cent., an issue which we will come to in a few minutes. That is my aim, although I do not know whether we will be able to do it. We have some time during the course of this year to explore these issues and to see what the best approach is, and to discuss an exemption, if necessary, with the ABI and other stakeholders. That is the approach the Government are taking. I know it has broad support among stakeholders, although as we have heard during the course of evidence-giving, many of them are concerned that we should minimise any breach of automatic enrolment, whereas the members of the ABI want to minimise any disruption to their market. In both cases, the principle position of the stakeholders is entirely understandable and justifiable.

The hon. Member for South-West Bedfordshire also asked about master trusts and streamlined joining. Some insurance companies already offer master trust-based pension schemes, and would therefore be in a position to expand those schemes. Those who offer those types of schemes also offer contract-based joining, which they tend on balance to prefer. Some of the other insurance companies currently only operate contract-based schemes. They have concerns about the nature of a switch to master trusts. Some of them take the view that this would produce disruption for employers. Some of the other stakeholders, such as the National Association of Pension Funds, have done some work on this and think it would not produce that level of disruption. There is still some discussion going on with the ABI and others to try to ascertain what the precise level of disruption would be if some of the contract-based pension funds were converted to trust-based pension funds.

The general idea of a master trust scheme is that the trust is created within the insurance company, not with the employer. That enables automatic enrolment into the schemes under that trust, creating minimal disruption for the employer, and therefore there would not be the circumstances in which the employer would be likely to level down. The aim is to see whether some of the insurance companies would wish to move to that type of master trust scheme. If they take the view—which some have—that they do not wish or do not feel able to move to master trusts, then they are presented with a difficulty if there is no exemption, because they would either have to convert to master trusts or some of them would lose some of their market. That does concern me greatly and that is why we are in the business of negotiating it very seriously with the ABI and others.

Let us see how those discussions go on. I think I have outlined the various ways in which we are trying to clarify the issues, to pursue options if we do not get the answers we want, and to see whether there are other ways in which the insurance companies could proceed. We would need to be provided with a reassurance that we would get sufficient numbers of people engaging in pension provision to say that we could exempt them from automatic enrolment. The insurance companies need to identify employers with whom they have good relationships and be able to find opportunities with those employers to sell good-quality pension schemes to the employees. The employees would then need to sign up in numbers in excess of those we would have got if there had been automatic enrolment.

We do not want a situation in which we do not apply automatic enrolment—in which we have, in other words, an exemption—and as a result do not get sign-up to pension schemes. We need to get that sign-up. The exemptions themselves could create some difficulties for insurance companies, because they will then want to engage only with employers from whom they know they are likely to get a certain level of sign-up. If they cannot get that sign-up, they may well decide they do not want to continue to engage with particular employers. There would however be opportunities for them to sell their product on a broader basis after 2012, because automatic enrolment will mean for those insurance-based companies that employers will be in the market looking for provision. If there were an exemption, they may well find a much bigger market in which to sell their products. In business terms, both insurance-based schemes and trust-based schemes will probably benefit quite significantly from providing pensions after 2012, because the market will be significantly expanded.

Andrew Selous (Conservative, South West Bedfordshire)

I am very grateful to the Minister for his very full response to this section of the debate. The ABI has provided a briefing in which it estimates that going down a master trust route would have administrative costs of about £350 million and might lead to a churning of policies between the providers and a consequent re-broking cost to the industry of around £1 billion, and that a switching in workplace pension provision would actually damage the policies themselves, causing a loss of “embedded value” of around £4 billion to £5 billion. What is the Minister’s and the Department’s estimate as to the accuracy of those estimated costs?

Mike O'Brien (Labour, North Warwickshire)

We would want the ABI to provide some detailed justification of some of those estimates. It is the case that some of the insurance companies which have master trust schemes do not envisage these sorts of costs applying in relation to the master trust schemes, because they simply would not. The question is what the alternative is for the insurance companies. If they are able—as some of them are—to expand their master trust schemes, then obviously the cost for those insurance companies will not be so significant. If they have to do a lot of conversion, I would want to see the actual costs of converting to master trusts, because there is quite a lot of disagreement in the pensions industry as a whole. I include here stakeholders such as the NAPF, who have very different views. I think the ABI’s response to the NAPF would be, “they would say that, wouldn’t they? They are, in a sense, competitors. They are providing trust-based schemes, we are providing contract-based schemes”. Before accepting any of those figures we would want to see a greater degree of justification from the ABI.

I have heard the arguments about the costs. I am not convinced about the size of these costs. I have not seen all of the detailed figures with which the ABI justify its global sums. The figures need a lot more justification than they have at the moment if they are to be presented as reliable. That being said, I do not doubt that there is a significant issue here. The ABI has a serious point and it is one on which, if I am able to accommodate it, I will. I am satisfied that the discussions we have had with it so far have been serious and I hope it will lead to an exemption, which we could use should that be necessary.

I am not as pessimistic about the approaches we might make to the Commission as I was some months ago. Our advice now is that the issues may well be manageable but, again, I am cautious about what I want to say. At this point I am happy to have private discussions with the hon. Gentleman if that would be helpful.

Andrew Selous (Conservative, South West Bedfordshire)

We have had a full and useful debate in this section of our deliberations. These are important issues because of the numbers of employees involved in these group personal pension schemes. There is nothing much more that I can add but I am grateful to the Minister for the full way in which he has responded to the debate.

I beg to ask leave to withdraw the amendment.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I beg to move amendment No. 79, in clause 3, page 2, line 36, at end add—

‘(8) The Secretary of State shall publish an annual report on the impact of means-tested benefits on automatically enrolled members of the scheme established under section 50’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments:

No. 16, in clause 8, page 5, line 7, at end add—

‘(3) The information so given must include whether the jobholder is likely to benefit by reason of being auto-enrolled.

(4) For the purposes of this section ‘benefit’ shall be defined as the jobholder recovering all contributions to the scheme as well as an additional return the extent of which the Secretary of State shall by regulation define.’.

No. 87, in clause 12, page 6, line 24, at end add—

‘(5) The Secretary of State shall report annually on the effect of changes to the qualifying earnings on the impact of means-tested benefits on members of the scheme establised under section 50.’.

No. 104, in clause 58, page 27, line 21, at end insert—

‘(c) to consider the impact of means-tested benefits on members of the scheme established under section 50, and report these findings on an annual basis.’.

New clause 2—Projections of numbers of those on means-tested benefits

New clause 6—Trivial commutation limit

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I would like to say something about amendment No. 79 and about new clause 6, for which I would be interested to hear the Minister’s specific responses.

As I said in relation to amendment No. 78, the debate about the extent to which it pays people to save in personal accounts is one of the critical issues that has been drawn attention to by a wide number of stakeholders in the course of the preparation of this Bill. Members on both sides of the House at Second Reading were concerned that, while it is clearly the case that the personal accounts will be beneficial to a large number of people within the target group and that the wider benefits of the personal accounts scheme and the ideas behind it such as automatic enrolment were clear to see, there are critical issues as to whether it will pay certain individuals to save.

One of the answers to that relates to the way information and/or advice is provided. We will come back to the question of information and advice at a later stage in the Bill so I do not wish to dwell on that point now. We believe this matter is very important in answering the question.

Amendment 79 is a modest proposal that I hope the Minister will be minded to accept, given the concerns that have been expressed on all sides of the House. At the very least the Secretary of State should annually provide to Parliament a report on the impact of means-tested benefits on automatically enrolled members of the personal accounts scheme. That would enable Parliament to have on a regular basis the information that it needs to understand whether the concerns raised, which I will go on to, have had the impact that some expected or whether, as the Minister said, the groups concerned were small or the rules—such as with his example of the trivial commutation limits for those aged over 50—have had the effect that he was expecting.

The amendment would enable Parliament to keep a close eye on the situation. As that would be through a report provided by the Secretary of State, the Secretary of State would be able to provide his interpretation and guidance on what he thinks that the information contained therein means. None the less, an issue raised on all sides of the House but about which there is a great deal of uncertainty could be discussed regularly. There is clearly some uncertainty about the issue. Everyone in the House agrees that there are some people for whom it may in the end not pay to save in personal accounts, because of the impact of means-tested benefits on their income in retirement.

In addition to the group of people aged over 50 that we discussed, there are other groups. In that context, I wish to refer to those people who receive other means-tested benefits, in addition to pension credit. The debate has focused on pension credit, because pension credit is the means-tested benefit that pensioners receive, and will continue to receive in large numbers until 2050. Independent estimates, by the Pensions Policy Institute, for example, suggest that two in every five pensioners will be in receipt of pension credit in some respects in 2050; the Government estimate would suggest more like one in three. In either case, that is a significant proportion of pensioners.

However, many pensioners will receive other benefits. One group of concern is those renting in retirement. The housing benefit taper is particularly steep, especially when linked in with the council tax benefit taper—who knows whether the council tax will still exist in 2050, although that is another debate? None the less, those taper rates are particularly steep and would therefore have a dramatic effect on the degree to which pension income would be generated—small for someone who has saved a pot of just over the trivial commutation limits, as described by the Minister. A lot of that income would, in effect, be used to substitute for means-tested benefits. Would those people even be getting back what they paid in?

I noticed a sensible amendment, proposed by the Conservatives, that—in talking about having a more detailed assessment and a measure of what a benefit means—puts forward the idea that a benefit means getting back what you paid in and a bit more. I am sure that a Conservative Front Bencher will go on to explain more what they meant. However, having in the Bill some measure of what benefiting from personal accounts means seems to be a sensible idea.

While the scale of the problem is hard to estimate, none the less the Pensions Policy Institute has highlighted some groups for which it thinks there is a high risk of personal accounts being unsuitable, such as:

“Single people who are likely to rent in retirement and who have no additional savings. These people are likely to qualify for less means-tested Housing Benefit as a consequence of saving in a Personal Account.”

It also refers to

“single people in their forties and fifties...who are self-employed.”

There are also medium-risk groups that have been highlighted by that organisation.

It would be useful if the Minister’s response could give us any information that he has about the extent to which that might be a problem, and the numbers of people involved in particular groups. I accept what he no doubt will say, that it is often hard for any individual to predict what their circumstances will be in retirement, particularly at an early age. Of course that is the case. None the less, we do not want the Bill to get us into a situation where some people can fairly claim that they were strongly encouraged to enrol automatically in a personal account, only to reach the time of retirement to discover that the financial benefits that they receive are not what they were given to expect. We certainly do not want to get into a position where those people are able to make a claim against the Government on that basis. That is why having a proper understanding of the numbers of people and the range of groups that might be affected, and how the Minister wishes to see those groups addressed, would be beneficial. The problem does not affect the many millions of people for whom the scheme is clearly beneficial but if it does affect hundreds of thousands of people then it is very serious; the hon. Member for Eastbourne said that there might be even more than hundreds of thousands. Unless the issue is got right there will be a significant gap in the Bill in its application to the target audience for which it is hoped that the benefits will accrue.

