Clause 18
Pensions Bill
10:30 am
Paul Rowen (Shadow Minister, Work & Pensions; Rochdale, Liberal Democrat)
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.