I am happy to out myself as someone who missed the boat on the last group of amendments, but I shall say a couple of things that I might have said in that context in this stand part debate. I have two points to make. First, the Minister has developed a mantra about auto-enrolment as if it were an everyday occurrence. Apart from the fact that he conceded that there is an issue of degree in any event, moving from however many he thinks are auto-enrolling at the moment in existing schemes to what is fervently hoped will be mass auto-enrolment of up to 10 million people under personal accounts is a very different kettle of fish. I think that we can all accept that.
The National Association of Pension Funds sent me some Department for Work and Pensions figures suggesting that only 3 per cent. of employers who are currently contributing 3 per cent. or more to pension schemes use auto-enrolment. I do not know quite how that reads across to the figures the Minister has quoted. I think he refers to Tesco. There seems to be a conflict of evidence there. In any event we would still argue that we are in a totally different ball game in terms of auto-enrolment under the Bill.
The other point is more an attempt to try to tidy up where we go from here on pay to save and means-testing generally. I appreciate that consensus building is unlikely to extend as far as giving the official Opposition credit for raising particular issues which have been adopted by the Government, but I am delighted to hear that while we were screaming about means-testing and its effect on personal accounts in a different part of the same forest Age Concern was saying much the same thing. It all comes to the same in the end. Again, I should like to welcome the discussions that are now foreseen by the Minister.
We did not support the Bill on Second Reading for precisely the reason that I have set out on means-testing. It is perhaps an indication of how far we have come and how quickly that we did not pursue the amendments and the new clause in the last group as a result of what the Minister said. It would have been the height of churlishness. I never like to think of myself as churlish; that may be alright for the Liberal Democrats, but not for us. Conservatives are not into churlishness in any shape or form. It would have been churlish to have caused a rumpus or even a vote over those matters. I should just like to place it on the record that we are delighted, whoever is given the credit in public for this movement forward on these big and important issues, that that movement has happened.
Without wanting in any way to fall foul of your instruction to the Committee to have a short stand part debate, Sir Nicholas, I crave your indulgence because there are two completely new issues that we have not touched on at all which are significant in relation to clause 3. Of course, you could rule me out of order at any point should you think that I am straying into territory that we have already debated, Sir Nicholas. However, there are two issues that we have not touched on that are absolutely central to the Bill and which relate to clause 2.
Being six foot five and a half, I am pleased to hear that.
The first issue that we have not so far debated is the age 22 stipulation in paragraph (1)(a). It is a slightly different state of affairs from the point I raised when I spoke to amendment No. 1 on clause 1. That was about the fact that over 75s were forbidden or unable to be part of the personal accounts scheme. Of course, because we have agreed on clause 1, people between 16 and 22 will have a right to enrol on the personal accounts scheme. However, I want to tease out the Minister’s thinking on why the core age runs purely between age 22 and the state pension age. A person could have six wasted years between ages 16 and 22, when they have started their working lives but are not in the personal accounts scheme. We are all keen to get people into the savings habit as early as possible, given the huge deficiencies in people’s pension pots that have come to light in recent years. If a young person begins their working life earning perhaps £5,035 per year, would it not be sensible to auto-enrol them? Of course, they would have the option to come out if they thought that they were going to be in a particular job for only a short period, or if they wish to study, or for whatever other reason.
I am mindful of placing too many burdens on businesses, and some young people move in and out of jobs frequently early in their careers, but that is not the case for all young people. I would welcome further elucidation from the Minister on the six-year gap between the ages of 16 and 22. My guess is that few people who are aged between 16 to 21 will actually step up to the bar and choose to be auto-enrolled, and I do not know whether the Government have any advertising planned to encourage people to volunteer, but it is an important point and I would be grateful if the Minister responded to it.
The other area that I wanted to touch on is the collection method for personal accounts. All businesses, and particularly small employers, are concerned about it. The Work and Pensions Committee dealt with the issue in March in its fifth report of the last Session. Recommendation no. 230 on page 56 of the report states:
“We would have expected the thinking on such a crucial keystone in the operation of the scheme, for employers, employees and the Authority and Board, to be more advanced at this stage, and we are deeply concerned that it is not.”