New clause 6, which relates to the trivial commutation limit, is designed to probe the Minister’s reaction to a particular proposal brought forward as a way of helping to solve the problem. That proposal is to increase the trivial commutation limit. The Minister quite rightly described how the limit can benefit people with small pots. It has been suggested that an increase in the limit would substantially increase the number of people, in the category under debate, who are able to benefit—those who might otherwise be at risk of not benefiting to a great or any extent from their personal account saving. That would be done by enabling a larger pension pot to be accumulated and then converted in full into a cash lump sum. For example, research by the PPI showed that an increase in the trivial commutation limit from £15,000 to £30,000, with a corresponding increase in the capital limit, could increase the proportion of retirees who would be able to trivially commute their pension pots from 13 per cent. to 22 per cent. Potentially, that could substantially improve the ability of some people at least to get returns from their savings.

I am sure that the Minister in his response will stress the importance of affordability and I am therefore interested to know what estimates he has made of the costs of the proposal and of the number of people who would benefit, particularly those who are at risk of losing out because of the interaction with the means-tested system. For us, the problem lies with the extent of the means-tested system. That is why we put forward proposals in the previous Pensions Bill to move towards a citizens pension which would ensure a basic state pension at a level sufficient to ensure that everyone had a firm foundation on which their private saving could be built. That is not something that we are debating—we are looking at whether there are any technical solutions that can be brought forward to help to address the problem. The increase in the trivial commutation limit is one such technical solution, which may or may not be of assistance.

I would be grateful to hear that the Minister is not under any illusions as to the seriousness of the problem and that it is something he is seeking to address. Otherwise there will be doubts in some people’s minds as to whether saving is worth their while, and that could undermine the extent to which the sensible proposal in the Bill can be successful in the long run. I look forward to the Minister’s response.

Nigel Waterson (Conservative, Eastbourne)

I rise to make my first substantial contribution to the debate. It is a pleasure, Sir Nicholas, to be serving under your liberal chairmanship. It was interesting to have a re-run of the citizens pension concept from the Liberal Democrat spokesman. That was perhaps not unreasonable given that his constituency includes Loch Ness—the citizen’s pension is about as likely to make an appearance as the Loch Ness monster.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I think the hon. Gentleman is making the point that he does not agree with a citizen’s pension policy, but that is not to say that it would not have the outcome I seek in the context of this amendment. As for the Loch Ness monster, I hope he is not doubting the importance of that economic asset to my constituents.

Nicholas Winterton (Conservative, Macclesfield)

Order. I think that is as far as we should take the Loch Ness monster.

Nigel Waterson (Conservative, Eastbourne)

Quite right, Sir Nicholas, though it is not unrelated to the presence of several distilleries in the hon. Gentleman’s constituency.

We now enter the twilight zone, as it were: the “funnel of doubt”, as it has been termed by the Pensions Policy Institute. That is a rather sinister expression, but it does underline the massive unpredictability of trying to look, perhaps as far in the future as 2050—certainly many years from our current debates—at the interface between the means-tested benefits system and personal accounts, not least because factored into all that is the likely success or failure of personal accounts and the effect that will have on taking people out of means-tested benefits. I therefore make no apology for dealing at some length with these issues, particularly concerning this group of amendments, because this is one of the two major issues identified by the PPI as being at the heart of this Bill.

This is a key clause, which is, effectively, the other side of the coin of auto-enrolment. We all agree with auto-enrolment; it was, indeed, in our last election manifesto as a way of harnessing inertia to get people saving for their retirement. The other side of that coin, as discussed in the opening contribution by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, is this: what about people who might be well advised not to auto-enrol, or to opt out? We will deal later in some depth with the issue of what advice is going to be made available to these people. I would however say that people are not exactly queuing up to give specific advice: employers are not; the Government are not; the Opposition are not, because they feel they might one day be the Government. There is an unresolved issue of what generic advice would be made available. That is a topic to get into in more detail later in these discussions. It has long been recognised as an issue.

Only yesterday, I stumbled across an interview in the Financial Times last June given by the previous Secretary of State—the right hon. Member for Barrow and Furness (Mr. Hutton). He made the point that there needs to be a major communications effort

“if the introduction of personal pension saving accounts is not to lead to future Governments being accused of mis-selling, John Hutton, Work and Pensions Secretary, has conceded”.

It goes on to talk about the dangers of different outcomes. Quoting directly from the then Secretary of State, it says:

“That is a risk, he says, and it has to be dealt with fairly and squarely. People have to trust the concept and understand that there cannot be an absolute guarantee about the outcome.”

I agree with that.

Changing metaphors from the Loch Ness monster, this problem has patently always been, as it were, the elephant, or the monster, in the room. As we have some vague ambitions to be a future Government—possibly the future Government when all this takes effect in 2012—it is important to get this right. It is fair to say that everybody now accepts there is an issue, and one which needs to be addressed.

Looking first in more detail at our new clause 2, these are all probing amendments, and I support the basic thrust of the amendments put forward by the Liberal Democrats. I think we are all coming at this from different angles but trying to achieve the same broad result, which is to raise the profile of this issue and look at ways it can be dealt with.

We as a party have not lighted on some magic bullet solution. The hon. Member for Inverness, Nairn, Badenoch and Strathspey is clearly taken by trivial commutation. I think it is worth saying that some of these solutions will actually increase means-testing and problems at the cliff-edges of the proposals, so we are a long way off. To be fair, I do not think the hon. Gentleman was pinning his colours to that particular mast as such, but there are any number of discussions and analyses still needed of some of the options that have been put forward.

Looking at new clause 2, I have plucked out of the air a figure of 10 per cent. of the pensioner population who might be in the at-risk groups. At the moment, we are have a pensioner population of about 11.5 million, which by April 2009 will rise to 12 million. Ten per cent. of that is at least a hundred thousand pensioners. It seems to me that if we at this so-called “funnel of doubt,” nobody has any idea how many people are going to be in these at-risk groups. If it starts to be north of 100,000, we have a serious potential problem on our hands. But it may be several hundred thousand or it may be in the tens of thousands; nobody actually knows the answer at the moment.

It is salutary to touch on some of the evidence given in the oral evidence sessions by some of these organisations—particularly by the PPI, which deserves a lot of credit for the consistently thorough, independent and thought-provoking way it has addressed these and other issues over a long time. All our debates would be the poorer without its various interventions. It raises the issue of suitability and its definition. In its written evidence, its says that in its analysis,

“Personal Accounts are defined as being ‘suitable’ if individuals do not lose out as a result of their savings. This is a less stringent definition than ensuring that saving in Personal Accounts is the right thing for all consumers, which would be more consistent with the FSA’s definition of ‘suitability’.”

I appreciate that the FSA is not going to be supervising these personal accounts, but it seems odd that an established definition of suitability—policed by the FSA—is not thought relevant to personal accounts.

The question of suitability is right at the heart of my amendment No. 16 to clause 8, which is about information that has to be provided. We are seeking to extend that obligation to include information about whether the worker is likely to benefit from being auto-enrolled. We define “benefit” as

“the jobholder recovering all contributions to the scheme as well as an additional return the extent of which the Secretary of State shall by regulation define.”

It is a pretty poor state of affairs if it is to be regarded as all right for those who have scrimped and saved to put money into personal accounts from their employee contributions, only to end up no better off than if they had put the money under the mattress.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey has already touched on the at-risk categories. Again, this is work that the PPI has refined over a significant period, with a traffic light approach of red, orange and green to depict people who are either at low risk, medium risk or high risk. It is interesting that it makes this comment in its written evidence:

“The Government’s test is that individuals should get back at least the value of their own contributions, (but not necessarily the value of their employer’s contributions, real investment returns or the tax relief) protected for inflation.”

It continues:

“This suggests that the Government would only be concerned about individuals in the PPI’s high risk group.”

This is slightly to repeat what was said by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, but the high-risk group includes single people renting in retirement with no additional savings and single people who will be in their 40s and 50s in 2012 on low to medium incomes who are self-employed. It also refers to those who have a high level of personal debt. That is probably a typical instance. For instance, a female worker on low income and with high credit card debts would be extremely well advised not to opt in to personal accounts, but there will no one advising her to opt out.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey touched on some of the options put forward. Two or three have been proposed in recent months, all with the fingerprints of the PPI on them. One, at the behest of the Equal Opportunities Commission, as it then was, was a suggested increase to trivial commutation and capital limits. The significant cost of that is set out in some detail, and the Minister may want to comment on the Government’s attitude to those projected costs.

Another variation, sponsored by the B and C scheme, is the pension income disregard. That, too, has a certain superficial attraction. A figure of, say, £12 a week may be disregarded as income for pensions, but it brings with it the question of whether one is trying to extend means testing or to roll it back; another question is what happens at the edges.

The fundamental point is this: where do we go from here? Broadly, the attitude of the PPI and others is that they have taken things as far as they can without access to the Government’s model. Indeed, at the oral evidence sitting last Thursday I raised that issue with Niki Cleal and Chris Curry from the PPI. At the moment, they cannot identify the number of people likely to be in what they signalled as at-risk groups. In his evidence, Chris Curry said:

“In the UK, there is only one model that works in that particular way: the PenSim 2 model run by the Department for Work and Pensions.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 59, Q84.]

That, it seems to me, is where we are at the moment in developing some concept of public policy on the question of means testing.

I return to the question of whether it is important. We believe that it is. I am pleased to say that so far there seems to be almost total unanimity among those who have given written and oral evidence that the issue needs to be addressed. It is fair to say that there are variations in how seriously witnesses put in it the context of the personal account, but everyone seems to agree that it needs to be addressed—and in the reasonably near future.

It is not gratuitously provocative to say that the consensus process has been through a rocky period recently. Our attempts to flag up the issue were met, at least for a time, by Ministers being upset with us because we were rocking the boat and undermining the possible appeal of and confidence in the new personal account system. However, we have gone beyond that. It is now clear that everybody, including Ministers, agree that the matter has to be addressed.

I shall cite one or two comments given in written evidence. The Equality Commission, talking about pays to save, spoke of there being

“a strong risk of too much media attention around the risk of it not paying to save. The impact of this could be a lack of confidence in Pas and encouragement of individuals to opt out.”

It then stated:

“The Government should commit to a public report on the pays to save issue”,

as outlined by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The commission said that it should include information on the number of individuals at risk, the trade-offs between reform and the general effect of the relationship with the means-tested benefits system.

Age Concern also makes the point. It says that there are concerns that some people may find they are little better off from saving because of the interaction between means-tested benefits and private provision. It believes that that is an important issue and it went on to talk, unsurprisingly, about the need for a much higher state pension. One of the issues that we are trying to draw out from Ministers in other amendments is whether they have reached their conclusion about when they intend to restore the link with average earnings for the state pension. Finally, Age Concern said that the Government should set up a review of the options to ensure that saving pays. We agree with that, and Mr. Mervyn Kohler made some similar points in his evidence for Help the Aged.

