Pensions Bill

Public Bill Committee, 29 January 2008.

Nigel Waterson (Conservative, Eastbourne)

On a point of order, Mrs. Anderson. I would like to take this opportunity to ask the Minister if he could update the Committee on where we are with the drafting of amendments relating to the financial assistance scheme that would extend the basis of compensation for pensions victims.

Mike O'Brien (Labour, North Warwickshire)

We intend to bring forward amendments in the coming weeks to ensure that the Committee and the House as a whole have an opportunity to debate them. The amendments will relate to compensation levels—getting them up to 90 per cent.—and some other issues that can be dealt with by regulation. I very much hope that, before this Bill is through, we will have the regulations, or at least some of the key ones. As for the amendments to be included in this Bill, it will probably be two or three weeks before we are in a position to share them with the Committee, as parliamentary counsel are still working on them. I hope that that is helpful.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for what the Minister has to say and appreciate that parliamentary draftsmen do not always work at the fastest rate. Clearly, it would be helpful to have a good amount of sea room before the scheduled end of the Committee so that we will know how much time we will have to devote to these very important matters and do not run out of time for either those amendments or other new clauses at the end of this stage.

I would also like to confirm, and this is true of both Opposition parties, our happiness with a very short consultation period on the regulations—a period of a fortnight, rather than the normal requirement—so that we can get on with getting money to the people who need it.

Mike O'Brien (Labour, North Warwickshire)

I am grateful for that. We will get these amendments drafted as quickly as we can. We will obviously want to consult, and we will make sure that Committee members get the opportunity to see the drafts as soon as we are able to provide them so that they are able to contribute to the consultation. I hear what the Opposition parties are saying and I will endeavour to be as helpful as I reasonably can.

Clause 18

Paul Rowen (Liberal Democrat, Rochdale)

I beg to move amendment No. 92, in clause 18, page 8, line 8, leave out from ‘least’ to end of line 9 and insert

‘5% of basic earnings in the pay reference period’.

Janet Anderson (Labour, Rossendale and Darwen)

With this it will be convenient to discuss amendment No. 90, in clause 18, page 8, line 17, at end add—

‘(3) (a) the Secretary of State may by order approved by resolution of both House of Parliament amend the lower limit of the employers’ contribution set out in paragraph (1)(b) of this section.

(b) the Secretary of State may by order approved by resolution of both Houses of Parliament amend the lower limit of the total contribution paid by the jobholder as the employer set out in paragraph (1)(c) of this section.’.

Paul Rowen (Liberal Democrat, Rochdale)

It is a pleasure to serve under your chairmanship, Mrs Anderson. These two amendments get very much into the nitty-gritty of the Bill. As we all know, basic pay is a standard for pensionable elements of pay in the UK labour market and the basis on which contributions are calculated for many employees who are offered good schemes. In the earlier clauses that we agreed last week relating to all personal pension schemes, we broadened the definition of eligible pay to include all earnings. Clearly there is an issue there, in terms of employers, about how much effort will be required to work out whether a particular scheme would be exempt. On the information that we have been given, for example, an employer would have to make sure that they were going to pay at least 6.8 per cent. of all earnings to ensure that that overall 3 per cent. threshold was met. That is overcomplicated. It would produce an awful lot of additional work and not necessarily deliver what we all want.

There is a much simpler way of doing it. We acknowledge that the CBI accepts the principle that working on basic pay rather than gross earnings is a much simpler way of working out the equation. The CBI would like the figure to be 3 per cent. of basic pay, but that is far too low. Five per cent. is much nearer the percentage paid by employers in existing schemes. We are extending the remit, so there will be an additional cost, but that would be a much fairer way of working out whether a scheme should be exempt. We hope that the Minister accepts the principle—it is first of all a principle—that working out exemption and the higher threshold needs to be simple.

The problem with using gross pay rather than basic pay is that gross pay fluctuates for many people at both ends of the employment scale: low-paid people who might do varying amounts of overtime; and people at the other end of the scale for whom a large element of what they earn might be paid as a bonus. That would produce an awful lot of additional work for an employer. A 5 per cent. basic pay threshold seems a much easier way of working. I appreciate that there are costs involved and I am interested in what the Minister has to say about what thought has been given to the issue. I cannot support what the CBI says about levelling down to 3 per cent. of basic pay. That would not deliver the benefits that we want to see.

Nigel Waterson (Conservative, Eastbourne)

I am following what the hon. Gentleman says closely. He will obviously come on to the question of extra costs. Before he leaves the point that he is making, will he tell the Committee whether he has any concerns about moving away from the overall Turner settlement, which, as part of the package, settled on a 3 per cent. contribution from employers? This is not a pick-n’-mix exercise, as Lord Turner would have said if he had been asked during the evidence session. I think that he would have put it as, “A package that hangs together.”

Paul Rowen (Liberal Democrat, Rochdale)

I accept what the hon. Gentleman says. The argument is finely balanced between accepting a 3 per cent. figure on gross earnings—using gross earnings is fairer when assessing what the exemption rules should be—and accepting that that 3 per cent. will produce a burden for employers and a lot of additional work. If the scheme will be exempt anyway, why should they have to go through the calculations in the first place? That is why, although Turner did not recommend it, it is worth exploring whether a 5 per cent. threshold on basic salary is a fairer way of delivering the benefits that we all want to see. I am interested in what the Minister has to say about the additional work and costs involved in working on—although the CBI wants to move to 3 per cent. of basic earnings—3 per cent. of gross earnings.

Amendment No. 90 is important. It would enable the lower limit of the employers’ and employees’ contributions to be amended by order. We are making calculations for the long term and certain assumptions about take-up and how these schemes are going to operate. The market might change, as might people’s perceptions of what is acceptable. The amendment would give the Secretary of State—with the approval of the House by resolution, because we believe that these are important matters that should be debated—the power to amend the set level of contributions. That is important.

Many employers’ schemes pay more than the 3 per cent. that we are talking about. If there is evidence of levelling down, we believe that we should have the ability to amend the contributions that are made. There is certainly evidence that that could happen and it would be very regrettable. We are not saying that it is going to happen—we are not saying that it is inevitable—but, given that research has raised concerns about whether there will be levelling down, we would like to be able to have a debate in the House to set those figures. The decision may well be taken a long way down the line when evidence becomes clearer. However, we believe that such a provision in the Bill would allow for a proper debate in Parliament.

Nigel Waterson (Conservative, Eastbourne)

I am sorry to start today’s proceedings on a slightly churlish note, but I am afraid that we are not able to support either of the Liberal Democrat amendments. I am not for a moment saying that it is not right to have this debate and I hope the Minister will have some fairly detailed figures to share with us about the extra costs involved under amendment No. 92. It might seem churlish of me, because I have not entirely embraced the new concept of explanatory notes, but I could not help noticing that the explanatory statement attached to amendment No. 92 says:

“The purpose of this amendment is to ensure compliance with the new system is not too demanding for employers.”

That reminds me of the story that after the atomic bombs were dropped on Japan, the very first time the Japanese people heard the voice of their emperor on the radio—or at all, for that matter—he gave a speech with a remarkable wording that must have been an early example of spin. He said there had been a development in the war that was not necessarily to Japan’s advantage.

Although on a much more modest scale, this explanatory note comes into the same category. Needless to say, reference has been made elliptically to the CBI, which, as far as one can tell from the written page, seemed to have steam coming out of its ears about this subject. During last week’s debates, I dealt with the CBI’s concerns about the standard pensionable element of pay in the UK labour market and the basis on which many employers with existing schemes do their calculations. It says:

“The wide definition of pay used by the Bill at present will cause those who run exempt schemes to have to reassess each employee's pay packet to calculate a contribution rate each month and work out whether their scheme qualifies.”

It says that it would like the Bill in its final form

“to allow firms to measure their schemes against the percentage of basic pay they offer.”

That is a debate that we have had and will no doubt have again. The CBI welcomes the fact that amendment No. 92 “acknowledges these concerns”, but it does not

“support it, as it significantly escalates the employer contribution as a percentage of basic pay.”

It goes on to say:

“Lifting the level to 5 per cent., as the amendment does, is a significant escalation of employer cost. The sentiment of this amendment is correct, but the figure should be 3 per cent.”

We broadly agree with that judgment.

We have two objections to the amendments: the question of extra cost on employers; and the broader issue of the Turner settlement. Although it is very easy to fall into the habit of regarding the second and final report of the Pensions Commission as holy writ, poring over it as if it had some sanctified existence, on a more basic level, it is important to remember that the package put together was about what happens not only to the state pension, but also to private pension provision in this country. Within that package are other packages, and the commission weighed the ingredients carefully. One was the package for contributions—the commission alighted on a figure of 8 per cent. for the overall level of contributions.

We can argue, and no doubt will, about what sort of standard of living in retirement an overall package of 8 per cent. will deliver, but the broad Turner argument is that that is much better than nothing, which is what a lot of people are staring in the face at the moment. However, within the overall 8 per cent., the 3 per cent. employer contribution is the result, again, not only of careful of calibration, but also of a fair bit of give and take between the various bodies involved, particularly those representing employers, such as the CBI. We have to be careful about starting to unpick the very basics of the Turner package and, if Lord Turner were here, I am sure he would argue fiercely against that—I feel his ethereal presence hovering over all our debates on this and other Pensions Bills.

I turn, finally, to the second report of the commission, which falls open at page 277—I must read it fairly often—and makes it clear:

“We recommend that employers’ minimum contributions should be 3% of earnings above the Primary Threshold”—

going on to explain why. That explanation includes, because,

“contributions are not subject to employers’ National Insurance, it will add only about 2% to the cost of employing a median earner, and less for lower paid earners, for those companies not presently making contributions in excess of that level.”

Then there is an interesting discussion further on, in chapter 10, on pages 356-357, about the effect of that level of contributions on companies.

The balance is difficult to strike. I will be the first to admit that. We have had discussions—more later this morning—about so-called levelling down. There is a balance to be struck between the extra burdens to be heaped on employers and the knock-on effect of employers being incentivised to close their existing, more generous pension schemes. That is a difficult balance, but I think that if we start unpicking the basic Turner proposals, then that way madness lies. Therefore, with all due deference to the hon. Member for Rochdale and the measured way in which he put his argument, the official Opposition are unable to support his two amendments.

Mike O'Brien (Labour, North Warwickshire)

I, too, wish to rescue the hon. Member for Rochdale from madness. The amendments cannot be supported by the Government either.

Clause 18 sets out the quality criteria for UK occupational money purchase pension schemes, which include personal accounts. To meet the quality requirements, a scheme must have a rule requiring a contribution of at least 8 per cent. of a member’s qualifying earnings, of which at least 3 per cent. must come from the employer. The clause is important because it establishes the minimum levels required, as recommended by the Pensions Commission. The Pensions Commission, as has been said, was clear that the 8 per cent. was on all earnings and is the basis of the calculation that delivers the 45 per cent. replacement rate to a median earner with solid state entitlement. It is part of the consensus around which we have been able to get broad support. There are all sorts of arguments from some, particularly in the trade union movement, who might wish to see this increase; some who lobby for pensioners might wish to see this increase; but everyone broadly accepts that, as this policy stands, we have the key group of people needed to implement it on board. That is the business community.

The Federation of Small Businesses and the CBI are prepared to support the policy as set out in the Bill. If we were to make the sort of changes that the hon. Gentleman proposes, there is a real risk of that consensus being undermined. I hear the way he puts his motion, and I am grateful to him for putting it as an inquiry, rather than pushing it hard. It is important that we have these debates, but also that we recognise there is a consensus which needs, to some extent, to be protected. Let me deal with the two amendments in more detail.

Amendment No. 92 alters the parameters of the quality requirement for money purchase schemes, and could increase the contributions paid by employers. If, under this amendment, employers were required to make a contribution of 5 per cent. of all basic pay, then all individuals would receive more employer contribution, provided that their basic pay made up at least around 50 per cent. of their gross pay. A median earner whose gross pay equalled their basic pay would see their employer’s contribution more than double. They would receive around £650 extra from their employer each year. The amendment would therefore increase cost to employers in that sort of situation. It would increase it most in cases where basic pay makes up the highest proportion of employees’ gross pay, and would therefore create an incentive for employers to make greater use of bonuses and overtime rather than basic pay, which I do not think the hon. Member for Rochdale wishes to do.

The real problem here, and the reason we are using the overall level of pay, is that employment situations vary considerably. Some employers pay much of their employees’ salary or wage in overtime and bonuses. For example, ministerial drivers working a lot of overtime do rather well out of it. Their basic pay, sadly, is not high. It is the case that many employers, for all sorts of reasons, believe that paying overtime is the best way of dealing with these issues.

