Clause 7
Pensions Bill
5:15 pm
Mike O'Brien (Minister of State (Pension Reform), Department for Work and Pensions; North Warwickshire, Labour)
The clause ensures that jobholders automatically enrolled into work place pension savings schemes, but who decide not to save, have the right to opt out. People’s circumstances and preferences vary, and it is important that individuals remain free to decide whether private pensions saving is for them. A jobholder can opt out by giving notice in accordance with regulations to be made under subsection (2). The intention is that any contributions paid by the jobholder before their notice to opt out takes effect will be refunded to the jobholder. Similarly, any contribution paid by the employer during that opt-out period will be refunded to the employer.
The amendments would, however, make the jobholder the only possible recipient of a refund of a jobholder contribution, and the employer the only possible recipient of a refund of employer contributions. Although we can all agree with the intention, the implications up putting that in legislation for existing schemes, of which we need to take account, are immense. We cannot be certain at this stage about how the refund of contributions will operate or about the full implications for tax purposes. However, the first destination of a refund of jobholder contributions might need to be the jobholder’s employer in order to enable income tax to be deducted from earnings, which is not a pension contribution and, therefore, no longer entitled to tax relief.
By preventing the refund going the employer in the first instance, amendment No. 71 would require a scheme to know all the relevant details for all individuals, and would require those individuals, were they to receive a refund direct, to make arrangements to pay tax due on what are now earnings. With regard to employer contributions, the intention is that employers engaging with personal accounts should receive a refund of their contributions if the jobholder opts out during the opt-out period. However, amendment No. 72 would apply to all employers regardless of what scheme they use to discharge their duties. Some employers do not require refunds when a jobholder opts out. For example, some choose to leave employer contributions at the disposal of the scheme trustees when a worker opts out, either as a contribution to administrative costs, or to be used by trustees for the benefit of other members. The problem is that that is a highly technical area, and if we start making changes to current schemes, we would need to approach it with an enormous degree of caution.
Procedures for handling the return of contributions will be a matter for detailed consultation with stakeholders, including the delivery authority, as we develop the regulations. They will set out the time limits for refunds and specify how they are calculated and paid. That approach will also ensure that tax issues are fully addressed. However, I want to make it clear that whatever the regulations prescribe for the process, the refund due to the jobholder will find its way to the jobholder, and those due to the employer to the employer. We must ensure, however, that in seeking to do something that might sound simple and straightforward, we do not add a level of unintended complication and difficulty. Unintended consequences are a habit with parliamentary legislation, unless we approach with care, particularly when dealing with pensions regulation. I hope that the hon. Gentleman will consider withdrawing his amendment.