We seem to be in a situation where everyone now agrees that there is an issue. Let me quote the final arbiter on many of the issues, Lord Turner, who in his evidence—regarding the different approaches to tackling the issue—said:

“I still think that those issues are worth looking at.”

That is an important influence, and certainly the approach that we have been taking.

The good news is that the Government have had a change of heart. I am delighted to say that we have been having initial discussions about how we could best approach the various proposals on a cross-party and entirely constructive basis. I commend the Minister in particular for his approach to that. Ministers have moved some distance on the issue in recent days and weeks. I have never believed that we could resolve the issue during this Committee. What we have been at pains to do is to flag up our concerns, and those of many outside organisations and bodies, and to be reasonably assured that somewhere in the bowels of the Department for Work and Pensions the Pensim 2 model is whirring way, trying to look at some of the potential solutions.

I am not naive enough to think that the Pensim 2 model has all the answers. We know, for example, that it has one fatal flaw. It takes no account of housing benefit, which, if you look at the PPI work, is crucial to some of the projections about at-risk groups. I am sure it has other flaws as well, but it is the only game in town for approaching the issues. I am committing myself and the official Opposition to being as helpful and constructive as possible and to work closely during the life of the Bill and also beyond to try to find solutions to the problem. As we all march bravely towards 2012—if that indeed is the implementation date for personal accounts—we can put our hands on hearts and say to people that, broadly speaking, they are going to be better off by saving or at least be able to identify more clearly those groups that would be best advised—through the mechanisms of generic advice, which is another debate—to opt out, as set out in the Bill.

Those issues are very important; they transcend political divisions. We will do what we can to help. We are not unaware of the limitations of the model, nor of the massive uncertainties summarised by the PPI’s expression “the funnel of doubt”. We want to see a solution and we are confident that Ministers do as well. Sooner or later we will hammer something out but it will involve looking closely at some of the ideas—trivial commutation, capital disregard and pension income disregard.

Even in the last week or two there has been a further new suggestion from Legal and General, I think, about “flexing” the £16,000 cut-off between income and capital. I am not sufficiently into the detail to see what difference it could make, but it is a useful suggestion that ought to be run through the modelling to see if it brings any benefits to all the people who I think are determined to try to help. We are signed up to the post-Turner consensus on pensions reform. We are determined to ensure, as far as is practicable, that the reform will work and deliver a better retirement for millions of people and that there will not be major problems with people who should not have joined up in the first place. That clarity should be available not after 2012 but in the run up to 2012 so that misguided journalists do not write stories which will put off people who should be enrolled and give support to unscrupulous employers who may use such articles to discourage their eligible employees from becoming enrolled.

I hope that that is helpful in setting out our attitude to our new clause and our amendment 16. I support the thrust of what the hon. Member for Inverness, Nairn, Badenoch and Strathspey said. This is all an attempt to tease out from Government what their attitude is. I see it as a constructive attitude and one which we support.

Mike O'Brien (Labour, North Warwickshire)

I am grateful for the way in which the Opposition spokesmen have set out their case. This is an issue which we need to debate in a serious way. It is not a new issue. In each of our constituencies there are people who have bought into second pensions through private pension schemes and they find that the pot of money and the returns they get from their pension mean that they are below the pension credit level. Therefore they have to top up their second private pension with pension credit.

It is therefore an issue currently. Nobody suggests that the pension providers should compensate people but there are ways in which it is possible for individuals to ensure that they minimize any disadvantage. Trivial commutation has already been discussed at length—up to £16,000. There is also the opportunity to take a tax-free lump sum of up to 25 per cent. of the pension pot. There are ways in which people are able to deal with this issue and I will come on to some of the others in a moment.

One in six people are automatically enrolled in pension schemes today—private pension schemes in some cases, public pension schemes in others. Automatic enrolment of itself is not the new factor, although arguably the scale on which it occurs will be different after 2012. Because the Government are now legislating, we have to recognise the significance of the issue and we do so. I am grateful in particular to the hon. Member for Eastbourne who acknowledges that the Government have looked seriously at this issue and we will continue to do so. I will set out how we intend to go forward in due course.

As this is an important issue, I will set out at length the Government’s approach. Before that, I will deal with new clause 6 because this suggests a significant increase in the trivial commutation level. I will separate this from the broader discussion. Issues around finance and trivial commutation in particular are matters for Finance Bills. That matter will be dealt with by the Chancellor in a Budget or another announcement. It is not something we propose to deal with in the course of the Pensions Bill.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey should be careful in suggesting that trivial commutation is just a means of helping people who may lose out in relation to pensions. It is also potentially a tax loophole, which some might exploit in order to minimise their contribution as taxpayers. We need to approach trivial commutation with great care, because it has not only some beneficial effects but some disadvantages, of which we should be aware. I therefore cannot recommend any support for new clause 6.

Let me move to the broader issues. We had strong evidence in relation to pays to save from a wide range of witnesses, but there was consensus in that evidence that in the course of considering the Bill, we should keep in perspective what is a complex issue. Whether it pays to save for a second, private pension is not just an issue for this Bill; it is a wider issue. It is not just about personal accounts. That is an extremely important point to make, because there has been some press comment that suddenly a problem will arise as a result of personal accounts. In fact, the problem is there now and will arise in relation to many other types of private pension provision. It is not particular to personal accounts, but those accounts are directed towards low and moderate-income people, so we need to be aware of that issue when discussing them.

Governments always need to strike a balance between alleviating poverty and incentivising savings. The Government look for that balance in relation to all their policies. We seek to alleviate poverty and protect people against unpredictable events—in other words, to provide a safety net if people fall on difficult times or if they are merely poor because of their inability in the past to earn a substantial income. We seek not only to provide a safety net, but to encourage all individuals to take some personal responsibility for their retirement income and not just to leave it to the state. We have the element of the safety net, we seek to have people look to their individual responsibility and we seek to have regard to the overall need to operate according to affordable and sustainable public finances. The Government need to balance all three elements in relation to this issue.

With regard to alleviating poverty and providing a safety net, means-tested benefits ensure that individuals can safeguard themselves against severe poverty and relative poverty. We have been able to lift more than 1 million pensioners out of relative poverty in recent years. Means-tested benefits are an important part of our welfare system and our safety net.

Our reforms in the Pensions Act 2007 start to address some of the issues about whether it pays to save, because they make significant changes to the state pension system, enabling about 90 per cent. of both men and women to get a full basic state pension. The proportion of women who currently get it is about one third. We need to increase the percentage significantly. We will do so from 2010 and we will see those numbers increase significantly after that. They will move up so that, by 2025, 90 per cent. of women will be receiving the full basic state pension. That is an important change with regard to the points that have been raised today.

As a result of being able to receive a full basic state pension, many pensioners will not need pension credit. That is one of the significant changes that we are making. The percentage that we anticipate will be claiming pension credit will fall significantly to about 30 per cent.—less than the third to which the hon. Member for Inverness, Nairn, Badenoch and Strathspey referred. The state pension will be more generous and easier to achieve. The issue that we are discussing now will be significantly assisted by improving the incomes of pensioners as they get older and as the provisions come into effect.

Incentivising savings is the next issue that I want to discuss, because about half of pensioners are currently on means-tested benefits and in receipt of income from private pensions as well. Our reforms are aimed at strengthening incentives to save and incentives to take individual responsibility by enabling each pound saved to be matched by provision from the employer and the tax system. We estimate that between 4 million and 8 million people will be saving for the first time, and between 6 million and 9 million people will be saving more than they do at the moment. That will be a significant incentive for people to continue to save and to build up strong pension pots. At the moment there is inertia in terms of saving. People do not save because they do not get involved in the system. We want to reverse that so that they will get involved in the system, and if they want to get out of the system they have to take action to opt out. Inertia therefore will work in favour of saving, and not against it.

We aim to target our reforms at those most in need of help: the low and moderate income earners who at the moment, in many cases, are not even able to get involved in an occupational pension scheme. We want to do more to ensure that people know it pays, in retirement, to save. We have made some important changes in the benefits system, which I mentioned earlier in passing. I want to return to those. It is not just things like trivial commutation that will help people on low incomes: savings credit is an element of pension credit which prevents a pound-for-pound clawback of benefits such as we saw before 1997 and enables people to know that, if they are saving for their private pension, some allowance will be made for that saving when they are claiming pension credit. Together with the 25 per cent. tax-free sum and trivial commutation, we need to factor in this issue of savings credit in terms of pays to save.

For the majority of people who are automatically enrolled, who do get involved in either personal accounts or another pension scheme, we expect to see significant improvements in later life. We know from our surveys that the vast majority of people who are not now saving for a pension still want a higher return than the state will provide for them when they retire. They want a higher income. What we are saying is, essentially, that we as a state will provide only so much, and they will have to lift themselves above that level if they wish to go beyond it. That means that they have to save for themselves.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey asked for whom will it not pay to save. We had some very significant evidence during the course of the evidence sessions last week, particularly from Professor John Hills, who is widely regarded as the foremost expert on this issue in the UK today. As a member of the Pensions Commission, he has done very valuable research in relation to this issue, and we all must regard his views as having a great deal of weight. He made the very important point, backed up by Lord Turner, that there are some people who will have saved who end up on pension credit, just as there are now. It is difficult to predict who these people are. If I remember Professor Hills’s evidence correctly, he said that the only way to predict who would lose out in the long term would be to put together a system that interrogated people at great length about their detailed circumstances.

There are so many imponderables—so many variations, so many life-events that change people’s circumstances—that being able to predict at the point of auto-enrolment whether they would lose at retirement would be so difficult that getting that information would not be sensible given the amount of investment required. In any event, having to answer those sorts of questions would probably deter people.

Lord Turner, in his evidence on 17 January, said that

“you cannot treat the fact that some people post facto will not have done well out of saving as proof that it is a bad idea to advise them to save. An analogy would be that if at the end of the year your house has not been burgled, it does not mean that it was bad advice to buy a household insurance that year. None the less, we have a social commitment to ensure that, whatever mess people’s lives get into, we will pick them up to a certain absolute level of income in retirement.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 98.]

I agree with that. We provide a safety net, but we also encourage people to save and to make their circumstances better. For example, with men in particular, statistics show that nine out of 10 men will benefit from saving for a pension, because they will get to retirement. One in 10 will not. Should they not have saved? No one would seriously say that one in 10 men should not have saved in the expectation that they would need to provide for their retirement because they would not reach state pension retirement age. We need to ask ourselves some of the fundamental questions about the level of predictability of people considering whether to save. Also, what information and advice will they need to be given when making a decision about whether to save?

Let me deal with the issue of information, communications and advice. As the hon. Member for Inverness, Nairn, Badenoch and Strathspey has indicated, that is one of the core questions that we must ask ourselves. We will be discussing at length those issues later in the Bill, but let me first make some brief points. Automatic enrolment needs to be a relatively straightforward, simple, user-friendly and inexpensive pension provision to succeed. We all want it to succeed and, to increase levels of take-up, we need to minimise cost. We cannot have detailed interrogations of people or vast amounts of advice-giving.

