Clause 5

Pensions Bill – in a Public Bill Committee at 4:45 pm on 22nd January 2008.

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Automatic re-enrolment

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I beg to move amendment No. 80, in clause 5, page 3, line 33, leave out subsection (6) and insert

‘The automatic re-enrolment date shall be 1st April of each year’.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

With this it will be convenient to discuss amendment No. 15, in clause 5, page 3, line 34, leave out from ‘that’ to end of line 35 and insert

‘fall at the beginning of the tax year in any relevant year for all jobholders.’.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I look forward to the first contribution of the Under-Secretary of State for Work and Pensions to the Committee, in response to the amendments in the clause. I do not know whether he is good cop to the Minister’s bad cop, or maybe it is the other way around. We shall see.

The clause deals with automatic re-enrolment. It makes a great deal of sense to ensure that there is a regular opportunity for people who opt out to reconsider their position to be automatically re-enrolled. The amendment is fairly simple, so I do not intend to dwell on it for a great length of time. It is to try to establish that the timing of automatic re-enrolments be of maximum convenience to the employer, for reasons of administrative efficiency that we have been discussing previously. I think that that is also the purpose of amendment No. 15 tabled by the Conservatives. I note, for example, that the Engineering Employers Federation suggests that it hopes that that will include allowing employers to undertake the process on a fixed date, such as the start of the tax year.

Amendment No. 80 gives 1 April, the start of the tax year, as the suggested date, rather than the anniversary date of when the individual chose not to be auto-enrolled. If it was on that anniversary, automatic re-enrolments could go on in large companies almost every day of the year. One would wish to avoid that, in the interests of administrative efficiency. Whether the Government choose to accept the amendment or not, I hope that the Minister will accept the principle that automatic re-enrolment should fall on a specific date, perhaps every year, and that choosing a date, for example at the start of the tax year, that fits in with other changes that employers might be making in tax and salary rises would minimise the administrative burdens on employers. That would make the automatic re-enrolment process easier and, of course, more likely to go without a hitch.

Photo of Gordon Banks Gordon Banks PPS (Rt Hon James Purnell, Secretary of State), Department for Culture, Media & Sport 5:00 pm, 22nd January 2008

To clarify a point, is the hon. Gentleman saying that the individual enrolment day he is proposing could be different for every company, and that it would be a date that would suit, let us say, the financial calendar of an individual company?

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

It is good to hear from the hon. Gentleman who, as has been said before and as he made clear in the evidence sessions, is very knowledgeable about matters relating to small businesses. I would take his advice on that point.

Clearly some businesses operate tax years on a different basis, so the approach set down in the Conservative amendment might be preferable to the fixed calendar date in amendment No. 80. The point that I am trying to establish is that there should be a fixed date every year, two years or whatever, when automatic re-enrolment takes place at a date that is most convenient to the company. The start of the tax year would seem an obvious date. That is the simple point that I am trying to make. I do not think that I need to dwell on it .

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I agree with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that our amendment No. 15 is similar to amendment No. 80. He said that his amendment was inspired by the Engineering Employers Federation. Ours has also been in part inspired by what it had to say. I note that the recommendation of the Work and Pensions Committee to the Government was that they should adopt this recommendation that re-enrolment should take place for all employees en masse at the end of the tax year in order to reduce the administrative burden on employers.

I am pleased to note that the Government in their response to the report said at paragraph 130:

“We have been working closely with employers and their representative organisations to design a scheme that minimises the burdens on business.”

I am sure we are all keen to support that. At the moment, employers would have to track the start date and 22nd birthday of all their employees at three year points from all those dates. Instead of having all the dates flagged up on a computer, with letters going out  to everyone and re-enrolling everyone in one go, and instead of it being a simple one-hit task that is done once a year, it will be a monthly problem for employers.

Again, I make no apology for repeating that we are bringing the world of pensions and contributions to some very small businesses. The Minister mentioned a garage earlier. Think of the small hairdresser or the very small sandwich bar with one or two employees. Those are not organisations that have large personnel and compliance departments that can make sure that this is done easily. If the Minister does not like amendments Nos. 15 or 80, I hope he will have something pretty convincing to say to the Committee about how he will make this work simply and effectively and with the least hassle.

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

It is now my turn, Sir Nicholas, to say how nice it is to serve under your chairmanship and to deal with the amendments that have been tabled on clause 5. I am grateful to the hon. Members for moving them in the way that they have. We have already established that there is strong support across the whole Committee for the concept of automatic enrolment. I hope it therefore follows that there is equally strong support for the principle of automatic re-enrolment. The issue is about the timing and the way in which we can minimise the burdens for employers in carrying out this equally important part of the process we are establishing here.