The report goes on to ask whether the PAYE scheme could not be amended to make life easier for employers. On page 55, the report states:
“Lord Turner admitted...that collections systems were ‘not an issue that we bottomed out fully’”.
Therefore, the Pensions Commission did not really begin to consider the issue, give it full scrutiny, or ask the Government to come up with proposals.
Businesses in general, as represented by the Federation of Small Businesses and Mike Cherry, are concerned about the matter. In our evidence session on 17 January, he told us that the federation is worried about the “on-cost” of creating a different system in addition to PAYE. It is not just the cost to businesses that are significant, which we all want to minimise given the extra 3 per cent. that will be added to employers’ payroll costs. There is also an issue of time.
Just to seek clarification, I am following the hon. Gentleman’s argument, but I am not sure that I have understood one part of it. He is suggesting that PAYE should be the means of collection for personal accounts, but is he suggesting that it should be the means of collection for all other pension schemes?
No, I am not suggesting that. I will come back to that point, because the Minister touched on it when he gave evidence to the Committee. At the moment, I am touching on the issue purely of personal accounts and enrolment. That will cause a significant extra monthly administrative task for millions of small businesses up and down the country. I am pleased to see the hon. Member for Ochil and South Perthshire (Mr. Banks), a member of the Federation of Small Businesses. This may be an issue that he wants to furnish the Committee with his opinion on from his business experience.
There is not just a monetary cost in creating another system. It is about time as well, particularly for small businesses, which do not have the resource of a personnel department that can do these tasks. There are many issues that they have to deal with month by month of a regulatory nature, to fulfil all of their obligations. It is important that the monetary cost of collecting the personal account contributions and the time that it takes are both minimised.
I know that the Minister is aware of this issue, but I am nervous that we are proceeding through the Bill and do not yet have the clarification that millions of businesses up and down the country want. I will be grateful if the Minister tells us where the Department’s thinking is on this issue and what the plans are. Is it possible to ally the payment in some way with PAYE, notwithstanding the difficulties that he has already told us about?
Lastly, as far as the PAYE computer system is concerned, I turn to the evidence that the Minister gave to the Committee on 17 January. Having reread what he said in answer to question no. 154, which I put, he said that he wanted to be mindful—if I read his argument correctly—of not over-favouring the administrative systems for personal accounts as against other forms of pension contribution. That is a fair point because we want a level playing field.
This issue is about a balance of priorities. Given the scale of auto-enrolment that we are looking at up and down the country for millions of our fellow citizens and millions of businesses that have not contributed to pension funds on behalf of their employees, I think that there is a stronger counter-argument that it should be the Government’s top priority to have administrative ease by reducing both the cost and the time of collecting the personal accounts. We are not talking about making life more difficult for any other form of pension contributions. They are coping at the moment. I think that ensuring that our businesses and our economy are not unduly burdened should be the priority. I would be grateful if the Minister also addressed that point in his response.
Like the hon. Member for Eastbourne, I believe that the Government’s new approach to paying to save and to means-testing is a welcome step forward. I just hope that in the course of this debate the Minister will clarify one thing. If the body being set up is to produce a report, it would be useful if he put it on the record that, although it will not make any recommendations, and although the Government have made no commitment to act on anything in the report, none the less Parliament will have an opportunity to debate it. It is important to ensure that Members on both sides, who have expressed concern about means-testing, have a chance to debate that matter on the Floor of the House. The Bill will have been enacted, or at least all of the Commons stages will have been completed, before the report from this august body is published.
The hon. Member for South-West Bedfordshire made an important point about the lower age limit of 22. I echo his points about the fact that at least some young people aged between 16 and 22 will be disappointed to miss out on automatic enrolment. They might be embarking on a career, and not just changing jobs every few months, as often happens at that age. The ability for them to join the personal account would be useful.
The Association of Chartered Certified Accountants raised a point with me relating to the automatic enrolment date, which is provided for in clause 3(6):
“The automatic enrolment date, in relation to any person, is the first day on which this section applies to the person as a jobholder of the employer.”— in other words, on the first day of their employment, as I read it. That seems sensible; it is how many existing occupational pension schemes—the person joins on day one.