Of course, if we move to basic pay, the hon. Gentleman is quite right, because he is increasing the percentage payment from 3 per cent. to 5 per cent. If we were to calculate our figures based on basic pay, it would affect the lower parameter and the higher parameter in terms of those who were automatically enrolled. That would have all sorts of implications for the Bill, but it would also mean that there would be incentives for employers to look—in ways we would not necessarily regard as desirable—at the way in which they pay their employees. We want to see employees paid pretty much the way they are now, as a result of the Bill. There may be all sorts of reasons we would want to change things in other Bills. As far as this Bill is concerned, we do not want employers to start changing their practices merely because it is passed.

Paul Rowen (Liberal Democrat, Rochdale)

I am grateful for the Minister’s explanation. I was listening very carefully to what he said. He concentrated very much on median earners, and, yes, additional cost is a disadvantage of the amendment I am proposing. When I moved the amendment, I was concentrating—and it is a particular concern for us—on the effects on low earners and people whose income varies wildly. I was going to say that it also affects high earners, but the cut-off limit has an effect on them.

Does the Minister not accept that for those people who, unlike his drivers, may not be able to earn lots of overtime, that is a better deal? It is a slightly increased cost, but in terms of the overall cost of a pension scheme across the company, it is not going to be a huge percentage. I accept we may not have got the amendment right, but in that sense it was looking more at low earners rather than medium earners, who would benefit under these proposals.

Mike O'Brien (Labour, North Warwickshire)

I am not entirely with him on this. For a start, some workers—particularly those on lower incomes—have more of their wage paid as commission or overtime payments, and if we start excluding those components, it will have an effect. It depends on what percentage of their final pay is calculated on the basis of such components, because he is excluding, by his criteria, those payments from the calculation.

Yes, I see it is increasing from three to five per cent., but if the amount paid to workers in retail, telesales or parts of the motor industry by way of commission payments, overtime or bonuses, is a substantial part of their wage, perhaps over 50 per cent., then the end result would be that these people could be worse off . Furthermore, there would be an incentive for employers to move more and more of the wage into this area, so that he would be able to pay less money. So I think there is a perverse incentive here, which actually works against the lower paid, not in favour of them.

I can see how some of the lower paid might benefit, but it seems that, given that the lower paid are by and large people who are sometimes in quite vulnerable employment situations, and often not trade-unionised, they are the ones who would be most at risk of employers shifting into precisely the sort of payment methods that would result in a smaller overall contribution to their pension than the hon. Gentleman hopes.

I think there is a balance here: the Pensions Commission took the view that it was better to calculate these things based upon all earnings. One of the reasons they did that was that it better protected the lower paid. I do not disagree with the altruistic view that he is putting forward: we would like to see lower paid people have a bigger contribution to their pension. That would clearly be desirable, but we also need to keep on board the employers who make these payments, and to ensure that we do not make changes to the overall consensus on this unless it is necessary to do so. I entirely agree with the hon. Member for Eastbourne, who said that it is not a holy writ just because it was in the Pensions Commission report. We need to look at that report with a critical eye, but at the same time we have been able to fashion a consensus with employers and others, and this particular clause is a key part of this consensus.

Moving on to amendment No. 90, this falls short of our public commitment, by allowing contribution levels to be amended through an affirmative order without full public debate. Under this amendment, any change would be subject to parliamentary debate and scrutiny, but it falls short of the full public debate on primary legislation that we believe would be appropriate. I have given the cost to business of the employer contribution and the importance of the overall contribution rate on income replacement rates—the benefits that will go to the pensioner in due course. It is right that any pressure for amendment in the future should be subject to the fullest public debate through the legislative process. Any change along the lines of the amendment would undermine the consensus that we all worked so hard to build.

That consensus relies on the assurances that we have been able to give to employer organisations about the level of employer contributions. Moreover, it is important that contribution levels are confirmed on the face of the Bill because this provides the employer community with the certainty they need to prepare for the commencement of these reforms. I have received all sorts of lobbying, from the trade unions in particular, saying we need to be able to increase these levels.

The Government’s view is that we have established that broad agreement with the employer community and we want to stick to that agreement. Perhaps the figures will be looked at again in 2017, when there is a review, or at some other time in the future when there is another Parliament and perhaps other Members of Parliament. That is a debate for another time. On this occasion, we have a view about how we will proceed. It is a view that is broadly supported and I hope that hon. Members will be able to be part of that support.

Nigel Waterson (Conservative, Eastbourne)

Does the Minister agree not only that employers want the certainty of having that in the legislation, but that, whichever Government were in power in the future, if there were to be an overwhelming argument for change upwards or downwards from the 3 per cent. figure, there would be at least as much discussion, consultation, lobbying and everything else to reach the right figure as on this occasion? That could never be achieved, with all due respect to our procedures, in an hour-and-a-half debate on a regulation in a deserted Committee room.

Mike O'Brien (Labour, North Warwickshire)

There is an argument for what the hon. Gentleman says. This has been a key area of discussion over the past couple of years and one of the issues that has produced angst among our various organisations in reaching the agreement. There has been a lot of compromise and I am anxious that the efforts that people have made in reaching that level of compromise and broad support for the Bill should not be undermined by the amendment. I hope that the hon. Member for Rochdale will feel able to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I have listened carefully to the Minister and the hon. Member for Eastbourne, and I beg to ask leave to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I beg to move amendment No. 89, in clause 18, page 8, line 17, at end add—

‘(3) The Secretary of State may by regulations make provision for a scheme to continue to satisfy the quality requirement notwithstanding a shortfall in the contributions over a pay reference period if the shortfall is paid within a prescribed period after the end of the reference period.’.

Clause 18 deals with quality requirements for UK money purchase schemes, and the amendment would add a subsection that would enable any scheme, when there was a shortfall in contributions for whatever reason, not to fall out of the threshold, provided that any shortfall was made up in the short prescribed period. The amendment is small and helpful.

We all want certainty and to be able to ensure that the schemes that are set up continue and develop. We accept that there are fluctuations and that they can affect the workings of a scheme. The amendment would mean that if the threshold was not met, the scheme would remain in the quality threshold, provided that any shortfall was made up. We have not yet prescribed the time period, but the amendment is sensible.

Nigel Waterson (Conservative, Eastbourne)

So far, so good. This sounds like a sensible amendment that has been designed to be helpful, but that was what the hon. Gentleman said about the last one. I appreciate that he has not put in a prescribed period and that that would be a matter for regulations, should the amendment be passed. Does he have a feel for the length of time that would be appropriate? It would be helpful to know what we might be talking about if the Minister was to accept the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

One reason why we have not put in the time is because, taking on board what the Minister has said, it should be the subject of further debate and discussion. Looking at changes over a cycle might be a better way of considering how a scheme was operating, rather than looking at a snapshot of a very tight period. Things change and move up and down. I would want to have a proper, broad discussion about that area—the quality threshold—because it has not necessarily had the scrutiny that other aspects have had. By having a debate on what would be an acceptable prescribed period—and introducing it—we might have a better consensus on how to proceed.

Mike O'Brien (Labour, North Warwickshire)

I will not accept the amendment, mainly because the mischief that the hon. Gentleman seeks to correct does not exist. Any shortfall in contributions paid in a period will not result in a scheme losing its qualifying status because that money will be owed, even if it has not been paid. Therefore, the qualifying status will not be lost.

I am with the hon. Gentleman in theory, but there is no mischief to correct because the loss of contributions does not mean that the qualifying status is lost. The regulator will just have to go after the employer to get the contributions.

Paul Rowen (Liberal Democrat, Rochdale)

It will be interesting to see what happens when we get to that discussion. This part of the Bill talks about quality. We are saying that people can carry on owing sums of money and that the viability of the scheme does not matter, but I am thinking about the Robert Maxwells of this world. I can imagine what such people might do with that flexibility. The whole point about a prescribed period is that while we accept that there can be difficulties and that companies can go through bad periods whatever, we ultimately want things sorted out within a defined period. Leaving things open, which is what the Minister is saying, means that that can go on for ever. As I say, people will exploit that.

I will be interested to see how the pensions regulator will regulate the situation without a definition in the Bill. That is the point of saying what the prescribed period should be. We are not saying, “Here, now”, but that there needs to be some agreement. Earlier, I said that that period should be a cycle—I accept that there is an economic cycle to things. That cycle should be defined and acceptable. I do not know whether it would be a three, five or 10-year period—the actuaries would have to work that out—but we ought to be saying that that is the period in which any shortfall should be made up. To do otherwise would leave the door open for certain people to go out and take advantage.

Mike O'Brien (Labour, North Warwickshire)

Clause 18 sets out the quality criteria for UK occupational money purchase pension schemes. Requiring minimum contributions to be encoded in the scheme rules enables any shortfall in contributions to become a debt on the employer that is owed to the trustees, who are then responsible for pursuing it in the normal way. That is what happens now. It is not, however, that responsibility for the pursuit of unpaid contributions is a matter solely for the trustees, particularly with personal accounts.

The Bill enables the regulator to issue an unpaid contribution notice under powers in clause 30. Unpaid contribution notices are statutory notices requiring the employer to pay any unpaid contributions to the scheme. Fixed penalties can then be applied for non-compliance—the matter becomes one of compliance. The hon. Member for Rochdale assumes that the lack of contributions will result in the scheme no longer qualifying, but that is not so, because it will still qualify. The employer will be pursued for the money—perhaps as Maxwell ought to have been—and will, if necessary, be the subject of appropriate legal proceedings.

The amendment would allow a scheme to continue to meet the quality requirement for a certain length of time in the absence of the minimum contribution, but the rules of the scheme already give effect to the quality requirements. A shortfall in contributions paid to a scheme would not disqualify the scheme. However, the intention behind the amendment appears to be to allow a period of grace when, for whatever reason, the employer has failed to pay the minimum level of contribution. The amendment also stipulates that that period of grace would be finite, thus ensuring that the scheme member would be protected against unscrupulous employers. The balance of allowing the employer some flexibility and employees sufficient protection is a position with which I have some sympathy, but I believe that it has already been captured in the Bill. We are already dealing with the mischief that the hon. Member for Rochdale thinks is there, but it does not exist in relation to this part of the Bill.

We recognise that making the right amount of contributions to a money purchase scheme on time, and making sure that those contributions get in there, is absolutely vital for the growth of an individual’s pension fund. Any shortfall could result in a reduction of the member’s pension and a subsequent return on investment. We want to build confidence in the security of individuals’ retirement savings. However, we are not convinced of the need to make further changes to the arrangements that are already in place. Therefore, as now, scheme trustees will be primarily responsible for monitoring payments into the scheme and for initial follow-up action on any shortfall in due contributions. When that is not successful, they will be able to ask the pensions regulator to help. Our current practice is that trustees report a late payment that is likely to be of material significance within 90 days.

The powers in the Bill give the regulator flexibility in how it applies the regime. They build on and strengthen the regulator’s current approach to following up late contributions, enabling it to deal with the higher volumes expected after 2012. One of the regulator’s new powers will be the ability to issue unpaid contribution notices, which will start the process of obliging the employer to contribute.

I see where the hon. Gentleman is coming from with the amendment. I have sympathy with the principle, but there is not a problem in this part of the Bill that needs addressing because the effect that he thought was happening will not happen. We want to ensure, however, that employers who fail to pay the appropriate contributions are dealt with appropriately—they will be, by another part of the Bill.

Paul Rowen (Liberal Democrat, Rochdale)

I have listened to the Minister and I agree that we will return to this particular issue later. I beg to ask leave to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I beg to move amendment No. 114, in clause 18, page 8, line 17, at end add—

‘(3) The Secretary of State must report annually on the extent to which employers operating schemes defined under subsection (1) have reduced their contributions.’.

Janet Anderson (Labour, Rossendale and Darwen)

With this it will be convenient to discuss the following amendments: No. 93, in clause 19, page 8, line 35, at end add—

‘(5) The Secretary of State must report annually on the extent to which employers operating schemes defined under subsection (1) have reduced their contribution.’.

No. 94, in clause 22, page 9, line 41, at end add—

‘(5) The Secretary of State must report annually on the extent to which employers operating schemes defined under subsection (1) have reduced their contribution.’.

Paul Rowen (Liberal Democrat, Rochdale)

These amendments are significantly more important. With the previous amendments, I was probing the Government on their intentions to see what parts of this quality clause were doing.

The Turner report sets out a minimum entitlement, and that is enshrined in the Bill. As the Minister said, for people who do not have access to a pension scheme at the moment, there will be one with an 8 per cent. defined contribution, which will be made up of contributions from the employer and the employee and tax relief from the Government. That will capture the 6 million to 9 million people who are not enrolled in a pension scheme. We have raised questions about how those people will be captured under certain circumstances relating to their work and how much they earn. We are now talking about a smaller group of employees, but none the less a significant group: employees who have a pension scheme that delivers much more than the scheme proposed here. While we might have a broader consensus that deals with the majority, the big concern with setting a minimum is that we will see levelling down. Employers will be able to opt out, or to wind up their schemes and opt into the proposals in the Bill.

