Clause 4
Pensions Bill
4:30 pm
Mike O'Brien (Minister of State (Pension Reform), Department for Work and Pensions; North Warwickshire, Labour)
I was referring to automatic enrolment from day one. However, there is an exception, which we come to now. What we have at the moment is a number of employers who provide perfectly good pension schemes for their employees. They make a contribution that may be above the 3 per cent. minimum that we are requiring. We want to cause the minimum possible disruption to current good-quality pension provision. Therefore, the objective of the clause is about where an employer is making a fairly good-quality contribution—we reckon at least 6 per cent., or double the minimum—and there is a deferral of entry.
For example, Tesco defer for a year at the moment before someone is automatically enrolled into their pension scheme. One has to be employed for a year and then one is automatically enrolled, as I understand it—I can be corrected if I am wrong. The result is that we would say that we do not want to change it unless we need to. However, one year is rather a long time and we would rather have a period of about three months. We do not want to put that in the Bill now and we have time to discuss it with employers and to consider the sort of period that will be best for ensuring that we keep a good quality provision. Some employers have very strong views; if they make a contribution of, say, 12, 13 or 14 per cent., as some good employers do, there may be an argument for giving them a longer deferral period.
We need to have a sensitive discussion with employers. We want to give ourselves flexibility in the coming months or possibly even a year or so. To have such a discussion would ensure that we get the detail of regulations right. Three months is the sort of period we are considering as a reasonable maximum but I am not being dogmatic about that as we are prepared to discuss it further as part of a consensus-building approach when we may consider some sliding scales or say that three months is right.
The amendments clarify what we are doing. We want employers using a deferral period to follow the arrangements set out in clause 3. We want automatic enrolment and we want it to be done properly; amendment No. 117 puts that clearly in the Bill so that employers know that there is another procedure.
Amendment No. 118 is uncontroversial. It clarifies the fact that employers can get a deferral period for a reasonably good scheme, but they cannot then switch the employees to another scheme that is not so good; in other words, they cannot manipulate the system. Employers can keep the deferral period provided that they keep their employees in the scheme for which they are seeking the deferral. They cannot use it to move in and move out of a scheme.
I doubt that many employers would be tempted to use that trick but we want it to be clear in the Bill that they cannot do so. If they seek a deferral it must be to enrol someone in a better quality scheme than the minimum. In those circumstances we accept that an element of deferral may be possible if current arrangements are in existence.
The provision would particularly benefit employers who have a high turnover, but it will mean that in order to take advantage of the clause and the amendments they would need to have a better quality pension scheme than the absolute minimum. There is a reasonable trade-off, which has been discussed with various stakeholders. It is fair to say that stakeholders have different views but what is proposed is a sensible compromise that enables us to make a reasonable provision.
I have looked with care at the percentage level at which we enable the deferral period to come in, given the employer contribution. It has been suggested that the level should be 9 per cent., 10 per cent. or 6 per cent. I chose 6 per cent. primarily because I want a minimum of churning, of decision making and of opportunity for people to decide to level down. The proposal is part of that process; the less we require employers who have reasonable provision to do, the better in terms of levelling down.
I hope that the Committee will accept the amendments and the clause.