In its briefing, the ACCA pointed out that some times when an employer automatically enrols someone on day one, and when that is also the date on which they first receive the information about the personal account, it might take a while for the employee to digest the information—perhaps a few weeks or a month. After that, they will decide whether to remain enrolled. It is quite clear from the Government’s forecasts, for the numbers of people expected to enrol in personal accounts versus the number of people in the target audience, that it is predicted that a significant number of people will choose to opt out. In those cases, presumably the employer will have to repay the contributions or work with PADA to do so. Might that not place an unnecessary additional burden on employers by providing for an additional administrative layer? I have some sympathy for the view that automatic enrolment should take place on day one, but we should consider the burden on businesses. I would like to hear from the Minister whether he or his Department have considered that point.
Let me begin with the points made by the hon. Member for Eastbourne. I think that his NAPF figures relate to its members, whereas the wider issues on automatic enrolment also concern public sector employees and others. I have been advised that one in six employers are currently automatically enrolled.
On his broader comments on the Bill, I welcome the constructive approach that he has adopted. He indicated that the Conservative party has come some distance, and indeed so have others. That is all part of the process of discussing and evaluating the arguments, and of seeking to maintain a consensus. However, to use a phrase that the hon. Gentleman has often used and that I accept: a consensus is not a blank cheque. It is the ability to question, challenge and ensure that the debate is properly engaged in. I have no problem with that, and we have sought to respond to the debate and ensure that we move it forward, recognising that these issues must be properly discussed.
The hon. Member for South-West Bedfordshire asked a couple of questions. First, he asked, as did the hon. Member for Inverness, Nairn, Badenoch and Strathspey, why we do not have automatic enrolment from the age of 16. There are a number of reasons for that, but I want to make clear that a 16-year-old will have the right to join a personal account and to have an employer’s contribution. However, it will effectively be a voluntary joining by the 16-year-old should they, or indeed anyone up to 22 years old, want to do so.
The issue is about at what point to impose legal obligation on employers. We are conscious, as the hon. Member for South-West Bedfordshire indicated, that 16 to 22-year-olds change their employment regularly. Many are students and will be employed for quite short periods. Some will go over the £5,035 figure during their period of employment, but they will only be employed in a temporary job during that year. Therefore, particularly for 16 to 22-year—olds, there were a number of issues to take into account. As part of the process of consulting and discussing with employers’ organisations, we took the view that the creation of a legal obligation for automatic enrolment, in addition to the employers’ contribution that exists from the age of 16, would create a greater administrative burden for 16 to 22-year-olds than it would do for the majority of people over that age. We decided that 22 was a sensible age at which to impose that obligation on employers. To do so below that age would have produced an obligation that we felt to be somewhat excessive and probably, in some cases, likely to lead to burdensome steps, particularly where people were employed for short periods.
On the method of collection for personal accounts, the hon. Gentleman suggested, as did the Work and Pensions Committee, that we should look at linking it to PAYE and use one of the official mechanisms such as Her Majesty’s Revenue and Customs or one of the taxation bodies. We looked at that, and there are several problems with it. There is the obvious administrative issue that the tax system has a lot of work to do, and any additions increase the burden on the system, creating, by theirs own nature, more inefficiencies. It was not a good thing to do unless we had to, and we did not think that we did.
The more important question is about what this would do to the market. As the hon. Member for South-West Bedfordshire indicated, one of my key concerns was that we should create a system of personal accounts that complements, rather than competes with existing provision. There is a fair degree of concern, particularly among insurance companies and others, that we are creating a personal accounts system that will move into a market in which they themselves are competing.
If we were to give our personal accounts a competitive advantage in terms of the means of collection, by saying to employers, “If you have this pension provider or personal accounts, you will be able to use a more simple method of provision”, two things are likely to happen. First, the competition in that area of the market will say that personal accounts have a competitive advantage denied to them and that has been done by the state. More particularly, some employers might be tempted to trade down and to move into personal accounts in order to take advantage of that mechanism.