If that is the case, rather than seeing an improvement in the basic position, we will see pensions getting worse for a significant minority of people. I think that the Government are deluding themselves if they believe that that is not likely to happen. Some research carried out a couple of years ago by David Blake is still relevant. It suggests that if a scheme such as the one that we are putting forward in the Bill is on the cards, there will be a levelling-down process, and employers will opt to use the basic scheme in the Bill, rather than their own schemes that might cost them significantly more. The end result might be that more people are in pension schemes across the whole range of employment and have the rightto a contributory pension, but the net result for a significant minority would be that their pension no longer delivered what they would have been getting before the Bill was enacted.

For a number of reasons—not least to preserve the consensus that the Government have done a very good job of building—we believe that it is important that there is a defined minimum. We hope and expect that those employers who pay beyond that see the benefits of doing so for the motivation and retention of employees. Nevertheless, we want to have something in the Bill that acts as a clear warning shot that if there is a movement away from the current situation, the Government and Parliament will act.

I believe that employees are looking to us to ensure that such safeguards are introduced. This should be about not levelling down, but ensuring that people are levelled up. That means ensuring that those 6 million to 9 million people who currently do not get an occupational pension scheme can benefit from the Bill. However, if the 3 million to 4 million people who already have pension schemes are levelled down, that would be the worst of all worlds.

Amendment No. 114 would only require the Secretary of State to report annually on the operation of schemes. It might be that the pensions regulator, in the course of its normal duties, produces the figures in its annual report and looks at what is happening across the market. We believe that that sort of report is important for monitoring what is going on and ensuring that levelling down is not taking place.

Amendments Nos. 93 and 94 would amend clauses 19 and 22 along the same lines. This is an important safeguard. We are not saying that employers cannot vary their schemes, which would clearly be a nonsense, but we do not want the whole process to result in worse payments and pensions for those who currently enjoy a good scheme. The amendments do not set a percentage or say, “Beyond this line you must not go.” They say that we should monitor the situation so that if there is the possibility of levelling down—as suggested by the evidence from David Blake—Parliament will be able to address that.

The consensus that we have achieved on 8 per cent. sends a powerful message. The other message that is needed—the unions are right to request it—is that we are going to monitor what happens and that if there is a deterioration for that significant minority, Parliament will have to look at the consensus and whether we are achieving what we originally set out to do.

I hope that the Minister will accept the amendment. Of all those that we have considered today, this is the most important. It is vital that we address these concerns now, rather than when things start to move in the wrong way.

Nigel Waterson (Conservative, Eastbourne)

I agree with the hon. Member for Rochdale that this is an important group of amendments. The Conservative party supports the amendments in principle. Indeed, to an extent, they mirror some of ours relating to clauses on the duties and responsibilities of the Personal Accounts Delivery Authority. They are important because they raise the issue of levelling down, which outside bodies such as the Pensions Policy Institute identify as one of the two really major issues relating to the Bill.

That being the case, I make no apology for trying to deal with this issue in some detail. As the hon. Gentleman said, various surveys have examined the prospects of levelling down when personal accounts start in 2012. The problem is that every single survey rightly identifies a large degree of doubt because they are trying to determine the likely behaviour of employers in 2012. However, we do not know what the general economic background will be in 2012, or the extent to which existing schemes will continue to close, to either new or current members.

It is worth considering to whom we are asking these questions. It is fair to say that some of the Government’s research was based on asking human resources directors what was likely to happen with levelling down. It seems to me that the key people in all this are finance directors. They are the ones who will be faced, almost overnight, with a possible doubling of participation in their existing schemes. I forget the exact figure, but I think the National Association of Pension Funds has reached a figure of 30 to 35 per cent. as the average participation in an average defined benefits company scheme. With auto-enrolment, that is likely to shoot up to 70 to 80 per cent.—or an even higher figure if auto-enrolment works as we all hope it will. That is a very big increase in costs for any employer, regardless of the financial or economic position that they might be in. Any finance director worth his salt will already be focusing on this issue and making recommendations to the main board of their company.

In May 2006, the Government estimated:

“only around £600 million of the £2.6 billion cost to employers of a three per cent. contribution would fall on firms currently contributing three per cent. or more.”

The trouble with that is it assumes that everyone joining these firms’ schemes only as the result of auto-enrolment would receive the minimum 3 per cent. contribution. In reality, many employers might want to use the same pension contribution for all their employees. Therefore, the Government have subsequently estimated that automatically enrolling people into existing schemes on existing terms would add £1.8 billion to these employers’ pension costs.

The surveys actually come up with an alarmingly large range of conclusions, which is hardly surprising for the reasons that I have mentioned. The Department published a fact sheet alongside the Bill—I can make no complaint about the amount of paperwork with which we are being supplied by the Department and Ministers—containing what were called “emerging findings” from a new Department for Work and Pensions and BMRB survey. Although the Minister might want to deal with the survey in more detail, in a nutshell it concluded that 51 per cent. of employers contributing 3 per cent. or more said that they would be likely to maintain or improve the contribution rates offered to new employees following the reforms. Thirty per cent. said that they might reduce contributions for new employees, although smaller employers tended to say that. Some 86 per cent.—a startling figure—said that existing members of the pension scheme would continue to benefit from contributions at today’s levels as long as they remained with the company.

A little while ago there was a study by Deloitte that asked 488 employers contributing 3 per cent. or more whether they would reduce their contributions. It was published with an introduction by Mr. Stephen Haddrill of the Association of British Insurers, who gave evidence to the Committee. He summarised the situation by saying:

“one in four employers who currently contribute over 3 per cent. of earnings to employees’ pensions said they would introduce a new, lower rate of contribution. This represents reduced employer pension provision for 2.4 million employees.”

Another detailed finding in the comprehensive report was:

“At present the average employer contribution rate for existing members of pension schemes is 6.2 per cent. The average employee contribution rate stands at 3.8 per cent.”

A further finding was that 23 per cent. of employees said that they were likely to close the existing scheme to all or some employees. Some said that they would reduce contributions for new or existing schemes, and 30 per cent. were unsure of their response. That is perhaps an indication that many employers are not yet even focused on the knotty issue.

The report goes on to say:

“24 per cent. of employers who are currently making contributions over 3 per cent. say they will offer a lower contribution rate ‘than the one they offer their staff generally in their open pension schemes’. This represents reduced provision for 2.4 million employees”.

That is particularly marked in different parts of the country—I will not weary hon. Members with the details. The report continues:

“the average employer contribution rate post reform might rise by almost 100 per cent. (2.1 to 4 per cent.), as more employees gain access to at least 3 per cent. employer contributions. However, this welcome overall rise masks a likely fall in contribution levels for existing schemes of up to 8 per cent. (6.2 per cent. to 5.7 per cent.).”

I am not sure how helpful it is to talk in averages. The concern, which is also dealt with by other surveys that I will touch on, is whether significant numbers of employees who benefit from generous employer contributions in their existing schemes will find that those are no longer available and that they will be reverting to a 3 per cent. employer contribution.

The Deloitte report touches on another important issue. I have never been one of those who believe that the problem of levelling down will be a big-bang problem that will happen almost overnight, although no doubt it will with some employers. My concern is that there will be a gradual process of attrition. I will cite one final quote from page 5 of the report:

“over time, job turnover is likely to increase the amount of levelling down. Employees who leave schemes with high contribution are unlikely to be eligible to participate in schemes with such high contribution rates at their new employer.”

That is the real concern. The worry is that as people move around the jobs market, they will find their employer contributions gradually reducing.

Another interesting survey is from the consulting actuaries, not least because it drives their whole impetus for simplification and risk-sharing. The Association of Consulting Actuaries surveyed employers—those for whom its members worked professionally, I guess—54 per cent. of whom said they would auto-enrol all those eligible into an existing company scheme, rather than into personal accounts; of those, 23 per cent. said that they expected to revise the benefits on offer to reduce the costs associated with higher participation. So, only 42 per cent. said that they would auto-enrol staff into existing scheme on existing terms. Overall, 68 per cent. of employers thought that the Government’s proposals would lead to a general levelling down of employee pension contributions by organisations presently offering better pension schemes. Given that those advised by consulting actuaries must be a reasonable cross-section of British employers, that figure of 68 per cent. is extremely worrying.

Julie Kirkbride (Conservative, Bromsgrove)

I am listening with interest to the hon. Gentleman’s figures. If I have been paying proper attention, the 68 per cent. who think that things will level down is higher than the around 50 per cent. of individuals who were asked if they might level down. That rather suggests that, when people are asked what they will do, they might not be giving as honest answers as when asked what they think the industry will do. Therefore, the problem is more worrying than we would like it to be.

Nigel Waterson (Conservative, Eastbourne)

That is a valid point. I am grateful to my hon. Friend. It is like the bad old days, when Conservative support in opinion polls was consistently understated, because people did not want to admit to the intention of voting Conservative. Those days, of course, are long gone. There is an issue there, and a related issue, which I have already touched on and so do not want to labour the point. A lot of people have not focused yet. It is 2012, and that seems a long way a way—unless one is Mr. Tim Jones, of course. To most people 2012 is a long way a way, but as companies begin to focus, then we might get more definitive figures.

The Minister and I were both honoured to be at the launch of the PPI’s report for the Nuffield Foundation. As one would expect of the PPI, the survey is painstakingly detailed and well thought out, basically looking at three scenarios. One is that all employers, after auto-enrolment comes into force, would maintain contribution levels at the same level as they are at the moment, which in the vast majority of cases would be significantly more than 3 per cent. of employer contributions. The second scenario—the “central scenario”—was based on the Deloitte report, which was a kind of measured model as to how employers might react to the changes over time and produces a different figure. The “pessimistic scenario” is extremely worrying—as the name might suggest—and is based on the projection of 50 to 60 per cent. of employees opting out of work-based saving, in line with estimates made by the New Zealand Government for KiwiSaver. It is important to bear in mind that, potentially, even the pessimistic scenario could result in 4 million to 5 million new savers in work-based pension schemes—but much fewer than the 7 million to 10 million target market for the reforms.

The PPI stresses over and over again:

“There is a lot of uncertainty about how employers will respond to the reforms, and the projections illustrated in this paper should not be taken as forecasts. The analysis seeks to illustrate the potential impact of a range of possible scenarios.”

Their scenarios are, indeed, rather sobering, particularly the pessimistic scenario. As it says:

“This poses the question of whether the reforms would be considered successful if they did not increase annual total pension contributions but did increase the number of people saving and made the distribution of saving more equal.”

I can understand that there might still be some old-fashioned, red-blooded socialists in the Labour party for whom a redistributive effect would be a plus, taking the current amount of pension savings and redistributing it around a larger number of people. However, when I put this to the Minister, during his oral evidence to the Committee, he was good enough to accept that that would not be a satisfactory outcome for these reforms. I do not have his exact words in front of me, but no doubt he recalls what they were. The PPI makes the point that, in any such survey, some five years in advance of the reforms, it is difficult to predict with certainty how employers will act five years on. That is a very fair point.

It is important to look at the scenarios. There is the scenario of enormous success, with many billions of pounds of extra savings going into personal accounts, and into pensions overall. There is what the PPI calls the “modelled employer response scenario”, partly based on Deloitte’s work, which shows that the size of pension funds in personal accounts could reach £300 billion by 2050. Then there is the pessimistic scenario, which actually shows a fall of around £450 billion in the aggregate size of the pension funds in existing provision. These are worrying projections, not least because they are so difficult to be clear-cut about.

May I just touch on one or two of the issues around levelling down raised by some of the witnesses who gave oral evidence? The ABI, in particular, had some useful comments on levelling down and their own concerns about it. In its written evidence, the PPI said:

“Overall, the jury is still out as to whether the Government’s pension policy will deliver both more people saving and more saving and better retirement incomes.”

In her evidence, Niki Cleal talked about the pessimistic scenario, which is what would happen if all employers levelled down to 3 per cent. contribution. She said:

“Unsurprisingly, you see a £10 billion decrease in pensions contributions in the UK—a very negative outcome.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 64, Q87.]

I do not think anyone would disagree with that. She also said:

“At this stage, it is very difficult to see how employers will respond.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 64, Q87.]

Again, something we can all agree with.

The concern about levelling down was, indeed, picked up by other witnesses who came before us to give their views. Mr. Stephen Haddrill, director general of the ABI, in answer to a question from me, said that

“there is going to be a risk of levelling down the more an employer has to decide and the more complex that decision is. If employers face a situation where, for instance, they are potentially going to end up with an existing pension scheme and having to set up a personal account, they are going to think quite hard about whether they want to carry on with an existing pension scheme that has a higher level of pension contribution from the employer than the personal account will do.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 24, Q31.]

That mirrors the concerns raised by bodies such as the ABI and the NAPF about what is likely to happen in terms of levelling down.

