Clause 49

Pensions Bill – in a Public Bill Committee at 9:45 am on 31st January 2008.

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Restrictions on agreements to limit operation of this Part

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I beg to move amendment No. 156, in clause 49, page 22, line 34, at end insert—

‘( ) The fact that an agreement is to any extent void under subsection (1) does not entitle the employer to recover any property transferred, or the value of any benefit conferred, as an inducement to enter into, or otherwise in connection with, the agreement.’.

Photo of Janet Anderson Janet Anderson Labour, Rossendale and Darwen

With this it will be convenient to discuss new clause 1—Offence of offering financial inducements—

‘An offence is committed if an employer offers financial inducements to opt out of an automatic enrolment scheme.’.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

We want to deter employers from encouraging workers to opt out of pension scheme membership. Clause 49 ensures that any agreement, including those involving inducements, that aims to limit an employer’s duties or a worker’s rights under the legislation is void. Workers will remain free to opt back into qualifying pension scheme membership and to disregard any agreement to the contrary. Employers that refuse to accept workers into the scheme could receive penalties for failure to enrol. As a result of the Government amendment, they would not be able to claw back any inducements that they had given.

We believe that that approach, backed by an effective communications strategy so that both employers and workers are well informed about their rights and responsibilities, is the best way forward. We do not think that making it a criminal offence to offer inducements is the most effective way of deterring employers. In practice, the intention of the employer in such circumstances could be difficult to prove—there is some concern about the mens rea there.

I hope that the Committee will be able to accept Government amendment No. 156. I will not be able to accept new clause 1, but I hope that the changes made by the amendment will reassure hon. Members.

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

We certainly support the Government amendment. An employer should not be able to take back from employees any money given to them to encourage, persuade or bribe them to opt out of auto-enrolment. The measure is a sensible addition to clause 49.

I want to debate further with the Minister the question of employers offering financial inducements to their employees to opt out of auto-enrolment. It seems that as far as some employers are concerned—hopefully a small minority—there will be a clear financial incentive to pay money to employees so that they do not automatically enrol, given that the employers would save the 3 per cent. that would otherwise be added to their payroll costs year on year. They might say to an employee, “Here’s £100,”—or £500 or £1,000, who knows what the figure might be?—“this isn’t a good deal for you and there’s a lot of administration for me; it’s a silly Government scheme. Why don’t you take the money now? You’ll be better off and it will save me the hassle.” Under clause 49, such an agreement would not stand, because the employee would be able to keep the money and then chose to enrol in the scheme automatically. The TUC representative who gave us evidence was pleased about that and said that there might be some smart employees who would take the money and automatically enrol—one could not blame them.

On a serious point, my genuine worry—I am surprised that it is not shared by the Minister or, indeed, all members of the Committee—is that there will be some employees, who perhaps do not pay great attention to our proceedings or watch the news that carefully, who  will take what is effectively a bribe from their employer to stay out of the scheme without realising that they have lost out on what could be an important and meaningful pension provision. Given that the Minister wants to discourage employers from doing that, I am surprised that he does not want to make it an offence for an employer to do something that is against the intention of all three parties represented on the Committee. If such action were an offence, that would be a further deterrent to employers and would, therefore, be a small but useful contribution to the Committee’s objectives.

Will the Minister elaborate on what exactly will happen, in terms of missed contributions, when such a deal between and employer and an employee is uncovered? In particular, will there be an onus on the employer to make good on the contributions that should have been paid? We have had a useful debate on the role of the Pensions Regulator. The TUC’s briefing asked whether the Pensions Regulator will look out for employers who have atypically high numbers of staff who have opted out. Will it be part of the regulator’s role to survey employers and spot unusual patterns of opt-outs that suggest that such financial inducement or bribes might be involved? Such inducements would be in the employers’ financial interest but not, in the vast majority of cases, in the interest of the employees, although that is not to say anything against the debate that we will have shortly on means-testing. New clause 1 would provide an extra deterrent to stop employers from doing something that we all agree is wrong. I will be interested to hear the Minister’s response.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey 10:00 am, 31st January 2008

I agree with much of what the hon. Gentleman said. Government amendment No. 156 makes a lot of sense in that it seeks to close a loophole that would have allowed employers to claim back any inducements that may have been offered to employees to get them to opt out of a pension scheme. It is absolutely right that an employee should not have to repay any such fee as it is the employer who would have broken the law and should therefore take the consequences.