Our view is that it would be better to leave it to the various means by which pensions are collected today. We do not seek to create impersonal accounts with a product and an organisation that will have a substantial competitive advantage. We expect it to move into a market—for the low paid in particular, but also those on moderate incomes—in which, to be fair, there is not enough profit for most of the commercial sector.
Companies such as Aegon and Standard Life operate in that market, but only in niche parts of it. They want employers of a reasonable size that will give them a reasonable payment in return. Some areas of the market, particularly small employers, those who employ only one, two, three or four people—perhaps a chippie, a garage or a hairdressers—are often not sufficiently commercially viable to become involved with the various pension providers at the moment.
We expect personal accounts to move into this area. In a sense, it will therefore be accepting a position that is not for other commercial providers. It will say, “We will operate in an area in which, on the face of it, there is not a vast profit to be made. We will be available to all these employers, whether or not we would have done so if we were making a purely commercial decision.”
There will be an extra burden on the Personal Accounts Board and on personal accounts to provide something that the commercial organisations will not provide. We are therefore prepared to give them some facilitation and some encouragement, some compensatory support to go into that market, but we do not want to disrupt the overall commercial market. We do not want to create such a competitive advantage that employers are tempted either to get out of their current provision or to not even look at commercial private-sector provisions because the public-sector provision is so strongly competitive.
On the other hand, I can tell the hon. Member for South-West Bedfordshire that we are looking for collection to be linked simply to the payroll system. We are looking for PADA to create a low-cost, simple collection method. It knows perfectly well that it will be dealing with a number of employers that are very small in terms of numbers, that are often not well provided for in terms of accountancy support or backup; and they sometimes may not have higher educational qualifications. We therefore need to create a straightforward and simple low-cost method. We asked PADA to advise on the best method of providing that sort of simple and straightforward collection method, but we do not want to provide it with a competitive advantage.
I read somewhere that it is intended that personal accounts collection should be entirely online. Will there be an option? Some very small business might prefer to get the cheque book out once a month and send a cheque to PADA. Is that an option, or has it been totally ruled out?
That has not been ruled out. It is a matter for PADA to consider. In some cases, it may prove not to be practical to do it only online. We have to consider the matter because some employers will not have mastered the online facilities that are available to many of us. We have to ensure that the garage owner, who is probably very good at mending cars but may not be very good at running a computer system or an accounts system, to continue his business and to employ the extra person that may be needed to do the paperwork. It has to be fairly straightforward.
The straight answer to the hon. Gentleman’s question is that we have not ruled out someone sending a cheque. We want to ensure that procedures are simple, but we also want to keep the costs down. We do not want to have idiosyncratic collection systems that drive up the cost for the rest of those participating. There is a balance to be struck.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) asked about a parliamentary debate, about which I can give no commitments. There will be a report back by the group which Age Concern suggested, and to which we responded positively. That will set out the background information. As he indicated, we are not looking for recommendations and we do not expect any in a report—we expect an elucidation of the nature of the debate and of the issues in the debate, rather than anything else. We give no commitments as to how we will respond. The response will be for his party, others in the Opposition and the Government to decide when we see the document. Debates and whether there shall be debates in the House of Commons are for the usual channels; I will not seek to intrude.
In the hon. Gentleman’s other question, he asked—a fair point—about the issue of when an employer is enrolling an employee on day one. The employee spends some time looking at the documentation and decides to opt out; that will happen. The key question is when the obligation arises for the employer to make payments into personal accounts. From what point does he have to start paying? That does not mean when he administratively puts in place the mechanism for him to pay for employee X. He may give employee X a week or two to decide whether he wants to opt out or not—but the employer’s obligation begins from day one. The employer has to be prepared to pay a contribution in but, provided that the procedures have been gone through, that it is known that an employee has opted out and that the opting out has been registered, then there is no obligation on the employer to start making contributions for someone who has opted out. The employer will, however, have an obligation as from day one to make contributions where a personal account system has been set up.
We will shortly come to the exception. All that I have said is “caveated” by an exception: it is possible to defer payments in from day one in certain circumstances, but we will come to that in the next clause. I hope that that deals with the issue for the hon. Member for Inverness, Nairn, Badenoch and Strathspey and that we will be able to approve the clause.