One reason we might not in the end support these amendments in a division is that it might be the case that the Government accept this position anyway. It is in the impact assessment of this Bill that they make the point that these issues are difficult to estimate in advance. They use the phrase:

“is itself subject to a considerable degree of uncertainty.”

They go on to say in paragraph 2.83:

“In taking forward this work, the Government and the Personal Accounts Delivery Authority will continue to work with employers and gather evidence on the economic context within which these reforms will be introduced to ensure they can achieve their aims whilst minimising burdens on employers.”

We think that is very important. On the specific issue of levelling down, I do not think I have ever heard this Minister suggest for a moment that this is not a distinct possibility. Certainly, all the evidence we have had suggests that this is potentially a major problem and, if we take the pessimistic scenario, could fundamentally and fatally undermine the whole success of personal accounts. As the Pensions Policy Institute has said, we could actually end up with a situation where total pension savings in the entire country are less than they would otherwise have been. This would not be a satisfactory outcome.

The Government are not trying to avoid this issue, and whether they accept the solution suggested in these amendments is neither here nor there. But I would like to hear from the Minister—even if does not accept the pessimistic scenario—whether he agrees that there are these concerns. Secondly, I would like him to confirm that he acknowledges the need to continue to monitor the situation because these surveys from 2006 and 2007 are all very well, but it is the run-up to 2012 that really matters. That is when employers will begin to focus on these hard decisions within the economic and pensions climate of that time.

Thirdly, will the Government in some way be sharing with the rest of us the projections as they are updated and refined? The latest figures talk about emerging trends and figures and that is absolutely right, but I would like to be sure that that process will continue in the Department, and continue in a public sense. If it seems we are headed for a major problem on this, then clearly action will be need to be taken by the Government of the day, whoever they are. But I commend the hon. Member for Rochdale for introducing these amendments. They have resulted in an important debate which is fundamental to the likely success or failure of this legislation. I look forward to hear what the Minister has to say.

Mike O'Brien (Labour, North Warwickshire)

The hon. Member for Eastbourne has put the most pessimistic gloss upon the evidence that he possibly could, particularly in terms of the PPI evidence. I would not be surprised if the PPI was more than a little surprised, because its evidence and the launch of its report suggested that up to 9 million people would be enrolled in pension saving as a result of these changes. Indeed, what we are likely to see—far from a levelling down—is a levelling up. We will see millions of people saving for pension schemes who did not previously do so.

The millions of people who will be better off as a result of this Bill are the reasons why Help the Aged, Age Concern, and a vast array of organisations supporting the elderly, are behind it. The same is true for various business groups, the trade unions and others who want to see effective savings.

One person who was not quoted by the hon. Gentleman was Lord Turner. The noble Lord said in his evidence:

“We must recognise that there is at least some danger in some sectors of levelling down, but I think it is relatively small. The net effect of what is being proposed in the Bill will result in a levelling up...I am convinced that there will be a large number of large companies that will continue to provide, in some form or another, pensions that are much better than the minimum standard.”

Nigel Waterson (Conservative, Eastbourne)

I do not think that I used the phrase “just HR people”; I said HR directors. As the Minister clearly has the figures at his fingertips, perhaps he can say how many of the respondents were finance directors?

Mike O'Brien (Labour, North Warwickshire)

I do not have the figures for finance directors, but two thirds of them were managing directors, chief executives, owners or partners, or at director level; so no doubt some of those were finance directors. Finance directors will have a say, but so will the other members of the board. Certainly I would have thought that chief executives and managing directors would have a say and getting their view as well is therefore important. Regarding his suggestion that our survey was perhaps unreliable, I would not say that the responses to the survey are likely to be totally reliable but I am saying that the survey produced some evidence that the way in which employers are likely to look at the situation will not be as pessimistic as he suggests.

The hon. Member for Bromsgrove intervened to suggest that perhaps an even worse scenario could be constructed out of employers saying that they expected other employers to level down but that they themselves did not propose to do so. It could be the opposite; they could be wrong being so cynical about other employers and more employers than they think could be likely to react like them and not level down. That is an issue.

Julie Kirkbride (Conservative, Bromsgrove)

Cleary the Minister is a very nice man who always sees the best in people and we all hope that his expectation is right. However, even if it were, 49 per cent. would still level down, which is a worrying figure.

Mike O'Brien (Labour, North Warwickshire)

I do not accept that; I think that the hon. Lady is looking at Deloitte’s statistics rather than the DWP’s.

Levelling down is an issue that we need to have cognisance of. It is an important part of the debate and that is why we have taken steps to see if we can minimise levelling down.

Let me outline what we seek to do. Our research shows that most employers with good schemes support our reforms and the majority, particularly the larger employers, would maintain their schemes at current levels, or in some cases improve them. Among employers who already make contributions of 3 per cent. or more, the overwhelming majority—86 per cent.—plan to maintain or even increase contributions for current employees, and half plan to extend, maintain or increase contributions for new employees. Nevertheless, we are not complacent; it is an important issue and we will continue to track employers’ responses to the reforms and trends in the existing pensions landscape as we move towards 2012 and beyond.

The DWP has an extensive, ongoing research and data collection programme, which will inform the evidence base for monitoring and evaluation of the reforms. That includes: Government support for the new wealth and assets survey, which will provide a rich source of data on a range of pensions and savings issues; a regular survey of employers to examine trends in and the extent and nature of pension provision, scheme types, contribution rates, joining mechanisms used, etc.; regular surveys of public attitudes to pensions and financial planning for retirement; and surveys of individuals’ and employers’ attitudes and likely reactions to the private pension reforms. Such surveys are extensive, are going on and will continue to go on between now and 2012, and beyond that. They are not secret, but public. Parliamentarians will be able to see the data.

Also, we plan to continue to actively engage with external stakeholders—members of companies—in helping to improve the evidence base for pensions and retirement provision, to ensure that appropriate evidence is gathered and that the whole pensions landscape is properly monitored and evaluated for the purpose of the Government’s pension reforms. External stakeholders will have a key role to play in helping to build the evidence base, as well as in identifying gaps. A full evaluation is planned once the reforms have bedded in, and that will continue on an ongoing basis.

The proposed amendments would sit on top of a vast array of existing safeguards. The sorts of things that the hon. Member for Rochdale is suggesting are not necessary, mainly because they are being done in another form and with other reports. He can see them whenever he wants. No doubt he can raise in Parliament, when appropriate, concerns about whether levelling down is taking place and the extent to which it is. Those are real issues, but we have also taken steps to try to reduce the propensity for levelling down: the rules about transfers in and out of personal accounts; the amounts of contributions; and how the whole process of dealing with automatic enrolment will operate. None of those is likely to facilitate levelling down and, indeed, is likely to reduce the propensity.

Nigel Waterson (Conservative, Eastbourne)

Taking that point, why can we not, for example, put into the legislation the £3,600 figure for annual contribution limits—uprated from 2005 to the present, of course?

Mike O'Brien (Labour, North Warwickshire)

We know that the figure of £3,600 is not the figure that we are going to be using in 2012. We know that that £3,600 figure relates to 2005—it is out of date now. We do not yet know the precise figure that we will be using in 2012, but we wanted to give some reassurance to employers about the level at which we plan to set the figure. Therefore, we have regularly quoted that figure. Employers understand that we will not set it in the primary legislation now, because it is otiose before it begins. We will set a figure in regulations as we move towards 2012, so that employers will have the certainty. They already know the level at which we plan to set the figure, so they are able to estimate where the figure is likely to be in 2012. We want to be able to set the appropriate figure in 2012, so that we can be as precise as possible. That is why we will not set the figure now.

There are lots of other reassurances on levelling down in the text of the Bill and in Government commitments to employers. We will be monitoring closely any steps taken to level down. We will then be able to discuss what steps can be taken to deal with that. However, we must set the issue in perspective: for millions of people out there, the Bill will level them up. Millions would not be in pension schemes at all but, as a result of the Bill, they will be—they will be levelling up. A significant number of others, about a million, are in schemes where the employer contribution is less than 3 per cent.—they will be levelling up.

Nigel Waterson (Conservative, Eastbourne)

Will the Minister tell us what proportion of existing employer-sponsored schemes have contribution levels from the employer of less than 3 per cent?

Mike O'Brien (Labour, North Warwickshire)

The numbers affected are just under 1 million. The hon. Gentleman has asked me the proportion of employer schemes, so I would have to know the total number of employer schemes and do the calculation. Will he allow me to come back to him with that figure? I do not have it in my head. The number of employers who make that very low level of contribution is quite small, but the number of people who will benefit—either because their contribution is quite low or because their employer’s contribution is quite low—is well worth while. The biggest group that will benefit is the up to 9 million people who will be saving for the first time, or saving more. Those figures are the more optimistic level which the PPI refers to in its report.

We have therefore taken steps to reduce the propensity for levelling down. we have acknowledged that it is an issue, but our research among employers suggests that it is not a substantial issue, and that most employers will not be involved, and that in many cases they will go in the opposite direction. I do not deny for a moment that this is a legitimate debate, but I reassure the hon. Gentleman that the pensions industry is being monitored. I have set out how that is taking place. That monitoring will provide opportunities for us to keep a careful watch, not just in the next four years but in the years after that.

If issues arise, and if there are ways in which we can affect them, assuming that—as I think all Members of this Committee want—a clear message goes out that we do not want to see employers levelling down as a result of the Bill, that is the best way of approaching the whole issue. Where employers provide good quality provision, we want to see them all continue to do so. The best approach is to take the steps we have taken, ensure that we continue to monitor, and ensure that, if problems arise in the future, we are able to evaluate the best way of dealing with them. I say to the hon. Member for Rochdale that the amendments are not necessary. In a sense, this sort of thing is being done, albeit in a different way from that he proposes. There is nothing secretive about the various researches that are going on, and he will therefore be able to do the monitoring that he hopes to do.

Paul Rowen (Liberal Democrat, Rochdale)

We have had a very good and important debate on this. I understand the assurances the Minister has given and the steps that have been taken in the run-up to this Bill to try and reduce the possibility of levelling down. I accept his point about the vast majority of people being better off, and I also accept that the DWP commissions a range of research. The problem is—and the hon. Member for Eastbourne went through this very eloquently—when you compare the DWP’s research with what others say, there is clearly a discrepancy.

I accept that we will never know the genuine position until we get to the starting gate. Nevertheless, I think the amendment ensures a proper reporting mechanism: not just research, not just something that may or may not be done, but something that has statutorily to be carried out. I believe that is the best safeguard for ensuring that, in this situation whereby, as the hon. Member for Bromsgrove said, what people say and what people do are not necessarily always the same thing, we get an actual report of what they are doing. It is neither optimistic nor pessimistic; it is saying, “there are so many schemes, x per cent. of those opted to level down; x per cent. stayed the same”. That is the sort of report that I believe and that gives a concrete certainty, so I shall have to disagree with the Minister on this particular occasion and press the amendment.

Mike O'Brien (Labour, North Warwickshire)

I beg to move amendment No. 139, in clause 18, page 8, line 17, at end add—

‘(3) A scheme does not fail to satisfy the quality requirement under this section merely because the trustees or managers of the scheme may on any occasion refuse to accept a contribution below an amount prescribed for the purposes of this section on the grounds that it is below that amount.’.

Janet Anderson (Labour, Rossendale and Darwen)

With this it will be convenient to discuss Government amendments Nos. 140 to 142.

Mike O'Brien (Labour, North Warwickshire)

Clause 18 establishes the quality requirements for UK occupational money purchase pension schemes, including personal accounts. Clause 24 provides the same for qualifying personal pension arrangements. Under those provisions, the quality criteria for occupational and personal pension schemes include a requirement for a minimum contribution. The minimum overall contribution will be an amount equal to 8 per cent. of the jobholder’s qualifying earnings. Of that sum, at least 3 per cent. must be provided by the employer.

Amendments Nos. 139 and 140, which are to clauses 18 and 24 respectively, introduce a power to enable the Government to establish a ceiling for minimum contributions to money purchase schemes. In other words, the same scheme trustees and managers could refuse to collect contributions below that minimum on the grounds that they were too small to be economic to administer. In effect, that would mean that employers would not be obliged to pass over contributions below the ceiling and would not be considered to be in breach of the employer duty. However, if such flexibility were not legislated for, schemes would be required to accept contributions calculated on any level of qualifying earnings. For example, in an extreme case, a jobholder would be automatically enrolled with qualifying earnings of just £1 a week, on which the contributions would be 8p. In that case, the cost of collection would be considerable.

The collection and administration of trivial amounts would be unlikely to benefit the scheme or members because the administrative costs would be likely to be greater than the value of the underlying contribution. Providing schemes with an opportunity to alleviate some of the administrative costs might have a beneficial effect on charges. Obviously, if substantial charges result from having to accept small contributions, that will affect the overall amount that some schemes have to charge for administration. That particularly applies to schemes that want low charges, such as personal accounts.