I wish also to speak in support of new clause 1, which adds something useful to the Bill by creating this offence. It would add something to the range of powers in the Bill, and knowing that this additional matter was there would add to the sense that any employer considering such a step would have about its gravity. I do not know whether it is the hon. Gentleman’s intention to press this new clause to a vote. No doubt he will consider that having heard the Minister’s response, which I will certainly be interested to hear.

There is a further issue which Government amendment No. 156 attempts to address, and that is the issue of inducements being offered prior to someone accepting a contract of employment. That is quite a difficult area, which I tried to capture in amendment No. 98, which was quite naturally not selected for debate, but where I think there is a genuine question. This clause, for example, relates to something being written into an employee’s contract which obliges them to opt out of the personal account, on the basis of which they accept some additional financial emolument. Clearly, it is quite possible that such a transaction would be proposed by an employer before the person had accepted the job.

The prospective employee turns up for interview, has the interview, and then the employer says, “I have offered you the job, but I would like you to sign this contract”. The potential employee sees the contract and says, “Hold on. This is not right. I am not going to sign away my right to a personal account. It is an offence under the Act”. No doubt there will have been a very full publicity campaign so that potential employees will be aware of their rights. The employer then says, “Sorry, I have changed my mind, I am not going to offer you this job. I will look for somebody else”. Clearly, the employer would be in breach of the Act. Government amendment No. 156, if anything, tightens up that restriction. I am concerned about the position of someone who is not yet an employee. They may have been denied the option to take a job for which they are eminently qualified on the basis of an unwillingness to move forward in the illegal way that the employer has proposed.

I note that both the TUC and the Engineering Employers Federation are also concerned about this issue, albeit a blanket pre-employment right might be too broad, not least because it would potentially allow people to go to an employment tribunal and claim that this was the reason, even though it was not. None the less, it would be useful if, in the context of amendment No. 156 and new clause 1, the Minister would reassure the Committee on this point, and perhaps look further at whether the provisions he is trying to make with amendment No. 156 could be further strengthened to take account of the concern I have raised.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I share the concerns of the hon. Member for South-West Bedfordshire and the hon. Member for Inverness, Nairn, Badenoch and Strathspey; Inverness and points beyond. Actually, there are no points beyond, are there? Points around. Our view is that we are better off dealing with this stage of the problem, at least, in employment contractual terms, rather than by criminalising the employer. It is, perhaps, an odd situation when a Labour Government are saying, “Let’s not criminalise the employers”, and the Conservatives are saying we should. We have looked at this with a lot of care. The way we have set about this will provide a significant degree of protection. If there is, of course, an employer who continues despite warnings and despite the intervention of the regulator, the TPR, saying to the employer you have got to start now properly enrolling people, complying with your obligations, fulfilling the purposes of this legislation, then there would be a criminal sanction if the employer continued to be in breach.

At the particular point at which inducements are offered at the start of the employment, our view is that this can be dealt with by a series of employment-related penalties that have a financial consequence for the employer but do not result in them in ending up in criminal courts. That is basically the way in which we want to deal with it.

I hear what the hon. Member for South-West Bedfordshire says. He is right to identify the issue of inducements as a very serious one. He is right, as is the hon. Member for Inverness, Nairn, Badenoch and Strathspey, to indicate that the TUC, the EEF and other organisations are concerned about this area. I  think we are best dealing with it in the employment relationship but I am listening with care to what Members opposite are saying.

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

I just want to challenge the Minister’s logic. He said that the regulator would be able to go to the employer and say that people are not auto-enrolled but the employer can at that point say, “My employees have taken themselves out. They said they do not want to be auto-enrolled.” As for this private bung of £500,000 or whatever it was, the employer has probably said to the employee, “You keep this quiet, my lad. We do not want this getting out, do we? You have a nice extra bit in your pay packet, a couple of fivers in a brown envelope late one Friday evening.” How is anyone going to know? I understand what the Minister is saying but I think there is a slight flaw in his logic.

I do not want to criminalise any employers but from a competitive point of view, speaking as someone very pro-business, I want a level playing field. I want decent employers not to be undermined. Remember, we are talking about 3 per cent. of payroll costs, which could be quite significant. I would argue that the Minister is being slightly anti-competitive because he could be allowing this practice which he said he does not want. My point is that he is not going to know it is going on just by seeing people are not auto-enrolled. I think this would be useful.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

Again, I am listening with care to what is being said. It is the case that in our discussions with employers’ organisations they expressed some concerns that we should not move too quickly to criminalise employers. There are sanctions here. We are going to table a Government amendment in due course which will enhance the value of our measure as a deterrent by preventing employers from being able to claim back payments or benefits given to their workers as part of any agreement that is rendered void by the clause.