At this point it is important to place on the record the difference between information and advice. Information is giving people basic information about what the pension scheme will be and some projections of possible outcomes in provision. Advice is giving individuals advice about their circumstances and whether saving is right for them. That advice to individuals can come in one of two forms: as individual advice to a particular person, based on information received from them; or as generic advice, given to groups of people, about what their possible circumstances might be.

Providing large amounts of detailed advice to every single person automatically enrolled is clearly not something either that we need to do with a basic, simple pension system or that is desirable. It would certainly not be financially possible to keep costs low if we were to do that. The decision to remain in a pension will generally be straightforward, but individuals need to have good information. Good information is the key factor in achieving our objective of enabling and increasing levels of retirement savings. A lot of good information and some level of advice are already provided by citizens advice bureaux, the Pensions Advisory Service and the Financial Services Authority, for example. We should not just add new sets of information to what is already there. We will be working with all our stakeholders and expert organisations to develop a coherent and consistent service for providing information and for providing some opportunities to seek advice, where necessary.

I envisage the system operating with an individual being automatically enrolled and getting the basic information about what they are enrolled into. Their pension scheme—be it personal accounts or a private pension scheme—will give them some information. Some may well have particular concerns, but they will be given access to a website, which they can interrogate to find out will happen in their particular circumstances.

Otto Thoresen is looking at the issue of the provision of broader, generic financial advice. He is due to report later this year—we anticipate that it will be around March, before the conclusion of our consideration of the Bill. We want to take account of his findings and recommendations on the way forward on generic advice. That is important. We will also need look at the question of how much further we go beyond that on providing advice. PADA will look at personal accounts, but other pension providers may wish to look at the issue.

Most employers should not be in the business of giving advice; that is not what they are there for. Some employers might choose to do so and might employ a independent financial adviser to advise their employees, but we anticipate that most employers will not choose to do so. They will be given basic information, probably from the pension provider, be it the private scheme or personal accounts, and that is what the employee will receive. The employer would be ill-advised to give advice, because those who do so may well have a legal responsibility for the advice that they give. However, if a person needs advice, they can go to the Pensions Advisory Service or a citizens advice bureau—that is the route that we would direct people to take.

Having said all that, and as the hon. Member for Inverness, Nairn, Badenoch and Strathspey indicated, it is possible that some people, in the end, unpredictably, will be on pension credit, even if they have saved in personal accounts or through a second private pension. The Government looked in detail at how we can prevent such a situation. We looked at trivial commutation and the proposal, for instance, from the Pensions Policy Institute, for an increase disregard on pension credit; and at how to adjust the various tapers, contributions and penalties that relate to various benefits.

All of those measures are expensive and raise significant questions and, as the hon. Member for Eastbourne indicated, they fail to provide a magic bullet. We should continue to evaluate policy measures. It is important that we recognise that there is an issue, but it should not prevent the passage of the Bill, and it certainly should not prevent the introduction of personal accounts. None the less, we need to look at the issue with a great deal of care. I agree with the hon. Member for Eastbourne, who indicated that we have an opportunity to look at the matter in greater detail.

The Government were approached by the People’s Pension Coalition, particularly by Sally West from Age Concern, who asked for a longer-term debate beyond the length of our consideration of the Bill, so that we can look at the pays to save issue. I reassure the Committee that I am working to put in place a process to take things forward and to provide reassurance for the longer term. I am not committing to any policy outline. However, I would be happy to work together with Opposition spokesmen and the various stakeholders for three key reasons. First, we need to evaluate the evidence on who is likely to benefit and who is likely not to benefit by saving. Secondly, we need to consider the interaction between pension saving and income-related benefits in a reformed system, and how that affects incentives. I would like to examine the extent to which we are able to predict the numbers in groups who might be affected. The evidence that the Committee has heard so far suggests that such a level of prediction would be very difficult. If so, let us look at the matter to see how much we can undertake to predict.

Thirdly, we want to look at the various constraints and methods for dealing with this issue through policy changes. We need an evaluation of some of the issues around trivial commutation and other things. I repeat that I make no commitments in relation to outcomes. However, it would be extremely useful, as part of the process of building on our consensus on pensions policy, to have a serious job of work done to evaluate how far we can predict who will be affected, the likely outcomes and how we could change policy in order to affect those outcomes. We need to share knowledge, establish an understanding of the trade-offs, and engage with others over the coming months in shaping how we could have a shared baseline of understanding of the issues with which we have to grapple. I have agreed to Age Concern’s suggestion that we join this group and work with them over the next ten months or so to carry this out and, in due course, to publish a report.

This will not recommend a particular way forward, but will, I hope, look at the various issues, cost them, and put some of the basic information out there so that any further debate on this issue would be much better informed. The various proposals and amendments that have been put forward are variations on the theme of getting information. The Conservatives have indicated that theirs are probing amendments. I appreciate that, and therefore ask that they be withdrawn. I am grateful for their indication that they are happy to engage in the process of evaluation, and I hope we can agree to proceed on that basis rather than by pursuing any of these amendments. The Liberal Democrats have not yet indicated whether they intend to press any of their amendments, but I hope their spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey, feels able to withdraw his amendments.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I will endeavour to complete my remarks before 1 o’clock, but if I need 30 seconds when we return then I hope I may avail myself of that. I am grateful for the Minister’s response. On the trivial commutation point, I entirely accept what he said about that issue. Certainly, if a new group is to be set up to look at these issues in more detail, it is entirely appropriate the issue of trivial commutation should be referred to that group.

I am pleased that we have moved on from the tone of debate on Second Reading, when, frankly, there was some entrenchment on both sides. The way in which the Minister has expressed his points, as well as the substantial suggestion he has brought forward in response to the idea from Age Concern, suggest that there is a new desire, in looking at this issue, to evaluate it properly, to examine the interaction with means-tested benefits, and to look at the level of predictability. The exercise he is proposing— guided, I hope, by Age Concern and some of the independent people who can become involved in this—is one that we on these Benches would welcome, and with which we wish to co-operate.

The Committee he is setting up will produce a report. Clearly, some of these amendments relate to reports to Parliament which Parliament can then debate. While I would be happy to withdraw these amendments, I hope that this report will not be kicked into the long grass, and that Parliament will be able to debate it so that Members in all parts of the House have a chance to express their opinions of what is said. With that, I beg to ask leave to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am happy to out myself as someone who missed the boat on the last group of amendments, but I shall say a couple of things that I might have said in that context in this stand part debate. I have two points to make. First, the Minister has developed a mantra about auto-enrolment as if it were an everyday occurrence. Apart from the fact that he conceded that there is an issue of degree in any event, moving from however many he thinks are auto-enrolling at the moment in existing schemes to what is fervently hoped will be mass auto-enrolment of up to 10 million people under personal accounts is a very different kettle of fish. I think that we can all accept that.

The National Association of Pension Funds sent me some Department for Work and Pensions figures suggesting that only 3 per cent. of employers who are currently contributing 3 per cent. or more to pension schemes use auto-enrolment. I do not know quite how that reads across to the figures the Minister has quoted. I think he refers to Tesco. There seems to be a conflict of evidence there. In any event we would still argue that we are in a totally different ball game in terms of auto-enrolment under the Bill.

The other point is more an attempt to try to tidy up where we go from here on pay to save and means-testing generally. I appreciate that consensus building is unlikely to extend as far as giving the official Opposition credit for raising particular issues which have been adopted by the Government, but I am delighted to hear that while we were screaming about means-testing and its effect on personal accounts in a different part of the same forest Age Concern was saying much the same thing. It all comes to the same in the end. Again, I should like to welcome the discussions that are now foreseen by the Minister.

We did not support the Bill on Second Reading for precisely the reason that I have set out on means-testing. It is perhaps an indication of how far we have come and how quickly that we did not pursue the amendments and the new clause in the last group as a result of what the Minister said. It would have been the height of churlishness. I never like to think of myself as churlish; that may be alright for the Liberal Democrats, but not for us. Conservatives are not into churlishness in any shape or form. It would have been churlish to have caused a rumpus or even a vote over those matters. I should just like to place it on the record that we are delighted, whoever is given the credit in public for this movement forward on these big and important issues, that that movement has happened.

Andrew Selous (Conservative, South West Bedfordshire)

Without wanting in any way to fall foul of your instruction to the Committee to have a short stand part debate, Sir Nicholas, I crave your indulgence because there are two completely new issues that we have not touched on at all which are significant in relation to clause 3. Of course, you could rule me out of order at any point should you think that I am straying into territory that we have already debated, Sir Nicholas. However, there are two issues that we have not touched on that are absolutely central to the Bill and which relate to clause 2.

Nicholas Winterton (Conservative, Macclesfield)

Order. The hon. Gentleman is always so reasonable, and I am quite relaxed this afternoon, but “short” is a matter of interpretation.

Andrew Selous (Conservative, South West Bedfordshire)

Being six foot five and a half, I am pleased to hear that.

The first issue that we have not so far debated is the age 22 stipulation in paragraph (1)(a). It is a slightly different state of affairs from the point I raised when I spoke to amendment No. 1 on clause 1. That was about the fact that over 75s were forbidden or unable to be part of the personal accounts scheme. Of course, because we have agreed on clause 1, people between 16 and 22 will have a right to enrol on the personal accounts scheme. However, I want to tease out the Minister’s thinking on why the core age runs purely between age 22 and the state pension age. A person could have six wasted years between ages 16 and 22, when they have started their working lives but are not in the personal accounts scheme. We are all keen to get people into the savings habit as early as possible, given the huge deficiencies in people’s pension pots that have come to light in recent years. If a young person begins their working life earning perhaps £5,035 per year, would it not be sensible to auto-enrol them? Of course, they would have the option to come out if they thought that they were going to be in a particular job for only a short period, or if they wish to study, or for whatever other reason.

I am mindful of placing too many burdens on businesses, and some young people move in and out of jobs frequently early in their careers, but that is not the case for all young people. I would welcome further elucidation from the Minister on the six-year gap between the ages of 16 and 22. My guess is that few people who are aged between 16 to 21 will actually step up to the bar and choose to be auto-enrolled, and I do not know whether the Government have any advertising planned to encourage people to volunteer, but it is an important point and I would be grateful if the Minister responded to it.

The other area that I wanted to touch on is the collection method for personal accounts. All businesses, and particularly small employers, are concerned about it. The Work and Pensions Committee dealt with the issue in March in its fifth report of the last Session. Recommendation no. 230 on page 56 of the report states:

“We would have expected the thinking on such a crucial keystone in the operation of the scheme, for employers, employees and the Authority and Board, to be more advanced at this stage, and we are deeply concerned that it is not.”

The report goes on to ask whether the PAYE scheme could not be amended to make life easier for employers. On page 55, the report states:

“Lord Turner admitted...that collections systems were ‘not an issue that we bottomed out fully’”.