Paul Rowen (Liberal Democrat, Rochdale)

I am interested in what the Minister says. Has the Department carried out any research on the numbers of people who may want to contribute below the minimum threshold? What would be the additional administrative costs for administering such a scheme?

Mike O'Brien (Labour, North Warwickshire)

The effect of these changes could be that people who are above the £5,035 level, at which point contributions start, will perhaps make quite a small contribution in the first year because the first year rate will be at 1 per cent. of the employer contribution. The costs of collection would be considerable. We have considered that issue and the numbers of people who are likely to be affected. In due course, we will consult on and set out the costs and the process of setting the minimum contribution levels. We will consult on what those levels should be. I cannot give the hon. Gentleman the figure that he is seeking because until we set the minimum contribution levels, it will be impossible to do so.

We know that the usual approach of pension schemes is to set such contribution levels. They are often set at around £20 a month. That is quite a small contribution overall because the cost of collecting less than that might be more than the contribution. My view is that the figure will be far lower than that. My aim is for people to start saving, especially in the early years. I do not want to load any substantial extra costs on to personal accounts or any other scheme, so I am fairly cautious about setting a figure just by giving a Government view. I would rather have proper consultation with the industry as a whole and get PADA to express its view about what the minimum contribution should be. I will then take a view on setting out the figures in regulations. If we do not do it in that way, we are likely either to end up with quite a high minimum contribution level, or to set the level so low that the administrative cost is a significant burden.

I am also concerned about the phasing-in process because we will have three years in which contributions are quite low, which presents some quite difficult issues. Contributions are quite low in the first three years, but will, in many cases, go above a level that would be of significant benefit to the pensioner after three years.

Should we therefore say that we would be prepared to tolerate a certain level of administrative burden on personal accounts for a year or two on the basis that people will be encouraged to save in the longer term? Let us say that we took that view and that the Government intervened and said to PADA, and in due course to the personal accounts board, “You will have to adopt a far greater public service role than other pension schemes apply.” We might want to do that, but before we get into doing it, we need to talk to the rest of the industry and to PADA about whether we want to take that route. It would be quite a significant step for us.

The position at this point is that we want minimum contribution levels so that we can ensure that a judgment can be made in due course about the point at which the administrative cost of collecting a small amount outweighs the benefit from encouraging people to save that tiny amount, given that in most cases they will not significantly benefit themselves by saving much of a pension pot with that minimum contribution. I hope that that answers the hon. Gentleman’s question and deals with the issue more broadly.

Government amendments Nos. 141 and 142 are technical and consequential on the amendments that I have mentioned. They insert a definition of “trustee or manager” into the general interpretations in clause 77. I hope that, with those suggestions, we can agree the amendments and ensure that the changes that the Government seek are put in place.

Clause 20

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 23, in clause 20, page 9, line 4, leave out subsection (3).

If there was an Olympic event for probing amendments, this would surely be among the medal winners. The amendment is reasonably narrow. It would remove clause 20(3), but I have comments to make on the rest of the clause, so if we can obviate a clause stand part debate, I will touch on those provisions as well.

Let me make my fundamental point. As part of the deregulation and simplification agenda, there is a move towards what some people call principles-based legislation. That is probably more likely to be appropriate in respect of pensions than many other areas. For the most part, the people involved are grown-ups and the organisations and companies involved are big organisations and sensible, respectable companies. There is an agenda for turning to principles-based legislation, but if clause 20 is an example of what we are to expect, perhaps that is not such a good idea after all.

My particular beef with subsection (3) is that it does not really mean anything. It states:

“In applying this section the pensions...must be considered as a whole.”

I have no idea what that means. Is the alternative to consider them piecemeal? I have no understanding of what it means, but I am sure that the Minister will explain it to us.

I do not understand subsection (3) any more than I understand subsection (4), which makes the point that regulations will be made and refers to determining whether the pensions to be provided under a scheme are

“broadly equivalent to, or better than, the pensions which would be provided...under a test scheme.”

Again, I have no idea what “broadly equivalent” means, and the word “broadly” creeps in at one or two other places in the clause, including subsection (1). Is that really the sort of word that should appear in primary legislation? If this is the new world, I am not sure that I am buying.

We were told that there would be regulations, but I have not seen a glimpse of any draft regulations on this or any other part of the Bill in which they are proposed. Subsection (5) provides for guidance to be issued from time to time by the Secretary of State, but I have not seen any draft guidance. Perhaps the Minister will give us some clues about how people in the real world will be affected by clause 20.

James Plaskitt (Labour, Warwick and Leamington)

I am grateful to the hon. Member for Eastbourne for the points that he made and I believe that I can give him the reassurance that he seeks.

Together, clauses 20 and 21 establish the test scheme standard for defined benefit schemes that are not contracted out of the state second pension. The test is conducted by comparing the benefits payable in the scheme with those payable in a hypothetical test scheme, and the features of the test scheme are set out in clause 21. Clause 20 sets out instructions for conducting the comparison.

The test scheme standard is a benchmark for occupational pension saving and has been set at a level that would broadly put a median earner on course to achieve the sort of replacement rate recommended by the Pensions Commission. Those schemes contracted out of the state second pension will automatically meet the qualifying criteria, because to be contracted out, schemes must already pass the reference scheme test set out in the Pensions Act 1993. Rather than introduce a new test for those schemes, we have set that as the qualifying requirement for the purpose of the employer duty in this measure.

Those schemes that are not contracted out will meet the qualifying requirements through the test scheme standard. That has been developed by simplifying the principles from the existing reference scheme test, and the amendment would require the test scheme standard to be conducted on a different basis from the reference scheme test. Employers conducting the test would be prevented from looking at the average benefits paid to members of the scheme. That is the answer to the hon. Gentleman’s question about what “as a whole” means.

Requiring an individualised calculation in respect of each member of the scheme, which would be the effect of the amendment, would place a significant burden on any employer seeking to meet the test, with a risk that the whole scheme would fail if even one member’s pension did not meet the standard.

Paul Rowen (Liberal Democrat, Rochdale)

I listened to what the Minister said about clauses 20 and 21. Clause 21 defines the test scheme and subsection (2) refers to the age of 65, but we are moving away from 65 as the retiring age. What provision is there for changing the test scheme as the retirement age is changed? Surely 65 should not be stated so firmly in the Bill when the retirement age will change over time. The calculation that will be needed in future years will not have that figure as a requirement.

James Plaskitt (Labour, Warwick and Leamington)

I do not want to tempt you to rule me out of order, Mrs. Anderson, but I have been asked a question about a clause that we have not yet reached. Briefly, the purpose of stating the age of 65 in clause 21 is that it ties it clearly to the current state retirement age. It is not the age at which people will choose to start drawing pensions, but the age at which the state system currently indicates that state pension is payable.

Returning to amendment No. 23, I was trying to point out that it would require employers to assess their schemes against every individual member in the scheme, which would be very administratively complicated and, undoubtedly, hugely expensive for employers. Members will be aware that we are committed to a programme of deregulation for pensions, and some important elements of that deregulation are contained in the Bill. The amendment would run completely counter to the deregulatory reform agenda, so although the hon. Member for Eastbourne says that he is not sure that he wants to sign up for principles legislation, we do not want to sign up to his amendment, which would cut against the drive to deregulate and simplify the rules relating to schemes. The amendment would represent a big step backwards.

The amendment could also inadvertently lead to employers levelling down pension provision—the very thing that the hon. Gentleman seeks to avoid—as they would be forced to abandon good pension schemes because only one member’s pension did not meet the standard. That point is interesting with regard to the lengthy discussion that we had on clause 18.

We recognise, however, that there might be concern that a test based on collective pensions across the scheme could mean that some individuals lost out. To limit that risk, we intend to use the regulation-making power in clause 20 to put in place safeguards that prevent excessive distortion of the scheme’s average test by high earners and all differentiated benefits. Therefore, when developing the quality tests for defined benefits schemes, we sought an appropriate trade-off between protecting members’ interests and minimising burdens on business, and we believe that we have struck the right balance.

The measure is in the interests of simplification, which I think the hon. Gentleman would expect us to support. I have tried to explain precisely what “as a whole”, which he teased out of the language, actually means. In relation to a further point that he made, the word “broadly” will, of course, be clearly explained to employers in the plain English guidance that will be delivered in due course. With those reassurances on the points that he raised, I hope that he will withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Minister for that explanation and those reassurances. The amendment was clearly thoroughly rotten, and I wonder at my temerity at tabling it in the first place. I beg to ask leave to withdraw the amendment.

Clause 24

Clause 25

Andrew Selous (Conservative, South West Bedfordshire)

Thank you very much, Mrs. Anderson. I have not had the opportunity of welcoming you to the Chair in the amending part of our deliberations. I would like to give my apologies for the morning session. I had a hospital appointment that I have had to cancel on a number of previous occasions.

I just have one brief question for the Minister on clause 25 in relation to subsection (4) and paragraph 71 of the Explanatory Notes. Could he please outline what type of schemes this subsection has in mind when it says that those schemes will not be eligible for auto-enrolment by virtue of the power given to trustees to modify a scheme?

Mike O'Brien (Labour, North Warwickshire)

The purpose of clause 25 is to enable trustees to modify an occupational pension scheme that otherwise meets the quality criteria but does not allow for automatic enrolment. This power would be used where there are limited powers of amendment within the scheme. It would provide trustees with a power to change the scheme rules to allow automatic enrolment, as some schemes currently just do not allow it. Changes can only be made with the consent of the employer.

It is important that both the trustees and the employer agree on the matter and that the trustees must consider the interests of existing members in this decision. The employer, who meets the administrative costs and balance of any defined benefit funding requirements, must consider any additional costs arising from automatic enrolment. This is a limited power, as it only provides an override for rule changes necessary to facilitate automatic enrolment and can only be made with the employer's agreement, in circumstances where at the moment scheme rules do not allow it.

The regulations will provide that the subsection does not apply to occupational pension schemes within a certain description, so they will identify the nature of the particular schemes this will apply to. All this will be set out in more detail in those regulations. We want to ensure we are able to discuss with various trustees’ organisations and business groups which types of schemes we will need to cover when the regulations are introduced.

Clause 26

Clause 27

Andrew Selous (Conservative, South West Bedfordshire)

Could the Minister kindly explain to the Committee why the explanatory notes say that

“no private right of action for breach of statutory duty”

may arise against an employer? I am curious as to why that private right of action is deliberately struck out by clause 27, when on the face of it, it would seem a reasonable step for an aggrieved party to take.

Mike O'Brien (Labour, North Warwickshire)

The reason is that we want the Pensions Regulator to be able to take these steps. The clause makes clear that failure to comply with the employers’ duties in chapter 1 will not give rise to an individual right to pursue a case for breach of statutory duty. Otherwise individuals would have to take individual action in the courts. Our preference is that the Pensions Regulator will take on the role of enforcing employer compliance with the new duties, alongside its responsibility for regulating the new personal accounts scheme.

We want to ensure that the route to a remedy for an individual whose employer has been non-compliant is through enforcement by the Pensions Regulator rather than through that kind of individual action. That would ensure both more effective enforcement and, importantly, clarity for employers who might otherwise fear that they could face action simultaneously on two fronts. Clause 27 clarifies that and also confirms that nothing in chapters 1 and 2 affects any other individual right to take legal action. Other individual rights to take legal action—concerning employment contracts for example—will remain and will be dealt with separately. The clause is therefore crucial in setting out who has the right to enforce employers’ duties. The answer is that the regulator has that right.

Clause 28

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 143, in clause 28, page 11, line 23, leave out ‘may’ and insert ‘must’.

Janet Anderson (Labour, Rossendale and Darwen)

With this it will be convenient to discuss amendment

No. 144, in clause 28, page 11, line 32, leave out ‘may’ and insert ‘must’.

Andrew Selous (Conservative, South West Bedfordshire)

I rise to speak to the two amendments, in my name and that of my hon. Friends.

I am curious as to why what will be in a compliance notice is not specified because, having looked at clause 28(3), it seems that all four paragraphs (a), (b), (c) and (d) should be in a compliance notice. Such a notice would tell the employer by when a remedial action must be taken, what must be done, how it must be sorted out, and what would happen to him if he failed to comply with the notice. Those four components strike me as important and if a compliance notice were to be served on an employer they would want all those parts there so that they knew what to do and by why, and what would happen otherwise. I am querying the word “may”; there is a case for compliance notices being issued in a set format, covering all the points of information that I have run through.

Mike O'Brien (Labour, North Warwickshire)

That is a question I asked too; it seems reasonable for those various parts of a compliance notice to be included. The answer I got was, “Yes, but what happens if the Pensions Regulator already knows that information? Why would one want the compliance notice to contain a request for information that was already in the hands of the Pensions Regulator?” So that is the answer.

