Clause 5

Part of Pensions Bill – in a Public Bill Committee at 5:00 pm on 22nd January 2008.

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Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions 5:00 pm, 22nd January 2008

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.