Therefore, the Pensions Commission did not really begin to consider the issue, give it full scrutiny, or ask the Government to come up with proposals.

Businesses in general, as represented by the Federation of Small Businesses and Mike Cherry, are concerned about the matter. In our evidence session on 17 January, he told us that the federation is worried about the “on-cost” of creating a different system in addition to PAYE. It is not just the cost to businesses that are significant, which we all want to minimise given the extra 3 per cent. that will be added to employers’ payroll costs. There is also an issue of time.

Mike O'Brien (Labour, North Warwickshire)

Just to seek clarification, I am following the hon. Gentleman’s argument, but I am not sure that I have understood one part of it. He is suggesting that PAYE should be the means of collection for personal accounts, but is he suggesting that it should be the means of collection for all other pension schemes?

Andrew Selous (Conservative, South West Bedfordshire)

No, I am not suggesting that. I will come back to that point, because the Minister touched on it when he gave evidence to the Committee. At the moment, I am touching on the issue purely of personal accounts and enrolment. That will cause a significant extra monthly administrative task for millions of small businesses up and down the country. I am pleased to see the hon. Member for Ochil and South Perthshire (Mr. Banks), a member of the Federation of Small Businesses. This may be an issue that he wants to furnish the Committee with his opinion on from his business experience.

There is not just a monetary cost in creating another system. It is about time as well, particularly for small businesses, which do not have the resource of a personnel department that can do these tasks. There are many issues that they have to deal with month by month of a regulatory nature, to fulfil all of their obligations. It is important that the monetary cost of collecting the personal account contributions and the time that it takes are both minimised.

I know that the Minister is aware of this issue, but I am nervous that we are proceeding through the Bill and do not yet have the clarification that millions of businesses up and down the country want. I will be grateful if the Minister tells us where the Department’s thinking is on this issue and what the plans are. Is it possible to ally the payment in some way with PAYE, notwithstanding the difficulties that he has already told us about?

Lastly, as far as the PAYE computer system is concerned, I turn to the evidence that the Minister gave to the Committee on 17 January. Having reread what he said in answer to question no. 154, which I put, he said that he wanted to be mindful—if I read his argument correctly—of not over-favouring the administrative systems for personal accounts as against other forms of pension contribution. That is a fair point because we want a level playing field.

This issue is about a balance of priorities. Given the scale of auto-enrolment that we are looking at up and down the country for millions of our fellow citizens and millions of businesses that have not contributed to pension funds on behalf of their employees, I think that there is a stronger counter-argument that it should be the Government’s top priority to have administrative ease by reducing both the cost and the time of collecting the personal accounts. We are not talking about making life more difficult for any other form of pension contributions. They are coping at the moment. I think that ensuring that our businesses and our economy are not unduly burdened should be the priority. I would be grateful if the Minister also addressed that point in his response.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Like the hon. Member for Eastbourne, I believe that the Government’s new approach to paying to save and to means-testing is a welcome step forward. I just hope that in the course of this debate the Minister will clarify one thing. If the body being set up is to produce a report, it would be useful if he put it on the record that, although it will not make any recommendations, and although the Government have made no commitment to act on anything in the report, none the less Parliament will have an opportunity to debate it. It is important to ensure that Members on both sides, who have expressed concern about means-testing, have a chance to debate that matter on the Floor of the House. The Bill will have been enacted, or at least all of the Commons stages will have been completed, before the report from this august body is published.

The hon. Member for South-West Bedfordshire made an important point about the lower age limit of 22. I echo his points about the fact that at least some young people aged between 16 and 22 will be disappointed to miss out on automatic enrolment. They might be embarking on a career, and not just changing jobs every few months, as often happens at that age. The ability for them to join the personal account would be useful.

The Association of Chartered Certified Accountants raised a point with me relating to the automatic enrolment date, which is provided for in clause 3(6):

“The automatic enrolment date, in relation to any person, is the first day on which this section applies to the person as a jobholder of the employer.”—

in other words, on the first day of their employment, as I read it. That seems sensible; it is how many existing occupational pension schemes—the person joins on day one.

In its briefing, the ACCA pointed out that some times when an employer automatically enrols someone on day one, and when that is also the date on which they first receive the information about the personal account, it might take a while for the employee to digest the information—perhaps a few weeks or a month. After that, they will decide whether to remain enrolled. It is quite clear from the Government’s forecasts, for the numbers of people expected to enrol in personal accounts versus the number of people in the target audience, that it is predicted that a significant number of people will choose to opt out. In those cases, presumably the employer will have to repay the contributions or work with PADA to do so. Might that not place an unnecessary additional burden on employers by providing for an additional administrative layer? I have some sympathy for the view that automatic enrolment should take place on day one, but we should consider the burden on businesses. I would like to hear from the Minister whether he or his Department have considered that point.

Mike O'Brien (Labour, North Warwickshire)

Let me begin with the points made by the hon. Member for Eastbourne. I think that his NAPF figures relate to its members, whereas the wider issues on automatic enrolment also concern public sector employees and others. I have been advised that one in six employers are currently automatically enrolled.

On his broader comments on the Bill, I welcome the constructive approach that he has adopted. He indicated that the Conservative party has come some distance, and indeed so have others. That is all part of the process of discussing and evaluating the arguments, and of seeking to maintain a consensus. However, to use a phrase that the hon. Gentleman has often used and that I accept: a consensus is not a blank cheque. It is the ability to question, challenge and ensure that the debate is properly engaged in. I have no problem with that, and we have sought to respond to the debate and ensure that we move it forward, recognising that these issues must be properly discussed.

The hon. Member for South-West Bedfordshire asked a couple of questions. First, he asked, as did the hon. Member for Inverness, Nairn, Badenoch and Strathspey, why we do not have automatic enrolment from the age of 16. There are a number of reasons for that, but I want to make clear that a 16-year-old will have the right to join a personal account and to have an employer’s contribution. However, it will effectively be a voluntary joining by the 16-year-old should they, or indeed anyone up to 22 years old, want to do so.

The issue is about at what point to impose legal obligation on employers. We are conscious, as the hon. Member for South-West Bedfordshire indicated, that 16 to 22-year-olds change their employment regularly. Many are students and will be employed for quite short periods. Some will go over the £5,035 figure during their period of employment, but they will only be employed in a temporary job during that year. Therefore, particularly for 16 to 22-year—olds, there were a number of issues to take into account. As part of the process of consulting and discussing with employers’ organisations, we took the view that the creation of a legal obligation for automatic enrolment, in addition to the employers’ contribution that exists from the age of 16, would create a greater administrative burden for 16 to 22-year-olds than it would do for the majority of people over that age. We decided that 22 was a sensible age at which to impose that obligation on employers. To do so below that age would have produced an obligation that we felt to be somewhat excessive and probably, in some cases, likely to lead to burdensome steps, particularly where people were employed for short periods.

On the method of collection for personal accounts, the hon. Gentleman suggested, as did the Work and Pensions Committee, that we should look at linking it to PAYE and use one of the official mechanisms such as Her Majesty’s Revenue and Customs or one of the taxation bodies. We looked at that, and there are several problems with it. There is the obvious administrative issue that the tax system has a lot of work to do, and any additions increase the burden on the system, creating, by theirs own nature, more inefficiencies. It was not a good thing to do unless we had to, and we did not think that we did.

The more important question is about what this would do to the market. As the hon. Member for South-West Bedfordshire indicated, one of my key concerns was that we should create a system of personal accounts that complements, rather than competes with existing provision. There is a fair degree of concern, particularly among insurance companies and others, that we are creating a personal accounts system that will move into a market in which they themselves are competing.

If we were to give our personal accounts a competitive advantage in terms of the means of collection, by saying to employers, “If you have this pension provider or personal accounts, you will be able to use a more simple method of provision”, two things are likely to happen. First, the competition in that area of the market will say that personal accounts have a competitive advantage denied to them and that has been done by the state. More particularly, some employers might be tempted to trade down and to move into personal accounts in order to take advantage of that mechanism.

Our view is that it would be better to leave it to the various means by which pensions are collected today. We do not seek to create impersonal accounts with a product and an organisation that will have a substantial competitive advantage. We expect it to move into a market—for the low paid in particular, but also those on moderate incomes—in which, to be fair, there is not enough profit for most of the commercial sector.

Companies such as Aegon and Standard Life operate in that market, but only in niche parts of it. They want employers of a reasonable size that will give them a reasonable payment in return. Some areas of the market, particularly small employers, those who employ only one, two, three or four people—perhaps a chippie, a garage or a hairdressers—are often not sufficiently commercially viable to become involved with the various pension providers at the moment.

We expect personal accounts to move into this area. In a sense, it will therefore be accepting a position that is not for other commercial providers. It will say, “We will operate in an area in which, on the face of it, there is not a vast profit to be made. We will be available to all these employers, whether or not we would have done so if we were making a purely commercial decision.”

There will be an extra burden on the Personal Accounts Board and on personal accounts to provide something that the commercial organisations will not provide. We are therefore prepared to give them some facilitation and some encouragement, some compensatory support to go into that market, but we do not want to disrupt the overall commercial market. We do not want to create such a competitive advantage that employers are tempted either to get out of their current provision or to not even look at commercial private-sector provisions because the public-sector provision is so strongly competitive.

On the other hand, I can tell the hon. Member for South-West Bedfordshire that we are looking for collection to be linked simply to the payroll system. We are looking for PADA to create a low-cost, simple collection method. It knows perfectly well that it will be dealing with a number of employers that are very small in terms of numbers, that are often not well provided for in terms of accountancy support or backup; and they sometimes may not have higher educational qualifications. We therefore need to create a straightforward and simple low-cost method. We asked PADA to advise on the best method of providing that sort of simple and straightforward collection method, but we do not want to provide it with a competitive advantage.

Andrew Selous (Conservative, South West Bedfordshire)

I read somewhere that it is intended that personal accounts collection should be entirely online. Will there be an option? Some very small business might prefer to get the cheque book out once a month and send a cheque to PADA. Is that an option, or has it been totally ruled out?

Mike O'Brien (Labour, North Warwickshire)

That has not been ruled out. It is a matter for PADA to consider. In some cases, it may prove not to be practical to do it only online. We have to consider the matter because some employers will not have mastered the online facilities that are available to many of us. We have to ensure that the garage owner, who is probably very good at mending cars but may not be very good at running a computer system or an accounts system, to continue his business and to employ the extra person that may be needed to do the paperwork. It has to be fairly straightforward.

The straight answer to the hon. Gentleman’s question is that we have not ruled out someone sending a cheque. We want to ensure that procedures are simple, but we also want to keep the costs down. We do not want to have idiosyncratic collection systems that drive up the cost for the rest of those participating. There is a balance to be struck.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) asked about a parliamentary debate, about which I can give no commitments. There will be a report back by the group which Age Concern suggested, and to which we responded positively. That will set out the background information. As he indicated, we are not looking for recommendations and we do not expect any in a report—we expect an elucidation of the nature of the debate and of the issues in the debate, rather than anything else. We give no commitments as to how we will respond. The response will be for his party, others in the Opposition and the Government to decide when we see the document. Debates and whether there shall be debates in the House of Commons are for the usual channels; I will not seek to intrude.

