New Clause 4 - Power to exempt certain cross-border employment from enrolment duty
Pensions Bill [Lords ]
6:15 pm

‘In Part 7 of the Pensions Act 2004 (cross-border activities within European Union) after section 292 insert—

“292A   Exemption from enrolment duty under Part 1 of Pensions Act 2008

Regulations may provide for section 2(1), 3(2), 5(2), 7(3), 9(2) or 54 of the Pensions Act 2008 (employer’s obligations regarding membership of a qualifying scheme) not to apply in relation to a person’s employment of—

(a) an individual in relation to whom the person is a European employer, or

(b) someone whom the person reasonably believes to be such an individual.”’.—(Steve Webb.)

Brought up, and read the First time.

Photo of Steve Webb

Steve Webb (The Minister of State, Department for Work and Pensions; Thornbury and Yate, Liberal Democrat)

I beg to move, That the clause be read a Second time.

The Committee will be aware that we tabled the new clause relatively recently to give us the powers to deal with what may be a problem relating to some of the international aspects of pensions. If Committee members consider that we been discussing technical minutiae, I have to tell them that once we start to debate people who work in one country, contribute in another, earn in another and are employed in another, matters become very difficult. We want to ensure that, in a world of auto-enrolment, we essentially make it as straightforward as possible. Obviously, we have discussed the issue with NEST, but it will be an issue for employers and for other providers.

What is the issue? There is a potential for tension between the regulations under the Pensions Act 2004 that implement the cross-border provisions of IORP—the EU institutions for occupational retirement provision  directive—into domestic law and the subsequent duties under the 2008 Act on employers to automatically enrol UK workers into a workplace pension scheme. So there is a potential conflict between IORP—which we talk about a lot in the pensions world, sadly—and the 2008 Act, which provides a duty on UK firms to employ UK workers.

The 2004 Act and the cross-border regulations require the trustees and occupational pension scheme to go through an approvals procedure before they can offer pension services to an employer of a worker who is subject to the social and labour laws of another European economic area state. Once approved, the scheme must comply with those laws. It can be complex and costly for trustees to comply with the cross-border provisions, and schemes may refuse to admit workers who trigger the application of those provisions. A scheme may say, “No, we are not going to let you into ours because we would have to provide benefits that are to do with the labour laws and the minimum standards of another state, and that is too much hassle. We’re not going to do it.”

The purpose of new clause 4 is to provide a regulation-making power. It would enable the Secretary of State to provide that the automatic enrolment duties under the 2008 Act do not apply in the case of a person’s employment of workers who trigger the application of the cross-border provisions. Those regulations, if we chose to make them—at this stage we want to give ourselves the power to make them, so that we can do more work and examine the scale of the problem—could be made at any time, if necessary, before the onset of the employer duties in October 2012. New clause 4 would provide the Secretary of State with that regulation-making power. Without such a power, some employers may find it impossible to comply with the employer duty.

We are still assessing the character and scale of the problem. It affects a small number of cases—potentially, however, 30,000 to 35,000 people. If we put an employer in an impossible position, that has got to be a bad thing, even if it “only” affects 30,000 to 35,000 people. Those people may trigger cross-border activity. It may include people who are seconded to work in another country, but who do not acquire rights as a qualifying person, or individuals who may already be in a pension scheme. It will affect less than 0.5% of people who will be automatically enrolled.

The problem is that the process can be complex and costly for trustees to comply with cross-border requirements, and as I said, schemes may refuse to admit workers who trigger the application of those provisions. Approval to operate across borders can take a number of months. Statutory requirements are for the regulator to submit an application to the host state within three months of obtaining the necessary documentation. Host states must respond within two months of receipt of the application.

As the Committee can see, this is a complicated set of areas. We are seeking, through new clause 4, to give ourselves the potential to regulate to exclude these people from the auto-enrolment duty.

6:30 pm
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Lilian Greenwood (Opposition Assistant Whip (Commons); Nottingham South, Labour)

I completely understand why the Minister is bringing forward a new clause to prevent a duty being placed on employers that they find impossible  to comply with. Will he set out the implications for those employees who are affected and what it means for their ability to save towards a pension if, for example, they are working outside their EU country of origin?

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Steve Webb (The Minister of State, Department for Work and Pensions; Thornbury and Yate, Liberal Democrat)

Just to be clear on something that I just said, I want to ensure that the record is absolutely right.

On the hon. Lady’s question, the folk that we are talking about will on the whole be higher-paid, pensioned workers. They will not be folk earning £9,000 in part-time, low-paid jobs, who we need to worry about. We do not glibly dismiss the pension position of 30,000 people, but it may well be that they are precisely the sort of people who can sort their own pension arrangements out. We do not want to require firms to enrol them in schemes that are inconsistent with other legal requirements. That is the point I am trying to make.

If we do not put new clause 4 into the Bill, it is technically possible for an employer to have a legal obligation to automatically enrol a jobholder—that is the term in the 2008 Act—but because that person is also a qualifying person, to be unable to find a scheme willing or able to provide a work-based pension to that person, because of all those cross-border duties. We could require an employer to put someone into a pension, but the employer could be unable to find a pension to put them into. We do not want to put employers in that position. We could be talking about some 30,000 to 35,000 people, but as I have indicated, some of those people could already be in a pension scheme, so the real number involved is likely to be lower.

The possible ambiguity in what I said related to the position of secondees. To make the situation absolutely clear, the 30,000 to 35,000 people includes those who are seconded, but those are exempted. So that is the worst-case scenario. For the avoidance of doubt, I want to make that clear.

The EU has recognised that there are significant barriers in enabling schemes to operate effectively across borders.

Photo of Rachel Reeves

Rachel Reeves (Shadow Minister (Work and Pensions); Leeds West, Labour)

So if a construction worker employed by a UK company went to work in Germany for two months but was still paid in sterling and still living in the UK permanently, would they be affected by these changes?

Photo of Steve Webb

Steve Webb (The Minister of State, Department for Work and Pensions; Thornbury and Yate, Liberal Democrat)

I will come back to the hon. Lady’s point in a second. The currency in which someone is paid is not particularly germane, but the question would be whether they count as a jobholder—a UK worker—under the 2008 Act and also as a qualifying person for whom the obligation to match the labour laws of another member state arose. A construction worker would be unlikely to qualify for German employment rights and will therefore be regarded as a UK worker. That is not the sort of example that we have in mind, but I am grateful for the hon. Lady’s question.

As I said, the recent EU green paper consulted on ways in which the IORP directive could be amended to simplify some of the conditions for cross-border activity, and we expect the Commission to publish a review of IORP towards the end of 2011, which may provide an indication of the Commission’s long-term thinking on  cross-border activity. In the meantime, we cannot sit and wait to hear what the EU will do—we need to take powers in the Bill to ensure that we do not put employers in an impossible position. I therefore commend new clause 4 to the Committee.

Question put and agreed to.

New clause 4 accordingly read a Second time, and added to the Bill.