There is merit in having a clear, standard form; we do not want lots of variations in forms and so I will consider the amendments. I am more in sympathy with amendment No. 143 than with No. 144 because it may be clear in clause 28(4) what steps the regulator thinks appropriate, perhaps just compliance in terms of making repayments. It is a reasonable assumption that we will want to have a standard form. The best approach is probably that we would want all the points in almost all notices, but that a minor element of discretion might be better—with “may”—in order to not have notices being more complicated for employers than they need to be. If, for example, we had a standard notice and there were various options as to what an employer might be required to do; we could end up with a complicated notice if it had to make a whole list of requests. Particularly if the employer is a small business person and has not had to deal with the Pensions Regulator before, he could get a long list that it looks like he has to comply with, but actually he has done some of those things. He may not have the best of records, he may not know that he has done some of those things, so he may be put to more inconvenience than he needs to be.

There is some benefit in a bit of discretion here—using “may” rather than “must”—but I do not feel strongly. I can see an argument for inserting “must”. It depends on how far the Opposition wish to push this. I am fairly relaxed, but if the hon. Gentleman thinks “must” is necessary, I will reflect on that. However, for the reasons described—to help small businesses—it is probably better to give a level of discretion and not to be too prescriptive. We will consult. I think that most notices will contain all the information, but in practice having an element of discretion, which we can deal with by regulation for particular forms, may well be beneficial.

The only additional argument in favour of “may” rather than “must” is that “may”, because it gives discretion, means that a legal challenge against the precise wording of the compliance notice might be more difficult. If the statute says that a notice “must” say all those things, including

“requiring the employer to inform the Regulator, within a specified period, how the employer has complied or is complying with the notice”,

then an employer may be able to challenge on a legal basis, because “must” is in there and, therefore, things must be done in a certain way. The courts would probably end up having to interpret what that “must” is all about. Having “may” will give some discretion to the Pensions Regulator to have a form that is fairly standard, but if the regulator made a small error in wording or was not as fulsome as a difficult employer might want, then a legal challenge would be more difficult.

For those reasons and on balance, we are probably better off with “may”, but I do not feel that strongly about it. I can see from the hon. Gentleman’s face that he does not feel particularly strongly either. Let us leave it the way that it is.

Paul Rowen (Liberal Democrat, Rochdale)

I think that the Minister puts the point well. Yes, there are advantages either way, but in the context of what we are trying to do, “may” is probably the right way to go. To me, what we are trying to achieve is covered by subsection (2), which states clearly that when the compliance notice is issued the employer must respond. Given that, what might be in the compliance notice should be left to the discretion of the Pensions Regulator.

Andrew Selous (Conservative, South West Bedfordshire)

I am pleased to see that the Minister asked the same question of his officials that I asked myself when looking at the clause last week. I take the Minister’s point that the Pensions Regulator would know what he knew, but that does not quite answer the question that the employer would know what the employer had to do.

The Minister’s best answer, which I accept, was about legal challenge. I realise that, when lawyers get involved, they can get pernickety, and if the compliance notice is not in the exact format specified it could cause complications. I was toying with the idea of pressing this to a vote, given the semi-encouragement the Minister was giving me. I was wondering whether the Minister would have marched his troops behind me if I called a division on this matter, because he was being so emollient about it. However, on the issue of legal challenge, he has persuaded me.

Most importantly, I was particularly reassured by what he said about the intention that a compliance notice would, in general, be a fairly standard document which would tell the employer what he needed to know, what he had to do, by when he had to do it, and what would happen if he or she did not comply. Having been reassured, I beg to ask leave to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 24, in clause 30, page 13, line 2, at end add—

‘(g) require the employer to pay interest in respect of any period for which contributions remain unpaid.’.

Janet Anderson (Labour, Rossendale and Darwen)

With this it will be convenient to discuss amendment No. 96, in clause 31, page 13, line 17, at end insert—

‘(d) if the contributions are not paid within one year of the due date a requirement to pay interest of inflation or 5%, whichever is lower, on unpaid relevant contributions.’.

Andrew Selous (Conservative, South West Bedfordshire)

Amendment No. 24 is fairly straightforward, in that it seeks to put the jobholder back in the position he or she would have been in if contributions had been made at the correct time by the employer in the first place. Obviously, there is a time value to money. Having a contribution today is more valuable than having that contribution in a month or three months’ time. By adding (g) to the end of the list of requirements in subsection (5), we seek to ensure that late contributions have the same financial value to the jobholder as contributions made at the correct time. The omission of that provision strikes me as slightly surprising in relation to clause 30. No doubt the Minister will shortly tell me there was a very good reason for it being left out.

I see where the hon. Member for Rochdale is coming from with amendment No. 96, which I know he will speak shortly. Confusingly, it relates to clause 31, although we are also speaking to clause 30. I think he has the same objective that I do, which is to put the jobholder back in the position that he or she would have been in had the contributions been made on time. I would just query the figure of 5 per cent. in amendment No. 96, because it is of course possible that interest rates could be significantly higher, and putting a figure in the Bill may not put the jobholder back in the position he or she would have been in, depending on financial circumstances at the time.

Paul Rowen (Liberal Democrat, Rochdale)

I agree with the hon. Gentleman’s last point. I do not thing we got that right in our drafting. I hope, however, that the Minister will accept the principle that both these amendments relate to, which was left out of the Bill. If he is not prepared to accept these, will he assure us that something along these lines will go in the Bill? The details can be worked out and put in regulations, but I think most people would be very satisfied with a clause that ensures that there is some protection where there is late payment or non-payment, and that employers understand that. Within the context of the compliance regime that has developed here, which is light-touch, insisting on interest for late payment would be a light-touch way of making it in the employer’s interest to make sure that payments were made on time.

Mike O'Brien (Labour, North Warwickshire)

Some good points have been made and I accept the gravamen of what both hon. Gentlemen have said. On the basis of what has been said the Government will look at the issue and draft an amendment, probably to clause 31, giving the Pensions Regulator the power to request interest to be paid where appropriate and to make regulations to set out the rate and over what period the interest will be charged. It is a good point; that power was not there and when we looked at it we realised that it should be. We would like the parliamentary draftsmen to set out appropriate wording, but in principle I am with the thrust of what both hon. Gentlemen wish to see in the Bill.

Andrew Selous (Conservative, South West Bedfordshire)

We can chalk that up as a little success. We are of course with the Government in wanting the Bill to be successful because the issues are important. With the reassurance that the Minister kindly gave, that he will seek to amend perhaps clause 31, I beg to ask leave to withdraw the amendment.

Clause 31

Paul Rowen (Liberal Democrat, Rochdale)

I beg to move amendment No. 95, in clause 31, page 13, line 14, leave out from ‘within’ to ‘after’ in line 15 and insert ‘three months’.

Again, this is a probing amendment, along the lines of the previous discussion. In clause 31 no period is specified in which payment should be made. We have suggested three months and I am interested in what the Minister thinks might be a reasonable timeframe. In the consultation we had, the lack of a time period for contributions to be paid was seen as an issue that perhaps should be looked at. I am easy about whether the Minister thinks it should be three months, six months or within a financial year.

Following on from the previous discussion, if nothing else, the principle that there should be a payment period within which or after which interest will be charged needs to be set down. If the Minister introduces the exception on interest it is important that we agree that payment is made within a certain period, after which the employer is liability for interest.

Andrew Selous (Conservative, South West Bedfordshire)

The hon. Gentleman has raised a good point. I am not entirely sure whether three months would be the right figure. Many of us get chased up a lot sooner than three months if we owe money, and rightly so in many cases. Provided, as we have debated, the payment is made with interest, it perhaps does not matter exactly what that figure is. The important point is that the payment is made and that it is made with interest, but the hon. Gentleman is right in that the payment needs to be chased up.

Mike O'Brien (Labour, North Warwickshire)

I have a lot of sympathy with the views expressed by the Liberal Democrats on this issue. Employees should not be disadvantaged by their employer’s failure to comply by not paying contributions on time. The compliance regime is designed to place employees in the position that they would have been in had their employer complied. Subsection (2)(c) proposes that after a set time period employers should be required to pay both their and their employees’ contributions. The hon. Member for Rochdale is right that various stakeholders, including Help the Aged and the TUC, have expressed an interest in this issue. Before we identify a period—three months is the one for which I have some sympathy—I want to discuss with the stakeholders, including business organisations, what the best period would be. I think the way forward on this is to allow us to consult properly before taking a final view, including about the appropriate length of time in question. We therefore propose that details should be consulted on and set out in secondary legislation when this issue has been further considered. In principle, I am with the hon. Gentleman. Although I will not commit the Government to it, I am even with him in thinking that three months sounds like a reasonable period. However, I want to hear all the arguments before I make a final decision, and I want the business community, as well as other stakeholders, to have a say. On that basis, I hope he will feel able to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I am grateful for the Minister’s assurance with regard to this issue. I know it will be welcomed by many groups, and I beg to ask leave to withdraw the amendment.

Clause 32

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 145, in clause 32, page 14, line 28, at end add—

‘(h) the Secretary of State shall have the power to apportion such amount as the Secretary of State thinks appropriate of fixed penalty notice payments for the benefit of qualifying jobholders in circumstances where their employers are unable to pay the prescribed contributions.’.

The amendment is an attempt to open up the question of where the money paid in fixed penalty notices will go. Will it all go straight into the Government’s general coffers? Will it go to the Pensions Regulator? Is there, perhaps, the possibility I am suggesting; that jobholders—either the jobholders from the employer to whom the fixed penalty notice has been issued or jobholders more generally, who could be the subject of some sort of hardship fund if their employer had gone bust and contributions were not possible—might be able to benefit from these fixed penalty notices?

There are various times in public life when money is raised by fines or penalties of one sort or another. It is not always clear to the public where that money goes, what happens to it, or for what purposes it will be used. Amendment No. 145 is worded in a very wide way. It just gives the Secretary of State a permissive power to apply such moneys raised by way of fixed penalty notices for the benefit of jobholders, should he or she see fit to do so, at any time. It does not require the Secretary of State to do anything; it is purely a permissive power. On that basis, I would commend it to the Minister.

James Plaskitt (Labour, Warwick and Leamington)

The hon. Member for South-West Bedfordshire has had quite a good run with some of his amendments, but it has now ended, I am sorry to say. Let me explain why we are not keen on the amendment.

Clause 32 gives the Pensions Regulator the power to issue fixed penalty notices to persons who have failed to comply with compliance or contribution notices and the employer duty provisions. The primary role of fixed penalties is to act as a deterrent and, where necessary, sanction those who have not complied. The amendment gives the Secretary of State the power to decide which moneys arising from fixed penalties should be used for the benefit of qualifying jobholders. However, it is a long-standing practice that revenue from fixed penalties goes directly to the consolidated fund of the Exchequer, so that it can be used as appropriate on a full range of public services.

The regulator will not gain financially from the imposition of fines, and there will be no hidden incentives for their issuing. Importantly, this measure is fully in line with the findings of the Macrory review, separating revenue streams in order to eliminate all perverse incentives. The hon. Gentleman may know that we are taking forward the recommendations of the Macrory review via the Regulatory Enforcement and Sanctions Bill, which is currently at Committee stage in the Lords.

Paul Rowen (Liberal Democrat, Rochdale)

I understand that that is a general rule, but it is not always the case. With speed cameras, for example, a proportion of the money raised is put to the benefit of the local authority for developing traffic management and safety schemes. Given what we are dealing with, an obvious possibility would be to develop hardship schemes when there are problems.

James Plaskitt (Labour, Warwick and Leamington)

I am not certain that that is a parallel, which might become obvious if we see what Macrory says. The hon. Gentleman will be familiar with what I cite, but I am going to put it on record.

Macrory recommends that we have seven principles for penalties. The seventh is germane to the argument:

“It is important that regulators do not have targets for different types of enforcement actions or any correlation with salary bonuses or similar incentives. This might incentivise staff to pursue certain enforcement actions inappropriately.”

He goes on:

“I would emphasise that regulators should not retain the revenue from Monetary Administrative Penalties, or exercise any control over how that revenue should be spent.”

Those points are relevant. Macrory reinforces the argument in a way that will help hon. Members later on:

“I want to avoid creating any perverse financial incentives for regulators that might influence their choice of sanctioning tool. This view is already entrenched in relevant section of HM-Treasury’s Consolidated Budgeting Guide and I echo their views on the separation of revenue streams in order to eliminate perverse incentives.”

Finally, he says:

“I have also emphasised that regulators must avoid creating perverse incentives (such as staff appraisal criteria) that will encourage the use of financial penalties without regard to the regulatory outcomes to be achieved.”