There will, of course, be perfectly reasonable reasons why some employees might wish to opt out. But it is therefore important that a prompt is also built into the system that gives them once again the chance to consider whether they should be back in the system. The best way of doing that is by having an automatic re-enrolment process at a suitable interval. That is why these clauses include provisions that enable the Government to require the periodic re-enrolment of job holders who are not participating in a qualifying pension scheme——a timely reminder, through the process of re-enrolment, could make all the difference for some employees. Without that facility, they might not again consider revisiting the decision that they have made.

We are conscious of the burdens that re-enrolment places on employers and on schemes. That is why we decided that re-enrolment should happen not more frequently than once every three years and why we placed that safeguard in the Bill. Support for that stance came during our evidence sessions from the consumers, represented by Which? and from employers, represented by the CBI. They both endorsed strongly the three year re-enrolment period.

The amendments would establish a link between the re-enrolment date and the beginning of the tax year. Amendment No. 15 would do that every time the enrolment is triggered. Amendment No. 80 would establish re-enrolment on the same basis, but trigger it every year. Having re-enrolment every year could triple the employer burden compared with our proposal if people who have persistently chosen not to save still choose not to save and opt out 12 months later. Instead of a three yearly peak in activity, the peak would be annual.

We hope that people will stay with pension saving, but there is a balance to be struck between periodic re-enrolment when a person’s circumstances might have changed and virtual harassment. Re-enrolling job holders every year would be overdoing it. There is a risk that the message could become so routine for those individuals that it is devalued rather quickly and so more readily dismissed than it would be were it to come up every three years.

I emphasise that we are still considering the implementation of re-enrolment and the process by which it will occur. As the hon. Members who have spoken on the issue have indicated, we need to strike the right balance between the benefits for job holders and the impact on employers. We need to fully understand the impact of re-enrolment on employers and on schemes. I have therefore asked the personal accounts delivery authority for advice on this issue and on how it would be best implemented. We also need to discuss with other stakeholders how best to introduce the policy so that it minimises the burden on employers and on schemes.

In effect, there is a range of options on the timing of re-enrolment which could be used to smooth its administrative impact over a calendar year, a tax year or some other period. The hon. Member for Inverness, Nairn, Badenoch and Strathspey suggested that one date could be chosen on which all employers must do automatic re-enrolment. A certain logic points towards the tax year, but that might not be the appropriate single date for all employers. Some will have different forms of financial years. My hon. Friend the Member for Ochil and South Perthshire noted that the case for simplicity in respect of some employers might point to one date, but the same simplicity argument might point to another date for another employer. While the principle of one date has a clear attraction, moving from that to saying that it should be the start of the tax year will not necessarily meet the criteria that employers reasonably have in this area.

There is also the option of aligning the three year automatic re-enrolment to the date on which the individual opted out. That would create another set of complexities for many employers. Those with highly automated payroll systems might not find it at all burdensome. They would simply have to log, at the point of the individual opting out, a time three years hence when they will automatically be re-enrolled if they are still with the firm. That would not be so easy for smaller companies, which do not have such sophisticated processes. Those are the reasons why we need to go on discussing the matter as we are committed to doing. However, by tying the process of re-enrolment to the start of the tax year, the amendments would perhaps create a peak in the underpinning administrative activity, which would affect employers and schemes, and incur associated costs.

The Government have already made a public commitment in the consultation response to the White Paper to take account of further analysis and advice from the delivery authority, and to consult with stakeholders and the industry, before we take our final decisions on the actual period of, and mechanism for, automatic re-enrolment. I hope that with those reassurances, hon. Members will be happy to withdraw their amendments.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I am grateful to the Minister for that full response. I am pleased that he is attracted at least to the idea of having only one date in the period. There are some attractions to that proposal, so I am pleased that the Minister is consulting business and that he has asked PADA for its advice—that is the right approach.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

Does the hon. Gentleman agree, as I hope the Minister will, that the scheme needs to be flexible and permissive rather than prescriptive? Having heard the debate, does he agree that amendments Nos. 15 and 80 would not do that job? However, I hope that he will be satisfied like me with a ministerial commitment to come back with another draft following his consultations. We want the scheme to be flexible and permissive, to give maximum flexibility and to reduce burdens on businesses.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

The characteristics that the hon. Gentleman set down for dealing with the matter are exactly the kind of thing that we are looking for. I believe that it will be dealt with more by regulations than in the Bill, but the Minister spoke about listening to advice from external sources such as business organisations and PADA, so one hopes that we will come to the same conclusion. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

I beg to move Government amendment No. 119, in clause 5, page 3, line 36, leave out ‘(2)’ and insert ‘(6)’.

This is a drafting amendment to correct the construction of the clause. It ensures that the correct reference is in place. In effect, it will simply alter a number, so I hope that it will be agreed to as a technical drafting amendment.

Amendment agreed to.

Clause 5, as amended, ordered to stand part of the Bill.