In the hon. Gentleman’s other question, he asked—a fair point—about the issue of when an employer is enrolling an employee on day one. The employee spends some time looking at the documentation and decides to opt out; that will happen. The key question is when the obligation arises for the employer to make payments into personal accounts. From what point does he have to start paying? That does not mean when he administratively puts in place the mechanism for him to pay for employee X. He may give employee X a week or two to decide whether he wants to opt out or not—but the employer’s obligation begins from day one. The employer has to be prepared to pay a contribution in but, provided that the procedures have been gone through, that it is known that an employee has opted out and that the opting out has been registered, then there is no obligation on the employer to start making contributions for someone who has opted out. The employer will, however, have an obligation as from day one to make contributions where a personal account system has been set up.

We will shortly come to the exception. All that I have said is “caveated” by an exception: it is possible to defer payments in from day one in certain circumstances, but we will come to that in the next clause. I hope that that deals with the issue for the hon. Member for Inverness, Nairn, Badenoch and Strathspey and that we will be able to approve the clause.

Clause 4

Mike O'Brien (Labour, North Warwickshire)

I beg to move Government amendment No. 117, in clause 4, page 3, line 1, leave out subsections (2) and (3).

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendment: Government amendment No. 118.

Mike O'Brien (Labour, North Warwickshire)

I was referring to automatic enrolment from day one. However, there is an exception, which we come to now. What we have at the moment is a number of employers who provide perfectly good pension schemes for their employees. They make a contribution that may be above the 3 per cent. minimum that we are requiring. We want to cause the minimum possible disruption to current good-quality pension provision. Therefore, the objective of the clause is about where an employer is making a fairly good-quality contribution—we reckon at least 6 per cent., or double the minimum—and there is a deferral of entry.

For example, Tesco defer for a year at the moment before someone is automatically enrolled into their pension scheme. One has to be employed for a year and then one is automatically enrolled, as I understand it—I can be corrected if I am wrong. The result is that we would say that we do not want to change it unless we need to. However, one year is rather a long time and we would rather have a period of about three months. We do not want to put that in the Bill now and we have time to discuss it with employers and to consider the sort of period that will be best for ensuring that we keep a good quality provision. Some employers have very strong views; if they make a contribution of, say, 12, 13 or 14 per cent., as some good employers do, there may be an argument for giving them a longer deferral period.

We need to have a sensitive discussion with employers. We want to give ourselves flexibility in the coming months or possibly even a year or so. To have such a discussion would ensure that we get the detail of regulations right. Three months is the sort of period we are considering as a reasonable maximum but I am not being dogmatic about that as we are prepared to discuss it further as part of a consensus-building approach when we may consider some sliding scales or say that three months is right.

The amendments clarify what we are doing. We want employers using a deferral period to follow the arrangements set out in clause 3. We want automatic enrolment and we want it to be done properly; amendment No. 117 puts that clearly in the Bill so that employers know that there is another procedure.

Amendment No. 118 is uncontroversial. It clarifies the fact that employers can get a deferral period for a reasonably good scheme, but they cannot then switch the employees to another scheme that is not so good; in other words, they cannot manipulate the system. Employers can keep the deferral period provided that they keep their employees in the scheme for which they are seeking the deferral. They cannot use it to move in and move out of a scheme.

I doubt that many employers would be tempted to use that trick but we want it to be clear in the Bill that they cannot do so. If they seek a deferral it must be to enrol someone in a better quality scheme than the minimum. In those circumstances we accept that an element of deferral may be possible if current arrangements are in existence.

The provision would particularly benefit employers who have a high turnover, but it will mean that in order to take advantage of the clause and the amendments they would need to have a better quality pension scheme than the absolute minimum. There is a reasonable trade-off, which has been discussed with various stakeholders. It is fair to say that stakeholders have different views but what is proposed is a sensible compromise that enables us to make a reasonable provision.

I have looked with care at the percentage level at which we enable the deferral period to come in, given the employer contribution. It has been suggested that the level should be 9 per cent., 10 per cent. or 6 per cent. I chose 6 per cent. primarily because I want a minimum of churning, of decision making and of opportunity for people to decide to level down. The proposal is part of that process; the less we require employers who have reasonable provision to do, the better in terms of levelling down.

I hope that the Committee will accept the amendments and the clause.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister for his explanation of the amendments and clause 4. The amendments are entirely sensible. Amendment No. 117 is a way of tidying up and ensuring that clause 4 is in line with what is stated in clause 3, and the strengthening provision of amendment No. 118 is sensible also, so I understand where the Minister is coming from. However, I have a couple of questions about the Minister’s introduction to clause 4. I am grateful for his comments on clause 4 generally because he has provided a lot more information than I have been able to obtain, either from the explanatory notes or from the House of Commons Library brief. I would be grateful if he provided a little further clarification on a number of points. He mentioned, by way of example, the Tesco scheme. If I understood him correctly, he said that employees are not enrolled in the scheme at all for the first year, but that after that year they are and it would pass his test of what counts as a good scheme. I am unclear whether Tesco would retrospectively make contributions for their employee for that first year. Perhaps he can respond later, unless he wants to intervene now?

Mike O'Brien (Labour, North Warwickshire)

I will not pre-judge whether the Tesco scheme will fit our criteria or not, I want to look at it in more detail. I have had discussions with Tesco, it runs a defined contribution scheme on which employees are auto-enrolled after a year. In those circumstances Tesco would not make back-dated contributions to the start, but from the point of enrolment. In terms of the people who would be automatically enrolled if we moved to three months, they would receive their employer’s contributions as from three months, not as from day one. There would be the option of a deferred period for automatic enrolment and contributions.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister for that clarification. I must admit that when I first looked at clause 4, I assumed that schemes that paid an employer contribution of 3 per cent. or more would fit the Minister’s criteria for an acceptable scheme. I now realise that that is not the case and we shall have to wait for specific regulations from the Minister on the exact balance of employer contribution, when the scheme kicks in and various other factors to determine whether a scheme will pass a reasonableness test. He mentioned a 6 per cent. contribution figure; I do not think that he totally committed himself to that, but that is perhaps a helpful general clarification for employers in this area.

Mike O'Brien (Labour, North Warwickshire)

I am fairly clear that 6 per cent. is the level at which I want this to kick in. The pressure on me, in terms of the views of stakeholders, has been that we should set the figure higher rather than lower. I have tended to take the view that in order to minimise disruption for employers and levelling down, we should set it at the lower level of about 6 per cent.

Andrew Selous (Conservative, South West Bedfordshire)

We are going to have to take on trust what the Minister is doing. I have no reason not to extend trust to him in this particular area. In terms of not wanting to disrupt existing good provision as the Minister suggests, we are in agreement with him. We shall have to wait to see the specific regulations that he brings forward, having had further discussions with those in the industry—employers and specialist interest groups.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

Like the hon. Member for South-West Bedfordshire, I think that the amendments are sensible. They are intended to strike the right balance between not giving employers undue incentives to level down and preserving the right of pension holders, employees, to get a decent pension.

I have one question to ask the Minister. What process does he have in mind by which employers will register to take advantage of the deferral period? In the light of the conversation that we had on the previous clause, there will clearly be some benefit to doing so. The Minister hinted that it would be a quasi-automatic process based simply on employer contribution. Will there need to be a one-off registration process administered by PADA, for example, or will a record of the level of employer contributions mean that a deferral applies? Businesses will have to be notified if they are eligible for the deferral period, so that they can make use of it if they need to. I should like a little more detail on the practicalities and reassurance that they will not be unduly burdensome in delivering a potential benefit to employers.

Mike O'Brien (Labour, North Warwickshire)

The whole idea is that the employer can self-certify his scheme. There will not be a registration process. We want to make the rules explicit so that he can make a judgment that his scheme enables him to self-certify, and he will then be responsible for it. He will be able to get advice if he wishes, but that is essentially the approach.

PADA would not give him a certificate, because in a sense it is just another provider, although it has wider obligations. If a certificate were to be issued, it would have to be by the Pensions Regulator, but we do not intend that to happen. The employer will examine his scheme and see whether he is making contributions above a certain level. We want to make the rules as clear as possible so that he can say, “Right, I don’t have to be concerned about having to enrol everyone and set up a pension scheme on day one. I have got my three-month deferral period”—for example—“before I have to enrol everyone, because I go over the level.”

Julie Kirkbride (Conservative, Bromsgrove)

The Minister has put some good arguments for his plan. From the opposite perspective, why is he excluding schemes that make contributions of between 3 per cent. and 6 per cent.? After all, those are companies that have been doing the right things and providing something for their employees by making a contribution that, if an employee stays there for a considerable period, will make a considerable difference to their pension pot because it is above the 3 per cent. state minimum. If there is to be a three-month waiting period, why cannot all schemes that already exist qualify?

Mike O'Brien (Labour, North Warwickshire)

That is a good point. Part of the process of deciding on the level was to consider all the circumstances of pension schemes, because they have administration costs and running costs. It would be very easy to set up a pension scheme with a high running cost. For example, personal accounts could have 0.5 per cent. or 0.3 per cent. running costs in the long term. Employers’ contributions can be used up in that running cost, so the employee does not get the benefit of them. In order to create therefore a cushion, we need a certain amount of flexibility, and some trade unions, for example, are concerned that the level at which the exemption—the provision—kicks in should be higher than 6 per cent., because the cost of running the system could be quite high. Some systems, if they allow a lot of choice or are complex, will have high administration costs.

Essentially, the answer to the hon. Lady’s question is that I do not want to create a set of complex rules that say things like, “You can self-certify if your contribution is at 4 per cent. and your administrative costs—your pension scheme—remain at 0.3 per cent.,” among other conditions. I would rather have a clear and straightforward set of rules, so that a small employer who has enrolled his employees in a scheme that operates before 2012 and is fairly straightforward can just say, “They’re all signed up, I’m paying over 6 per cent., I can self-certify, it’s fairly simple and straightforward. That gives me a deferral period of this long, and I know what the situation is.” He does not have to get advice from an independent financial advisor. The issue is about getting the balance right between that level of protection against administrative costs, and making self-certification as simple and straightforward for a small employer as I possibly can.

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 14, in clause 4, page 3, line 15, at end add—

‘(7) The length of any such postponement shall not exceed 6 months.’.

The amendment would add new subsection (7) to the clause and stipulate the maximum time for which automatic enrolment could be deferred. The Minister has mentioned three months on several occasions during earlier debates, which is half the time that the amendment stipulates, at six months. The amendment would ensure a level playing field for all employers, because there is a competitive advantage for employers who do not make any automatic enrolment contributions to a scheme. An employer, in a business in which margins are tight, may compete against another who does not make such contributions, and 1 or 2 per cent. can make a difference to winning business and getting orders.