Given that here we are dealing with pensions and company contributions to pensions, which are therefore related to the other questions, and that, in implementing Macrory, we are pursuing his recommendations specifically on the issue, going down the route suggested by the amendment would take us in the wrong direction. The compliance regime is designed so that jobholders are not put at any sort of disadvantage. Where an employer is non-compliant, we are designing the regime based on the principles that employers are not better off by not complying, and jobholders are not worse off because their employer failed to comply. We do not want any risk-perverse incentives coming in. If we stick with the principle that sanctions of that nature come directly to the Consolidated Fund and there is no question of the regulator distributing them in any way, we can remain consistent with that principle. That is important for both this measure and that on sanctions regimes in general, which is being considered in the other place. Given that, I hope that the hon. Gentleman will withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

The Minister has explained where the money is going to go, which was not clear from the Bill. I am grateful for the Minister pointing to the Macrory review, with which I am somewhat familiar in other contexts. I accept what he says about that and about perverse incentives. We probably all agree that the Consolidated Fund of the Exchequer is not a bad place for the money to go—especially at the moment, given the state of Government finances. With that in mind, I beg to ask leave to withdraw the amendment.

Clause 35

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 146, in clause 35, page 16, line 1, at end insert—

‘(f) a notice under section 72 of the Pensions Act 2004 (c. 35) (provision of information).’.

The amendment was tabled because it appeared that the list of notices to which a review may be applied appears to have left out the notice cited in clause 33(1)(d):

“a notice under section 72 of the Pensions Act 2004...(provision of information).”

I am sure the Minister will tell me there is a very good legal reason for that being left out, but I was curious when I compared clause 33, which sets out a full list of different compliance notices to which escalating penalties apply, with clause 35, in which the notice in clause 33(1)(d) has been left out. I am sure that I am about to be reassured by the Minister, but I thought that the issue was worth raising, as it is certainly not clear to me.

James Plaskitt (Labour, Warwick and Leamington)

I would not bank on it.

The Pensions Regulator has the power to review all notices of issues as part of the new compliance regime. These are compliance notices, third-party notices, unpaid contribution notices, and fixed and escalating penalty notices. The Pensions Regulator will have the power to confirm, vary or revoke notices, or to substitute a different notice if it feels that is appropriate. Cases in which sanctions for failure to produce information have been applied incorrectly—for example, if the required information had actually been provided—would therefore be corrected through the review process.

A section 72 notice, as set out in the Pensions Act 2004, is a notice requiring trustees, scheme managers, employers and others who appear to hold relevant information to provide specified information to the regulator. The important point is that this is an evidence-gathering power only. It gives the regulator the power to require from the person information that is relevant to the exercise of its functions. It is not a sanction in its own right—that is the difference. A separate notice has to be issued to penalise those who fail to comply with a section 72 notice. We therefore do not consider it appropriate to have a review process under clause 35 for people served with a section 72 notice.

Allowing a review process for section 72 notices could impair the regulator’s efficiency when gathering information. In our view, it is inappropriate to allow people to hinder the notice’s use by invoking procedures for review and appeal. It is, however, necessary to give a safeguard to someone who is at risk of being penalised for refusing to comply. Fixed penalty notices under clause 32 and escalating penalty notices under clause 33 may be issued for failure to comply with notices requiring the production of information issued under section 72 of the 2004 Act. As I have explained, review is already available at the point at which anyone may face sanctions for failure to provide information. Given that, I hope that the hon. Gentleman will agree to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

I like to think that these little exchanges are causing the odd shaft of sunlight to come down on some more obscure parts of pensions legislation. I am sure that people who follow our proceedings carefully will have been very enlightened by what the Minister had to say. I am grateful to him, and I beg to ask leave to withdraw the amendment.

Clause 36

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 147, in clause 36, page 16, line 17, leave out ‘may’ and insert ‘must’.

The clause deals with references to the Pensions Regulator tribunal. My hon. Friends and I tabled the amendment because we heard strong, heartfelt pleas—certainly from the representatives of employers’ organisations during our evidence sessions—that the compliance and enforcement regime should be proportionate, with the big stick used only when really needed. Given the wording of clause 36, it strikes me that giving the Secretary of State a discretionary power on how he or she might constitute a tribunal and the manner in which the tribunal would be called would not give employers the reassurance that they need that they will have the right to go to a tribunal.

Some time ago, one of our older and wiser colleagues put it to me that summary justice without the right of appeal is the hallmark of a dictatorship. While I would not suggest that ministerial motives go quite so far, the serious point is that while we all back a tough compliance regime, it must be fair. Those employers who are being hauled up, perhaps for inadvertent errors, must have rights. It might be that the business is incredibly busy, that the order book is overflowing, that there are staff problems, or that the matter has genuinely slipped their minds. The right to go to a tribunal should be absolute, which is why I query the word “may” and think that “must” should be inserted.

Paul Rowen (Liberal Democrat, Rochdale)

I hope that the Minister can give us some indication of why the word used is “may” and not “must”. We all accept that the compliance regime has to have a light touch and to be fair. The impact assessment sets out the three clear areas in which the regime has to meet standards.

The other side of the coin is missing, however, although I accept that this will not happen in the vast majority of cases. I am sure—we have seen the figures—that most employers will operate the scheme without problems. However, there will be a small number of employers with whom there are problems, and the compliance regime is meant to deal with that. Equally, there might be compelling reasons why that employer has not met his or her obligations, so allowing him or her the right to a tribunal is the appropriate way forward.

I hope that the Minister can respond favourably. Given the consensus that has been developed so far, the slight change from a three-letter word to a four-letter word might help to get more widespread support for the measures in the Bill.

James Plaskitt (Labour, Warwick and Leamington)

I am grateful to those who have contributed to the debate. It might be helpful if I clarify a few points first.

The Pensions Regulator is funded by a levy on pension schemes. That levy is used to pay for a range of activities. We do not believe that the funds raised by the levy should be used to cover the costs to the Pensions Regulator of designing and putting in place its compliance procedures in the run-up to 2012. That work is essential if the regulator is to discharge its compliance responsibilities in the future. It is for a broader public benefit and, therefore, should be funded accordingly. We propose to do that through grants in aid using powers under schedule 5 of the Pensions Act 2004. Interestingly, that means that the work would be funded from the Consolidated Fund, into which we have just agreed to put money under the previous clause. Expenditure and funding given to the regulator to develop its compliance regime will be accounted for separately from its current activity and funding regime.

There were queries at one point about the issue of funding, so I want to respond. On the question of “may” versus “must”, the “may” in subsection (1) refers to making regulations. There is also a right to appeal in subsection (1). I hope that that covers the point and that the hon. Member for South-West Bedfordshire will withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

Having heard the Minister’s assurance that anyone who has come before the Pensions Regulator has the right to go to a tribunal, I am happy to withdraw my amendment. The wording of clause 36 was not clear to me, but having heard the Minister’s reassurance, I am entirely happy to beg to ask leave to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I beg to move amendment No. 97, in clause 36, page 16, line 29, at end add—

‘(4) The Secretary of State shall publish a report on the funding of the Pensions Regulator Tribunal for references made under this section within 12 months of the section coming into force.’.

This is very much a probing amendment that was tabled to get more information from the Minister. He has already partly answered how the tribunal is to be adequately funded. A lot of people have talked about making sure that the Pensions Regulator is adequately funded. We will have that discussion when we come to chapter 5, which deals with the regulator and the way in which it will operate. Particularly regarding the run-up period and beyond, I would like to know what the Minister sees as the funding requirement for the tribunal, and how he will ensure that the funding is made available.

As I said, the Minister has already partly answered the question, but I will be interested to hear what he says because we want employers to have the right to go to that tribunal. We also want to ensure that it has enough resources—human or whatever—to enable adequate and speedy dealings with any issues arising, especially in the initial stages following the introduction of the Bill. The worst thing that could happen would be a backlog of cases before the tribunal that were not resolved, because that would affect not just the employer, but the employee. That would have an impact on the success of the scheme and could well increase the costs. It is important that, in the initial stages, the tribunal is adequately funded—not just financially, but with the human resources to ensure that anything put before it is dealt with speedily.

Andrew Selous (Conservative, South West Bedfordshire)

I agree with the sentiments expressed by the hon. Gentleman. I understand exactly where he is coming from. In our previous debate, the Minister reassured the Committee that anyone who wants to go before the tribunal will be able to do so. The only question that remains is for me is to ask the Minister for an assurance that that will happen in a reasonably timely manner and that that is being factored into the Government’s plans. We all know that justice delayed can be justice denied—there might be adverse publicity for an employer who has been hauled up before the Pensions Regulator. If employers want to go to the tribunal, it is important that we know that they can, but they should be able to go reasonably speedily and, as the hon. Gentleman said, they should get a proper service when they get there.

James Plaskitt (Labour, Warwick and Leamington)

I appreciate the points that both hon. Members have made. I understand why they are seeking such assurances and I will now try to give them. However, I will say a little more by way of explanation, because there is an interaction between what we are doing in the Bill and the decisions already taken and envisaged in the Tribunals, Courts and Enforcement Act 2007. If I can, I will explain the interrelationship between the two.

Andrew Selous (Conservative, South West Bedfordshire)

There is no reference to that in the clause.

James Plaskitt (Labour, Warwick and Leamington)

This is a bit tricky, but I will try to take the Committee through it.

While the Bill names the Pensions Regulator tribunal as the appellate body to hear appeals under this regime, we do not envisage that it will actually perform that function. That is because by the time appeals under the new regime are ready to be heard, we anticipate that the functions of the Pensions Regulator tribunal will have moved into the new tribunals structure, which is being set up under the 2007 Act.

Section 3 of 2007 Act establishes new first-tier and upper-tier tribunals. Once the provision is in force, section 30 of that Act will be used to transfer the functions of the Pensions Regulator tribunal to the new arrangements. It is envisaged that the functions relating to the new duties introduced from 2012 will go to the first-tier tribunal. Given the likely nature of appeals under this regime, we feel that that tribunal is indeed the more appropriate appellate body, because it will be the first-instance tribunal for most jurisdictions, and most appeals from original decision-making bodies will commence in that tier. We anticipate that the functions will transfer to the new arrangements in 2009, subject to the completion of recommendations on tax appeals modernisation work outlined in the Government’s consultation paper on implementing part 1 of the 2007 Act.

The amendment proposes that we produce a report on funding the Pensions Regulator tribunal for references made under this regime. I understand the concern that has been expressed that the Pensions Regulator and the tribunal should each be adequately resourced for their roles in relation to this work.

We are working with the Pensions Regulator to develop the new regime and to assess the costs and resources required to undertake the new compliance functions in general. As I have said, we envisage using the first-tier tribunal. However, we expect the approach on funding to be similar to that taken to the Pensions Regulator tribunal. The Department will continue liaising with the Tribunals Service to assess the additional resource requirements and the funding implications of the new initiative. I assure the Committee that our officials are working closely with colleagues at the Tribunals Service to ensure that the new appellate functions will be successfully accommodated in the revised structure.

The hon. Member for South-West Bedfordshire raised a point about timeliness. Part of the reason why the Government are implementing the tribunals reform system under the 2007 Act is to try to deliver exactly that. I want to reassure him and the rest of the Committee that we are committed to funding this mechanism in such a way that it can act speedily.

Andrew Selous (Conservative, South West Bedfordshire)

I might have missed this, in which case I apologise to the Minister and the Committee, but I am not entirely clear about where the funding for the tribunal will come from. I am not sure whether the Minister said it was from the Consolidated Fund, or whether it will come from any part of the pensions contributions that are made.

James Plaskitt (Labour, Warwick and Leamington)

No, it will not come from the contributions. I tried to make that clear, but I will reiterate that. Now that I have clarified that and addressed the other points raised, I hope that the hon. Member for Rochdale will withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

I am grateful for the Minister’s clarification, which was very helpful. I beg to ask leave to withdraw the amendment.

Clause 37

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 148, in clause 37, page 16, line 40, at end add—

‘(3) For the purposes of subsection (1), “wilfully” shall be subject to the same requirement of reasonableness as is generally applied in employment law.’.

The amendment was tabled in an attempt to get the Minister to comment on the use of the word “wilfully” in clause 37. We have heard about the need for the proportionate use of the big stick. We all know that small, medium-sized and large businesses often come under intense competitive pressures, and that employers might have genuinely neglected their duties regarding pension contributions purely because of the demands of the business, rather than because they have wilfully determined not to pay the contributions that they should by law. I would be grateful if the Minister could clarify how the word “wilfully” will be interpreted and give the reassurance, which I know that many in the business community seek, that there will be a graduated response to non-compliance, that the response will be tough only when it needs to be, and that minor inadvertent errors or omissions by employers will be dealt with in a light-touch way.

James Plaskitt (Labour, Warwick and Leamington)

Let me see if I can be reasonable in explaining the use of the word “wilful”.