At the moment our view is that keeping this in the realm of employment law presents a strong enough way of preventing employers from taking this action. We anticipate that the vast majority of employers will comply with the legislation but he is right to say that there may well be small numbers who take the view that they can breach the law. That would not be a competitive approach and is one which could do quite a bit of damage to the employers who are complying properly.

I am listening with care to what he says and interested as to how hard he is pushing this particular proposal. We have taken a view up to now that we do not want to move into the criminal law in this area. He seems to be pressing quite hard that we should move into that area. I will be interested to know whether he intends to press this new clause to a Division. It might affect my view.

He did raise a couple of other issues in relation to missed contributions and whether they would be enforced. I should tell him that any contributions that are missed would be enforced. It is the case that we would have the ability to get the employer to move into a position where they make up the missed contributions if a person ought to have been automatically enrolled and would have wanted to have been part of a pension scheme—in other words, would not have opted out. In  those circumstances, the TPR would be able to enforce the repayment of those missed contributions.

Photo of David Borrow David Borrow Labour, South Ribble

Could my hon. and learned Friend reassure me that should the problems raised by the hon. Gentleman turn out to be true once the legislation has gone through and is up and running, the Minister will be able to remedy the problems quickly without bringing forward primary legislation—to do it by regulation rather than legislation?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

We would not be able to regulate to bring in criminal sanctions like that; we would have to do that in primary legislation.

I am interested in how hard hon. Members opposite wish to press this. I do not have a closed mind on it. I am happy to give way to the hon. Member to indicate whether he, in principle, wishes to press this, which may influence my view about whether the Government should take this back and look at it again.

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

I think that it is a serious issue for the reasons that I have already outlined. If I heard him right, the Minister said that he was prepared to go back to the Department, sit down with his officials and perhaps look at the area again. If he is prepared to do that, we would be prepared to bear with him, perhaps until Report stage, to see what he comes forward with. It is an important point and the point made by the hon. Member for South Ribble, who is behind him now, is also important. I do not want the window of opportunity to do something to move on and we then find that it is difficult to do something about later.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I am grateful to the hon. Member. I would also welcome the view of the Liberal Democrats.

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

I share the concern of the hon. Member for South-West Bedfordshire that it is a very serious issue. If the Minister is saying that he will take the issue away and look at it again, perhaps with a view to coming back at Report stage or in the other place so it can be properly considered by the Government, that would be very reasonable. There does need to be an additional power in the area. It seems wise not to press the matter, if the Minister is going to go away and look seriously at how an amendment could be framed.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

We are interested in proceeding by way of consensus on this. The Government’s view had been that we did not wish to move into the area of criminalising employers in this particular regard at this stage. There have been strong views expressed by the Opposition, both Conservatives and Liberal Democrats, on this. Indeed, among my colleagues there are some views that this is an area where we need to have a firm response by Parliament to the view that employers should not provide these sorts of inducements and that, therefore, a criminal sanction ought to be given serious consideration. Therefore, I agree to give that serious consideration to the views expressed and take this back and talk to the various stakeholder organisations, on the basis that there are obviously some strong feelings in Committee today.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

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

I simply remind the Minister that in the earlier debate I made some important points about pre-employment issues. I hope he will answer them in the coming debate.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions 10:15 am, 31st January 2008

I am also conscious of a point made by the hon. Member for South-West Bedfordshire that I have not yet dealt with. He asked me whether the regulator, as part of his role, would be looking for unusual patterns of opt-out among employers and employees. The answer to that question is yes, he will be. It is the role of the Pensions Regulator to monitor the data in relation to the level of opt-outs among employers. It will vary from sector to sector, but we anticipate there will be an average level of automatic enrolment, and that will enable the regulator to look for unusual patterns of high opt-outs. It will then be able to intervene with those employers to find out why those high levels are present.