Paragraphs 2.38 and 2.39 of the regulatory impact assessment mention a possible three-month limit for the postponement of automatic enrolment, but it became clear from our earlier debate that we will have to wait for regulations. We would feel more comfortable if there was a time limit in the Bill, so it would be helpful if the Minister said when he expects to bring forward regulations on clause 4, because it raises significant issues, particularly about competitive advantage for employers.

Mike O'Brien (Labour, North Warwickshire)

I have been asked when the regulations were likely to be brought forward. We would want to have a proper discussion with stakeholders, and it will be some time before we are in a position to do that. I cannot give a clear view on a time scale, but I would guess that we would be able to have that consultation during the course of this year. We need to have discussions with employers, and to have the regulations drafted. I would like, then, to consult on the regulations; so it will be the early part of next year before anything is brought before the House. Bear in mind that we have a time scale of 2012, providing that people have sufficient warning and the ability to contribute to the discussion.

I am afraid that I would reject setting a six-month period, although I assume that the amendment is a probing one in any event, so I will not spend any more time trying to rebut the arguments. I understand the position that the hon. Member for South-West Bedfordshire has taken.

Andrew Selous (Conservative, South West Bedfordshire)

What the Minister said when he introduced the debate on clause 4 was helpful. In light of what he said then and what he has said now, particularly about the time scale for bringing out the regulations, I beg to ask leave to withdraw the amendment.

Clause 5

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I beg to move amendment No. 80, in clause 5, page 3, line 33, leave out subsection (6) and insert

‘The automatic re-enrolment date shall be 1st April of each year’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 15, in clause 5, page 3, line 34, leave out from ‘that’ to end of line 35 and insert

‘fall at the beginning of the tax year in any relevant year for all jobholders.’.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I look forward to the first contribution of the Under-Secretary of State for Work and Pensions to the Committee, in response to the amendments in the clause. I do not know whether he is good cop to the Minister’s bad cop, or maybe it is the other way around. We shall see.

The clause deals with automatic re-enrolment. It makes a great deal of sense to ensure that there is a regular opportunity for people who opt out to reconsider their position to be automatically re-enrolled. The amendment is fairly simple, so I do not intend to dwell on it for a great length of time. It is to try to establish that the timing of automatic re-enrolments be of maximum convenience to the employer, for reasons of administrative efficiency that we have been discussing previously. I think that that is also the purpose of amendment No. 15 tabled by the Conservatives. I note, for example, that the Engineering Employers Federation suggests that it hopes that that will include allowing employers to undertake the process on a fixed date, such as the start of the tax year.

Amendment No. 80 gives 1 April, the start of the tax year, as the suggested date, rather than the anniversary date of when the individual chose not to be auto-enrolled. If it was on that anniversary, automatic re-enrolments could go on in large companies almost every day of the year. One would wish to avoid that, in the interests of administrative efficiency. Whether the Government choose to accept the amendment or not, I hope that the Minister will accept the principle that automatic re-enrolment should fall on a specific date, perhaps every year, and that choosing a date, for example at the start of the tax year, that fits in with other changes that employers might be making in tax and salary rises would minimise the administrative burdens on employers. That would make the automatic re-enrolment process easier and, of course, more likely to go without a hitch.

Gordon Banks (Labour, Ochil and South Perthshire)

To clarify a point, is the hon. Gentleman saying that the individual enrolment day he is proposing could be different for every company, and that it would be a date that would suit, let us say, the financial calendar of an individual company?

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

It is good to hear from the hon. Gentleman who, as has been said before and as he made clear in the evidence sessions, is very knowledgeable about matters relating to small businesses. I would take his advice on that point.

Clearly some businesses operate tax years on a different basis, so the approach set down in the Conservative amendment might be preferable to the fixed calendar date in amendment No. 80. The point that I am trying to establish is that there should be a fixed date every year, two years or whatever, when automatic re-enrolment takes place at a date that is most convenient to the company. The start of the tax year would seem an obvious date. That is the simple point that I am trying to make. I do not think that I need to dwell on it .

Andrew Selous (Conservative, South West Bedfordshire)

I agree with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that our amendment No. 15 is similar to amendment No. 80. He said that his amendment was inspired by the Engineering Employers Federation. Ours has also been in part inspired by what it had to say. I note that the recommendation of the Work and Pensions Committee to the Government was that they should adopt this recommendation that re-enrolment should take place for all employees en masse at the end of the tax year in order to reduce the administrative burden on employers.

I am pleased to note that the Government in their response to the report said at paragraph 130:

“We have been working closely with employers and their representative organisations to design a scheme that minimises the burdens on business.”

I am sure we are all keen to support that. At the moment, employers would have to track the start date and 22nd birthday of all their employees at three year points from all those dates. Instead of having all the dates flagged up on a computer, with letters going out to everyone and re-enrolling everyone in one go, and instead of it being a simple one-hit task that is done once a year, it will be a monthly problem for employers.

Again, I make no apology for repeating that we are bringing the world of pensions and contributions to some very small businesses. The Minister mentioned a garage earlier. Think of the small hairdresser or the very small sandwich bar with one or two employees. Those are not organisations that have large personnel and compliance departments that can make sure that this is done easily. If the Minister does not like amendments Nos. 15 or 80, I hope he will have something pretty convincing to say to the Committee about how he will make this work simply and effectively and with the least hassle.

James Plaskitt (Labour, Warwick and Leamington)

It is now my turn, Sir Nicholas, to say how nice it is to serve under your chairmanship and to deal with the amendments that have been tabled on clause 5. I am grateful to the hon. Members for moving them in the way that they have. We have already established that there is strong support across the whole Committee for the concept of automatic enrolment. I hope it therefore follows that there is equally strong support for the principle of automatic re-enrolment. The issue is about the timing and the way in which we can minimise the burdens for employers in carrying out this equally important part of the process we are establishing here.

There will, of course, be perfectly reasonable reasons why some employees might wish to opt out. But it is therefore important that a prompt is also built into the system that gives them once again the chance to consider whether they should be back in the system. The best way of doing that is by having an automatic re-enrolment process at a suitable interval. That is why these clauses include provisions that enable the Government to require the periodic re-enrolment of job holders who are not participating in a qualifying pension scheme——a timely reminder, through the process of re-enrolment, could make all the difference for some employees. Without that facility, they might not again consider revisiting the decision that they have made.

We are conscious of the burdens that re-enrolment places on employers and on schemes. That is why we decided that re-enrolment should happen not more frequently than once every three years and why we placed that safeguard in the Bill. Support for that stance came during our evidence sessions from the consumers, represented by Which? and from employers, represented by the CBI. They both endorsed strongly the three year re-enrolment period.

The amendments would establish a link between the re-enrolment date and the beginning of the tax year. Amendment No. 15 would do that every time the enrolment is triggered. Amendment No. 80 would establish re-enrolment on the same basis, but trigger it every year. Having re-enrolment every year could triple the employer burden compared with our proposal if people who have persistently chosen not to save still choose not to save and opt out 12 months later. Instead of a three yearly peak in activity, the peak would be annual.

We hope that people will stay with pension saving, but there is a balance to be struck between periodic re-enrolment when a person’s circumstances might have changed and virtual harassment. Re-enrolling job holders every year would be overdoing it. There is a risk that the message could become so routine for those individuals that it is devalued rather quickly and so more readily dismissed than it would be were it to come up every three years.

I emphasise that we are still considering the implementation of re-enrolment and the process by which it will occur. As the hon. Members who have spoken on the issue have indicated, we need to strike the right balance between the benefits for job holders and the impact on employers. We need to fully understand the impact of re-enrolment on employers and on schemes. I have therefore asked the personal accounts delivery authority for advice on this issue and on how it would be best implemented. We also need to discuss with other stakeholders how best to introduce the policy so that it minimises the burden on employers and on schemes.

In effect, there is a range of options on the timing of re-enrolment which could be used to smooth its administrative impact over a calendar year, a tax year or some other period. The hon. Member for Inverness, Nairn, Badenoch and Strathspey suggested that one date could be chosen on which all employers must do automatic re-enrolment. A certain logic points towards the tax year, but that might not be the appropriate single date for all employers. Some will have different forms of financial years. My hon. Friend the Member for Ochil and South Perthshire noted that the case for simplicity in respect of some employers might point to one date, but the same simplicity argument might point to another date for another employer. While the principle of one date has a clear attraction, moving from that to saying that it should be the start of the tax year will not necessarily meet the criteria that employers reasonably have in this area.

There is also the option of aligning the three year automatic re-enrolment to the date on which the individual opted out. That would create another set of complexities for many employers. Those with highly automated payroll systems might not find it at all burdensome. They would simply have to log, at the point of the individual opting out, a time three years hence when they will automatically be re-enrolled if they are still with the firm. That would not be so easy for smaller companies, which do not have such sophisticated processes. Those are the reasons why we need to go on discussing the matter as we are committed to doing. However, by tying the process of re-enrolment to the start of the tax year, the amendments would perhaps create a peak in the underpinning administrative activity, which would affect employers and schemes, and incur associated costs.

The Government have already made a public commitment in the consultation response to the White Paper to take account of further analysis and advice from the delivery authority, and to consult with stakeholders and the industry, before we take our final decisions on the actual period of, and mechanism for, automatic re-enrolment. I hope that with those reassurances, hon. Members will be happy to withdraw their amendments.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I am grateful to the Minister for that full response. I am pleased that he is attracted at least to the idea of having only one date in the period. There are some attractions to that proposal, so I am pleased that the Minister is consulting business and that he has asked PADA for its advice—that is the right approach.

Andrew Selous (Conservative, South West Bedfordshire)

Does the hon. Gentleman agree, as I hope the Minister will, that the scheme needs to be flexible and permissive rather than prescriptive? Having heard the debate, does he agree that amendments Nos. 15 and 80 would not do that job? However, I hope that he will be satisfied like me with a ministerial commitment to come back with another draft following his consultations. We want the scheme to be flexible and permissive, to give maximum flexibility and to reduce burdens on businesses.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

The characteristics that the hon. Gentleman set down for dealing with the matter are exactly the kind of thing that we are looking for. I believe that it will be dealt with more by regulations than in the Bill, but the Minister spoke about listening to advice from external sources such as business organisations and PADA, so one hopes that we will come to the same conclusion. I beg to ask leave to withdraw the amendment.

James Plaskitt (Labour, Warwick and Leamington)

I beg to move Government amendment No. 119, in clause 5, page 3, line 36, leave out ‘(2)’ and insert ‘(6)’.

This is a drafting amendment to correct the construction of the clause. It ensures that the correct reference is in place. In effect, it will simply alter a number, so I hope that it will be agreed to as a technical drafting amendment.

Clause 6

Mike O'Brien (Labour, North Warwickshire)

I beg to move Government amendment No. 120, in clause 6, page 4, line 6, leave out subsection (4).