The clause sets out the details of the new criminal offence for employers who fail to comply with their duties under clause 3(2) in respect of automatic enrolment, under clause 5(2) in terms of re-enrolment, and under clause 6(3) in terms of the jobholder’s right to opt in. The amendment concerns the important issue of the criminal sanction for “wilful” failure to fulfil the employers’ duties.

It might help if I briefly outline the compliance strategy and how the sanction fits into that. The compliance policy has been developed as a three-stage strategy. The first stage is to educate and inform employers of their duties, and the second is to enable them to comply simply and easily with those duties. The third and final step is enforcement. The criminal sanction is therefore a backstop to the enforcement strategy. Our expectation is that it will almost certainly be rarely used. However, the requirements that we have outlined—automatic enrolment and establishing active membership of qualifying schemes of a specified standard—are designed to help jobholders to meet their aspirations in retirement. Failure to fulfil those duties jeopardises individuals’ prospects, so employers need to take their duties seriously.

It is right that an employer who “wilfully fails to comply” should ultimately face a criminal sanction. The manner in which we have designed the compliance and enforcement regime means that to reach that ultimate sanction, an employer would have had ample opportunity to fulfil their duties. Therefore, at that stage there is likely to be evidence of “wilful” failure to comply because they would have been given any number of reminders, encouragements and inducements. If they were still non-compliant, that would be considered “wilful” failure.

Turning to the amendment, there is no reason explicitly to mention reasonableness in the clause, because there is an underlying understanding that to act wilfully is unreasonable. The employer who does not comply because of genuine inadequacy or stupidity would be unlikely to be found guilty of wilfulness. The use of the term “wilful” ensures that if employers have failed to fulfil their duties through haphazard administration or forgetfulness, they will not be criminalised. The compliance regime will address those employers much earlier in the process and put them in a position that does not disadvantage them, but encourages them to comply.

That distinction underlines why “wilful” is there, and I hope that my explanation will be sufficient to enable the hon. Gentleman to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

That was another helpful reply. The Minister outlined the three-stage strategy and said very clearly that there will be ample opportunity for employers to fulfil their duties. That is the sort of language that I was hoping to hear, and I know that employers’ organisations will have been grateful to have heard it. I am interested in how the legal defence of stupidity would work. I am not quite sure how that could be applied, but the Minister has been reassuring, so I beg to ask leave to withdraw the amendment.

Clause 40

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 149, in clause 40, page 17, line 18, at end insert—

‘(1A) Records required in accordance with subsection (1) may be kept in any reasonable manner.’.

I return to a point I have made several times; the Bill is going to apply to a vast range of hugely diverse employers, from sandwich bars, hairdressers and small builders at one end of the scale to the ICIs, Vodafones and Shells of the corporate world at the other. Clause 40(1)(a) stipulates a form and a manner to be prescribed in which records should be kept. I merely seek reassurance that the Government will not be overly prescriptive. Most employers, probably, are reasonably computerised these days, but certainly not all. Some may prefer to have manual records or to keep their records in a multiplicity of ways. The point is that they need to be efficient, there needs to be some kind of audit trail, and they need to be complete. That is what we should seek, rather than being overly prescriptive as to how employers in a huge range of businesses they keep their records. If the Minister can reassure me regarding that, I will no doubt be happy to withdraw the amendment.

Paul Rowen (Liberal Democrat, Rochdale)

In terms of the discussion we have had about compliance and how we expect the system to operate, the requirement to keep records is a reasonable one. I think it important that we do get assurance. We hear from employers all the time about the burden that the legislation we pass places on them, and Ministers always talk about cutting down on red tape. Often, when new laws are being put in place, that principle is forgotten and we get carried away with ourselves. I know this clause says that the details will be laid out in regulations, but it would be helpful if the Minister explained what minimum he expects, and what additional burden he expects it to place on a wide range of employers for whom, at the moment, a very simple PAYE system may be the extent of their employee record keeping.

James Plaskitt (Labour, Warwick and Leamington)

I think we are agreed, given what is being compiled here by way of pension records, that the keeping of records is a very important part of those arrangements, and we must have appropriate measures in place to ensure that employers are compliant with that. However, as we have said before and as I will say also on this clause, we are not setting out in any way to be unnecessarily burdensome to employers, hence the regulations will be designed to satisfy both objectives. We intend to set out in the regulations which records should be kept, the form or forms in which they should be kept and the period for which they should be kept. I think that, as it sets out the basic requirements, that guidance will be welcomed by employers. We can agree that it will be simpler and more efficient for both employers and the regulator if the minimum essential records are kept in a uniform manner. That will make it straightforward for employers to respond to the regulator’s requests for information.

Julie Kirkbride (Conservative, Bromsgrove)

This discussion reminds me of a conversation that I had just a few days ago with someone who sought to obtain some records from an employer. Inevitably, that was in different circumstances, because this measure has not been enacted yet. It transpired that that person’s employer had died and the widow had thrown all the records, including their training record, in the bin. Will the Minister comment on what might happen in such circumstances under these regulations?

James Plaskitt (Labour, Warwick and Leamington)

If the hon. Lady takes a look at clause 40(1)(b), she will see that there is a requirement in the Bill for employers to retain records. There is an expectation that they will retain them for up to six years. I hope that that will satisfy her on that point.

Julie Kirkbride (Conservative, Bromsgrove)

Will the sad and lonely widow be prosecuted because she put all the records in the bin?

James Plaskitt (Labour, Warwick and Leamington)

I draw attention again to paragraph (b). Regulations will be made requiring any person

“to preserve those records for such period, not exceeding 6 years, as may be prescribed”.

That is already a legal requirement in respect of many other bits of information. I think that there is a requirement on us as individuals to retain information for tax purposes for up to that length of time. It is essential to have those requirements in place, because it is important to have the means to hand to deal with any dispute that may arise over records that are kept.

The important point about records relating to contributions to pension schemes of this type is that the scheme will also hold the records, presumably the whole way through. There need not be a burdensome duty on employers to retain the records for ever, but retaining them for a reasonable time is sensible. The point about the clause is to what extent the Government take powers to demand that employers maintain the records. As the clause says, it is for up to six years. Employers will obviously need to be aware, and will be informed by the education process that we will have to go into when this measure is introduced, of the importance of retaining the records. As I said to the hon. Lady, this is not a unique provision; it exists in respect of many other requirements to retain records for similar purposes.

Julie Kirkbride (Conservative, Bromsgrove)

Inevitably, the proposed regulations will apply to very small family businesses in which the keeping of records will be, by definition, much more burdensome. Although we all understand that we keep our own tax records, keeping other people’s information is so much more difficult for a small employer, especially in the circumstances that I have described. Given that the agency collecting the contributions will have the records, should the Minister not think again about whether the widowed lady should keep them for six years afterwards?

James Plaskitt (Labour, Warwick and Leamington)

The hon. Lady is slightly over-egging this. It is not that difficult to keep the records that are required in this case. As I have tried to say, we will ensure that the regulations are not over-burdensome. We want to make absolutely sure that the information is very straightforward and simple. I do not accept that it will be significantly burdensome, as I think the hon. Lady said, to retain records of this type, even for small employers. From my knowledge of small employers, they are already retaining quite a lot of information. This will not be a completely new and isolated requirement that is imposed on them. It will not be much out of line with requirements that they are already fulfilling. I want to stress that we are trying to make this straightforward for employers, including small employers, since they would be holding the information in the format that the regulator needs. The common standards of holding information will also make things easier, because the employers will understand what they have to hold and how they have to hold it. The regulator, on receiving the information, could judge more easily whether the employers in question have or have not been compliant.

The regulations, which set out the details of the record-keeping duties, will of course be subject to consultation. Those covered by the regulations will have every opportunity to give their views on how the regulations should be set out. We recognise that the intention of the amendment is to give employers flexibility in how they keep the required records, but it would give too much flexibility, with no boundaries, which is what we intend the regulations to prescribe. Furthermore, as tabled, the amendment would conflict with the power in clause 40(1). That subsection gives the Secretary of State the power to specify the forms in which records must be kept. The amendment would allow employers to choose for themselves how to keep their records, so long as it was somehow in keeping with the concept of reasonableness. On those grounds, I hope that the hon. Member for South-West Bedfordshire will agree to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister. The amendment was probing. The debate has been useful, not least for the contribution of my hon. Friend the Member for Bromsgrove, who raised some real issues, particularly about sole traders and unincorporated businesses, where there are small family issues. Think about where, if the premises have gone, the widow keeps all the documents. Are they to go up in the loft or something? There is perhaps a need for some further consultation with very small business organisations on such issues—perhaps the records could be lodged in some central place, so that the widow would not have to keep them in her own home, if her husband’s business no longer exists. There are some practical issues like that. However, I have accepted the points that the Minister made. I am grateful to him for the explanations. I beg to ask leave to withdraw the amendment.

Clause 41

Andrew Selous (Conservative, South West Bedfordshire)

I beg to move amendment No. 150, in clause 41, page 17, line 31, after ‘such’, insert ‘reasonable’.

I noted a curiosity in clause 41: “reasonable” appears in subsection (3)—new subsection (A1)—relating to the power to enter premises. That must be at a “reasonable time” for an employer. We would all accept that as sensible. Therefore, I was curious and a little concerned as to why in subsection (2), under paragraph (b) of new subsection (1A), people may be required

“before the Regulator at such time and place as may be specified”.

We all know that the Pensions Regulator has a good record so far. It has not behaved in an out-of-hand manner. There is always a possibility that has to be guarded against, that perhaps at some future time employees of the Pensions Regulator might be so exasperated by one employer that they might place demands—of when and where someone come before them—that were not reasonable. Only a small point, but this will be the law of the land when it goes through. “Reasonable” appears further on in the clause and could usefully be in the subsection I have indicated.

Paul Rowen (Liberal Democrat, Rochdale)

I just wanted to ask the Minister whether there is a discontinuity between subsections (1) and (2) and subsection (3), and between the compliance regime in the Bill and provisions in the Pensions Act 2004. In particular, I picked up on the word “inspector” in subsection (3). Everything before that point is talking about the regulator, the regulator requiring information and compliance notices being issued—all very light touch—and yet in subsection (3) the Bill suddenly goes back and uses parts of the 2004 Act, talking about regulators and entering premises, all of which implies a heavy gang from Her Majesty’s Revenue and Customs suddenly turning up to grab the records to find out why somebody has not been paying. That is at variance with what this chapter is attempting to do in terms of getting a light-touch compliance regime that is easy to operate and which has penalties that are easy to understand.

Rather than using sections of the 2004 Act, should we not ensure that those are amended to be more in tune with the rest of the Bill? Subsections (1) and (2) seem different from what has been proposed beforehand. Who are the inspectors? That is not the language that is used elsewhere in the Bill.

James Plaskitt (Labour, Warwick and Leamington)

I appreciate hon. Members’ contributions. The short answer, on which I shall expand a little bit more in a moment, is that clause 41 makes alterations to the 2004 Act and therefore incorporates the same language and terminology in it. We cannot revisit that Act. The simpler way of inserting into the Bill the essential powers that we must have is to take them from the 2004 Act. However, the two powers in the clause should be regarded as backstop powers to be used for extreme purposes, where there is non-compliance. They have to be included because not to have them would leave the regulator disarmed in certain circumstances and I do not think that the Committee would want that to be so. As I have just outlined, clause 41 amends section 72 of the 2004 Act. The amendment would force the regulator to ensure that such meetings as are indicated take place at a reasonable time and place.

I recognise the intention of the amendment and understand the principle behind it, but it should be remembered that the regulator will require people to meet it only in exceptional circumstances. If the regulator is of the opinion that an employer is not complying or may not comply with their duties, it will need the appropriate powers to conduct further investigations. It will also need sufficient flexibility in the legislation to be able to implement processes that will ensure that it meets its objectives in an effective and efficient manner.

Inserting the word “reasonable” where the amendment would insert it could make the powers unworkable. It is almost certain that instances will arise in which there are differences of opinion between the regulator and the person required to attend about what is a reasonable time and place to meet. We do not want to hinder those important powers. I hope that with that explanation the hon. Gentleman will agree to withdraw the amendment.

Andrew Selous (Conservative, South West Bedfordshire)

These things are always more complicated than they appear on the surface. I heard the Minister’s explanation. There could be a counter-argument that might prevent the powers being inserted into the 2004 Act.

I just hope that the Minister takes my general point that we expect the powers that are given to the regulator to be exercised in a reasonable manner. Requiring someone to appear at 7 in the morning would clearly be unreasonable. Requiring them to appear somewhere far away from their business location would be unreasonable. I hope that those concerns will be in the minds of the regulator and the Government when the provisions become law.

We know that the intentions will be good, and that the regulator has a good record. However, given the wide scope of the Bill, there is concern about whether businesses will be treated fairly. I detected that that was the intention behind what the Minister said, and I hope that we do not have cause to revisit this area.

On the basis of what I have heard, I beg to ask leave to withdraw the amendment.