If it is the case that there is a non-unionised, low paid, edge-of-usual sector practice that needs investigating, we would expect the Pensions Regulator to be in a position where it could carry out a serious examination of the circumstances in that employer’s organisation—indeed, for the very competitive reasons that the hon. Gentleman identified earlier.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey asked some important questions about pre-employment rights. We looked at this with a great deal of care and were pressed by the TUC to consider whether pre-employment rights should be present, because it would be theoretically easy for employers to say “We are not offering you a job yet, but we are interviewing you and one of our questions will be: are you going to sign up to the whole pensions deal? If you are, we will take a decision based on that.” So, in effect, before there is a contract of employment, or an agreement, there is a view by the employer that he will take a particular approach to an employee.

That is the problem, and it is one of the reasons why we proposed Govt amendment No. 156, which we just dealt with. It gives the employee the ability to have had an inducement, to have accepted the inducement—in the sense of accepting any “bung”, as the hon. Member for South-West Bedfordshire put it—and then, as soon as he is employed, to say “Fine, thank you for the bung, I’m going to keep that, but I now want to be automatically enrolled in the pension scheme” and there is nothing that the employer can do about that.

If we decided to create a new pre-employment right, then the concern of employers’ organisations would be that there has been pressure in the past to create all sorts of other pre-employment rights. While I did not detect a great objection to this particular one, it was to some extent a matter of principle for them, that creating a pre-employment right in this regard would then raise the question, “If you do it on this, why are you not doing it in a whole series of other circumstances?” That would be quite a significant change of principle in terms of the way we have operated employment legislation heretofore.

So I think the best approach is to put in place mechanisms to provide back-stop assistance for employees who wish to be properly enrolled, and ensure that we  have some financial sanctions for dealing with employers who seek to offer inducements. The Conservatives have suggested that we go further than that, and have criminal sanctions as well, but these would relate to post-contractual rights.

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

I do understand what he is saying, but it does leave me feeling somewhat uneasy, because the message we are sending to potential employees who are offered a bung is to accept it and then deal with it once they are in the job. While I understand the pragmatic reality of that position, for somebody who is applying for a job to be told, “If your employer is trying to do something dodgy here, the best thing is to get into the job, trouser the cash and then get your pension rights”, there is something about that solution that leaves me feeling uneasy. I wonder whether some wording regarding whether pensions rights should be discussed at an interview stage could be brought into the Bill. It would fall short of an employment right, but would still perhaps act as a disincentive to a breach of law occurring if employers went down that route.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I am not sure the suggestion the hon. Gentleman makes, which is that pension issues cannot be discussed in initial discussions, would fall short of a pre-employment right. We therefore need to approach this with some caution. He is right that we are adopting a course which is inelegant and is perhaps not ideal. We all know that we would rather take the course of action that he suggests in general terms, but the breach of the broad principle that there are no pre-employment rights is regarded by employers as an enormously important one—mainly because it could lead to a lot of other demands. There is a view in industrial relations circles that there is essentially a balance between employers and trade unions and employees that needs to be very carefully maintained. While this particular change might not, of itself, damage that balance, other things might then flow from it and that balance might be undermined.

It is a tricky situation and I understand why the hon. Gentleman feels uncomfortable with the position. But it is one that we have negotiated and it is, in a sense, part of what we have talked about in the past—a consensus whereby we have got the employers on board to support this. A number of compromises have been made—the TUC, for example, wanted to bring employment rights and they have accepted that this compromise, although not what they wanted, is one with which they can live.

Photo of Julie Kirkbride Julie Kirkbride Conservative, Bromsgrove

While all of us have every sympathy with what the hon. Member for Inverness, Nairn, Badenoch and Strathspey is saying, it would not always be the case in terms of discussing the prospect of employment that the prospective employee would not want to discuss pensions. There will be some situations where a pension will be part of a whole package of measures making up that person’s employment. Therefore it would not be an advisable road to go down to say that there is no discussion of these things in advance of being offered a contract.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

That is an entirely fair point. Indeed, in some employment situations, the pensions package is a big part of the negotiation. At the same time and in defence of the hon. Member for Inverness, Nairn, Badenoch and Strathspey, he is suggesting not so much that the pension should not be discussed, but that an offer of employment cannot be conditional upon an employee saying that he will not take a pension, which is a slightly different point.

While I understand the hon. Gentleman’s point, and I have some sympathy with it, for the reasons I have given, we are probably best preserving the consensus with the employer on this point and accepting that it is a part of the overall agreement which has enabled broad-based support to be given to the Bill.

Amendment agreed to.

Clause 49, as amended, ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at twenty-four minutes past Ten o’clock till this day at One o’clock.