Clause 3
Pensions Bill
11:30 am
Mike O'Brien (Minister of State (Pension Reform), Department for Work and Pensions; North Warwickshire, Labour)
We would only want to do that if our current discussions led us to a conclusion that we did not want. Let us take this step by step. Let us investigate the legal issue and whether or not it is possible to get some comfort from our discussions with the Commission. If we can, it may well be that we do not need to do what he suggests.
In any event, is it possible to raise things before 2011? Yes, it is. It is obviously much more difficult, because we have to engage all the members of the EU, to get their agreement and then to push it up the agenda. That of itself takes significant amounts of time, and we would probably run into 2011 in any event. My concern now is that we have insurance companies out there that want to know where they stand. They do not want to know where they stand in 2010, 2012 or 2015; they want to know now. They want to know during the course of the next few months and years. Are they able to expand their business significantly? I want to give them as much reassurance as I reasonably can. Our aim is to maintain good quality pension provision. Often that is likely to be insurance-based as well as trust-based. We want to ensure that the issue of levelling down is not presented to employers. It is an issue here.
If an employer were making a contribution in excess of 6 per cent. to a good-quality, contract-based pension scheme and, as a result of the way in which these particular clauses operate, was obliged to change significantly the way in which his pensions were dealt with, he might well decide to level down. My objective, therefore, is to see whether we can minimise, in so far as we reasonably can, the prospect of levelling down.
The aim is to see whether we can keep things pretty much as they are for cases where there is a good-quality pension scheme with an employer contribution above about 6 per cent., an issue which we will come to in a few minutes. That is my aim, although I do not know whether we will be able to do it. We have some time during the course of this year to explore these issues and to see what the best approach is, and to discuss an exemption, if necessary, with the ABI and other stakeholders. That is the approach the Government are taking. I know it has broad support among stakeholders, although as we have heard during the course of evidence-giving, many of them are concerned that we should minimise any breach of automatic enrolment, whereas the members of the ABI want to minimise any disruption to their market. In both cases, the principle position of the stakeholders is entirely understandable and justifiable.
The hon. Member for South-West Bedfordshire also asked about master trusts and streamlined joining. Some insurance companies already offer master trust-based pension schemes, and would therefore be in a position to expand those schemes. Those who offer those types of schemes also offer contract-based joining, which they tend on balance to prefer. Some of the other insurance companies currently only operate contract-based schemes. They have concerns about the nature of a switch to master trusts. Some of them take the view that this would produce disruption for employers. Some of the other stakeholders, such as the National Association of Pension Funds, have done some work on this and think it would not produce that level of disruption. There is still some discussion going on with the ABI and others to try to ascertain what the precise level of disruption would be if some of the contract-based pension funds were converted to trust-based pension funds.
The general idea of a master trust scheme is that the trust is created within the insurance company, not with the employer. That enables automatic enrolment into the schemes under that trust, creating minimal disruption for the employer, and therefore there would not be the circumstances in which the employer would be likely to level down. The aim is to see whether some of the insurance companies would wish to move to that type of master trust scheme. If they take the view—which some have—that they do not wish or do not feel able to move to master trusts, then they are presented with a difficulty if there is no exemption, because they would either have to convert to master trusts or some of them would lose some of their market. That does concern me greatly and that is why we are in the business of negotiating it very seriously with the ABI and others.
Let us see how those discussions go on. I think I have outlined the various ways in which we are trying to clarify the issues, to pursue options if we do not get the answers we want, and to see whether there are other ways in which the insurance companies could proceed. We would need to be provided with a reassurance that we would get sufficient numbers of people engaging in pension provision to say that we could exempt them from automatic enrolment. The insurance companies need to identify employers with whom they have good relationships and be able to find opportunities with those employers to sell good-quality pension schemes to the employees. The employees would then need to sign up in numbers in excess of those we would have got if there had been automatic enrolment.
We do not want a situation in which we do not apply automatic enrolment—in which we have, in other words, an exemption—and as a result do not get sign-up to pension schemes. We need to get that sign-up. The exemptions themselves could create some difficulties for insurance companies, because they will then want to engage only with employers from whom they know they are likely to get a certain level of sign-up. If they cannot get that sign-up, they may well decide they do not want to continue to engage with particular employers. There would however be opportunities for them to sell their product on a broader basis after 2012, because automatic enrolment will mean for those insurance-based companies that employers will be in the market looking for provision. If there were an exemption, they may well find a much bigger market in which to sell their products. In business terms, both insurance-based schemes and trust-based schemes will probably benefit quite significantly from providing pensions after 2012, because the market will be significantly expanded.