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 70, in clause 6, page 4, line 12, at end insert—

‘(5A) The regulations must provide for the notice—

(a) to include information about the effect in relation to jobholders of giving notice under this section, and

(b) to be signed by the jobholder’.

Government amendment No. 122

Mike O'Brien (Labour, North Warwickshire)

Government amendment No. 120 removes the restriction on jobholders that prevents them from opting in more than once every 12 months. Government amendment No. 122 enables the jobholder to request access at any time to workplace pension saving with an employer contribution, but does not oblige the employer to act on more than one request every 12 months. Should the employer choose to accept an additional notice made within that period, he must enrol the jobholder in accordance with the prescribed opt-in enrolment process. This means that employees cannot be disruptive by playing hokey-cokey with the pensions system, opting in and opting out.

If someone has opted out, that person is entitled to opt back in at some point during the year. However, as the employer need not accede to an opt-in request more than once during the year, the employee can make such requests, but the employer does not have to act upon them more than once. This will work as follows. Once a year, the employer will accept employees opting in and, at that date, will opt in those who have requested to opt in. This is a fairly straightforward process, and the amendments clarify the situation in respect of the way in which employers would be able to operate.

Amendment No. 70 seeks to prescribe the process by which a jobholder is able to trigger an opt-in, and obliges notice to be given in a particular form, signed by the jobholder, with particular information being provided. My reason for opposing this is not that I particularly object to the provision proposed by the amendment, but that I would rather this be done in regulations after we have consulted with the employers’ organisations and have had a further opportunity to look at how this process will work in detail.

The terms of a particular form are, I think, better dealt with in that way, unless it is a form of great substance, as in the case of the Police Criminal Evidence Act 1984. The way in which a form is laid out may change from time to time, and I think it is much better to deal with it in regulations, rather than trying to put it in the Bill. I have no great objection in principle to what amendment No. 70 seeks to do: I just think these issues are better dealt with elsewhere, and we will come to deal with them in terms of the way in which various forms might be dealt with—I think that is in clause 8, “Information to be given to jobholders”.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister for his explanations in relation to Government amendments Nos. 120 and 122. They seem entirely sensible and I understand what the Minister is trying to do with them. I was pleased to hear the Minister say that he was not opposed to the principle of amendment No. 70. Our reason for tabling it is to seek clarity, to help the employer have clear records about who has and has not opted in, and perhaps to prevent any come-back against the employer if, at a later date, the employee says, “What is this deduction on my wage slip at the end of the month? I don’t remember authorising you to take any more money from me”. It is just to give that degree of protection to the employer and have a proper audit trail. That is where we are coming from, but the Minister has said that he is sympathetic to those type of actions and seeks to clarify how that would happen by way of regulation at a later date. With that commitment from him, I do not wish to press amendment No. 70 to a vote.

Mike O'Brien (Labour, North Warwickshire)

I beg to move amendment No. 121, in clause 6, page 4, line 15, after ‘qualifying’ insert ‘scheme which is a’.

The effect of the amendment would be to ensure that where a personal pension scheme is concerned under the provisions it must meet the definition of a qualifying scheme. With regard to how it would operate, clause 6 effectively extends the benefits of workplace pension savings for job holders on a voluntary opt-in basis. Job holders who opt in under the provision will be enrolled in an automatic enrolment scheme.

Subsection (6) enables the Government to regulate to allow an employer to use a qualifying personal pension scheme in place of an automatic enrolment scheme. That might benefit some employees. Indeed, a number of employees prefer a personal pension scheme for their own reasons. Providing that they are going into a pension scheme, I am content that they go into a personal pension scheme of their choice.

The amendment corrects the drafting for the provision that aligns with clause 3(5) and clause 5(5), which provide for the same in respect of automatic enrolment and automatic re-enrolment. That ensures that where a personal pension scheme is concerned under the provision, it must meet the definition of a qualifying scheme. I hope that hon. Members will be able to accept the amendment.

Clause 7

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 71, in clause 7, page 4, line 25, after ‘refunded’, insert ‘to the jobholder’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 72, in clause 7, page 4, line 28, after ‘refunded’, insert ‘to the employer’.

Andrew Selous (Conservative, South West Bedfordshire)

These are two brief amendments that seek to clarify what is on the face of the Bill. Currently, subsection (3) deals with contributions being refunded, as does subsection (4), but it is not entirely clear that contributions are to be refunded to the job holder and the employer respectively, and that is all that the amendments seek to do. For the avoidance of doubt and possible litigation, when money is to be paid back, it is important that it is clear to whom it is going. I hope, therefore, that the two amendments will find favour with which ever Minister is to respond.

Mike O'Brien (Labour, North Warwickshire)

The clause ensures that jobholders automatically enrolled into work place pension savings schemes, but who decide not to save, have the right to opt out. People’s circumstances and preferences vary, and it is important that individuals remain free to decide whether private pensions saving is for them. A jobholder can opt out by giving notice in accordance with regulations to be made under subsection (2). The intention is that any contributions paid by the jobholder before their notice to opt out takes effect will be refunded to the jobholder. Similarly, any contribution paid by the employer during that opt-out period will be refunded to the employer.

The amendments would, however, make the jobholder the only possible recipient of a refund of a jobholder contribution, and the employer the only possible recipient of a refund of employer contributions. Although we can all agree with the intention, the implications up putting that in legislation for existing schemes, of which we need to take account, are immense. We cannot be certain at this stage about how the refund of contributions will operate or about the full implications for tax purposes. However, the first destination of a refund of jobholder contributions might need to be the jobholder’s employer in order to enable income tax to be deducted from earnings, which is not a pension contribution and, therefore, no longer entitled to tax relief.

By preventing the refund going the employer in the first instance, amendment No. 71 would require a scheme to know all the relevant details for all individuals, and would require those individuals, were they to receive a refund direct, to make arrangements to pay tax due on what are now earnings. With regard to employer contributions, the intention is that employers engaging with personal accounts should receive a refund of their contributions if the jobholder opts out during the opt-out period. However, amendment No. 72 would apply to all employers regardless of what scheme they use to discharge their duties. Some employers do not require refunds when a jobholder opts out. For example, some choose to leave employer contributions at the disposal of the scheme trustees when a worker opts out, either as a contribution to administrative costs, or to be used by trustees for the benefit of other members. The problem is that that is a highly technical area, and if we start making changes to current schemes, we would need to approach it with an enormous degree of caution.

Procedures for handling the return of contributions will be a matter for detailed consultation with stakeholders, including the delivery authority, as we develop the regulations. They will set out the time limits for refunds and specify how they are calculated and paid. That approach will also ensure that tax issues are fully addressed. However, I want to make it clear that whatever the regulations prescribe for the process, the refund due to the jobholder will find its way to the jobholder, and those due to the employer to the employer. We must ensure, however, that in seeking to do something that might sound simple and straightforward, we do not add a level of unintended complication and difficulty. Unintended consequences are a habit with parliamentary legislation, unless we approach with care, particularly when dealing with pensions regulation. I hope that the hon. Gentleman will consider withdrawing his amendment.

Andrew Selous (Conservative, South West Bedfordshire)

Notwithstanding the technical arguments that the Minister set out clearly for why amendments Nos. 71 and 72 should not be adopted, I am grateful to him, because he did say, at least twice, that the ultimate destination of the contributions should be the jobholder and employer respectively. I think that his words will count if there is any dispute about the ultimate destinations of those moneys. However, I take on board his points about the various interim destinations. In light of that, I beg to ask leave to withdraw the amendment.

Danny Alexander (Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey)

I wish to raise a couple of points in relation to clause 7 on clause stand part. This is an important clause because the right to opt out is a critical part of ensuring that the automatic enrolment system operates properly. Making it easy for job holders to opt out is clearly important and the drafting of the clause emphasises that point. However, within the right to opt out, we find some of the issues that we will come to later in the Bill in relation to enforcement. For example, potentially unscrupulous employers—who we hope are a small minority, but they do exist—could persuade or put pressure on individuals to exercise the right to opt out.

At the moment, the drafting of subsection (7)(a) requires two things. First, that the jobholder must receive information about the consequences of opting out, and secondly that they must sign their name. In amendments Nos. 81 and 82, which are not selected but are on the amendment paper, we suggest some additional safeguards: that the jobholder would need to give notice in writing themselves, and indeed that they may also register it with the enforcement body. Those measures may go too far in terms of the burden on the jobholder, but I urge the Minister to reflect on whether the degree of engagement that the clause requires of the jobholder in the opt out process, is sufficient to ensure that it is a genuinely independent action taken by them. Furthermore—and this was the reason for suggesting a reference to the enforcement body—there could be some action that the jobholder may have to take outwith the context of their employment relationship. It would mean that they have to do something else other than, in the case of the case of the unscrupulous employer, simply sign a piece of paper that is presented to them by the employer that says “I wish to opt out”.

I am not necessarily seeking an answer from the Minister now on how he would seek to do that, but I urge him to reflect on whether the provisions in the Bill about the process that the jobholder must go through, are sufficient to ensure that the balance between making it easy for the jobholder to opt out and ensuring that they act independently, is right. I am not sure that it is right in the current drafting of the clause, but I look forward to hearing the Minister’s response.

Andrew Selous (Conservative, South West Bedfordshire)

I shall be brief. I recognise the issue raised by the hon. Member for Inverness, Nairn, Badenoch and Strathspey about employers possibly putting improper pressure on their employees to opt out. We are right to be mindful of that issue. We have tabled a new clause on that very issue so there will be a further chance to debate those points.

Mike O'Brien (Labour, North Warwickshire)

The point that the hon. Member for Inverness, Nairn, Badenoch and Strathspey raises is a good one. I will reflect on what he said. We are not looking to make opting out so unduly burdensome that people find it difficult to make the decision that is right for them. At the same time, we do not want employers to be putting a lot of pressure on employees to opt out.

We focused on ensuring that the employer will make sure that people are automatically enrolled and that there is no way in which the employer could prevent that. The hon. Member is suggesting that that has happened: that people are in, and now there is pressure to get them to opt out. We want to ensure that that does not happen either. One obvious way is through trade unions reporting such behaviour. There will also be considerable publicity around 2012 and thereafter so most employees will know, irrespective of whether they are members of trade unions, that they have rights to opt into a pension system.

We will also consider the forms that the employee will have to sign to opt out. We will consult on this, but that will probably be one way in which we make sure that the form makes it clear that people have a right to remain, that employers should not force people out and that people will have the protection of the law if employers seek to do so. That said, the hon. Gentleman is right that the decision to opt out must be genuinely intended. I shall reflect on his remarks and on the new clause that the Conservatives tabled to deal with the issue. We will have an opportunity later in the Bill to consider the matter further.

Nicholas Winterton (Conservative, Macclesfield)

I should have anticipated that the hon. Member for Inverness, Nairn, Badenoch and Strathspey would want to raise matters on the stand part debate, because he had two amendments that were not selected, although they were not selected for very good reason. He was right to raise those matters in the stand part debate and I apologise for hesitating to call him when he rose.