New Clause 24

Pensions Bill – in a Public Bill Committee at 6:15 pm on 19th February 2008.

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Prohibited recruitment conduct

‘(1) An employer contravenes this section if any statement made or question asked by or on behalf of the employer for the purposes of recruitment indicates (expressly or impliedly) that an application for employment with the employer may be determined by reference to whether or not an applicant might opt out of automatic enrolment.

(2) The reference in subsection (1) to a statement made or a question asked for the purposes of recruitment is a reference to one made or asked in the course of any of the following—

(a) inviting applications for employment;

(b) requesting information from an applicant, referee or other person in connection with an application for employment;

(c) providing information about employment;

(d) proposing terms or conditions of employment.

(3) The reference in subsection (1) to an applicant opting out of automatic enrolment is a reference to the applicant, if becoming at any time in the course of the employment a jobholder to whom section 3 or 5 applies—

(a) giving notice in accordance with section 7 in relation to arrangements made by the employer under the relevant section, or

(b) where the employer makes arrangements under regulations under section 3(5) or 5(5), declining to become an active member of the scheme to which the arrangements relate.

(4) In this section and sections [Compliance notices] and [Penalty notices], “employer” means the prospective employer in relation to any employment.—[Mr. O'Brien.]

Brought up, and read the First time.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

With this it will be convenient to discuss the following:

Government new clause 25—Compliance notices.

Government new clause 26—Penalty notices.

Government new clause 27—Review of notices and references to Pensions Regulator Tribunal.

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

Can I indicate to the hon. Member for Eastbourne—if he does not listen I will call him “the hon. Member for Bournemouth” again—that I am grateful for the conversations we have been able to have in recent days about some of the issues relating to employers and the offering of financial inducements to workers in order not to participate in pension schemes? I am taking forward some of the discussions we have had in a separate context. Dealing with this particular set of new clauses, I have taken the view that I would not move to criminalise employers, but it is important that we look at ways to ensure that employers do not offer their workers financial inducements to opt out of automatic enrolment schemes.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey spoke recently about the possibility of employers seeking to avoid recruiting those who would choose to remain enrolled, and I subsequently wrote to the Committee on this issue, setting out our reasons for favouring a pre-employment prohibition over an individual right. These amendments seek to introduce such a prohibition, addressing the risk that some employers might try to avoid their new employer duties up front, by not recruiting anyone who wishes to remain opted into a pension scheme.

They could do this, for example, by overtly advertising on this basis or by asking questions in an application form. They could also ask at interview about the applicant’s current scheme membership status and whether they would opt out of a pension scheme if they were offered the job. They could make a job offer which stipulated or implied that there was a condition on the applicant agreeing to opt out of a pension scheme. Although clause 49 would make any such provision in an agreement void in itself, they could still make that offer.

We do not expect that there will be any significant number of employers who are going to be involved in this sort of disreputable behaviour, but we want to ensure that we do not have a loophole here, and we are determined not to allow employers to sift out, in effect, applicants who would wish to join or remain in pension schemes. For employers, this prohibition would be contravened if they made any statement or asked any question that expressly or implicitly indicated that a job application might be determined by reference to whether an applicant might opt out of automatic enrolment. The Pensions Regulator would be tasked with enforcing this prohibition, and would have the power to issue compliance notices and impose other financial penalties where breaches were shown to have occurred. As with other penalties for non-compliance, these will be set out in regulations, although we intend that they should be set at the same level—that is, a proposed maximum of £50,000. For the individual, a pre-employment prohibition would mean that they could complain to the regulator if they had evidence that the employer had contravened the prohibition by indicating that the job would only be available on the condition that they opted out of membership.

We feel that an individual would be much more likely to make a complaint to the regulator than to have to  bring a case directly to an employment tribunal or against a prospective employer, which is what would happen with a pre-employment right. There is a further advantage, in that the regulator would be able to consider the implications for multiple complaints received against the same employer. We will continue to discuss with the regulator the detail of how this prohibition can be effectively enforced as part of its risk-based approach to compliance. We will continue to consider the vital issue of the communications strategy which will need to ensure that both employers and individuals get the information they need to understand the implications of this measure.

The new clauses would provide an effective deterrent to the small number of employers who might seek or attempt to avoid their employer’s duties by trying to get people to opt out of automatic enrolment or opt out of the pension scheme as a condition of employment. We would, in effect, be protecting those good employers who seek to ensure that they are in a position to provide proper tension schemes for their employers. This is about creating a level playing field for all employers, without creating a specific right that individuals would be unlikely to defend.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions) 6:30 pm, 19th February 2008

I am grateful to the Minister for setting out his stall on new clauses 24, 25, 26 and 27. We understand the need for those new clauses and will not be voting against them. They are good as far as they go and I buy into the argument about a level playing field for employers, which is important in an area with increased employer costs. We must support good employers and ensure that rogue employers cannot undercut them, which in tight market conditions can be critical and can lead to the survival or otherwise of a business, as Committee members with business experience will testify.

I have a couple of points to make on new clause 24. I was contacted recently by someone who was a trustee of a pension scheme. He has clearly been following our proceedings carefully over the internet—I do not think that he has attended the Committee—and was aware of new clause 1, which my hon. Friend the Member for Eastbourne and I, and other hon. Friends tabled earlier on. Although we cannot debate that new clause now, Sir Nicholas, it said that an offence would be committed if an employer offered financial inducements to opt out of an automatic enrolment scheme. The gentleman whom I have mentioned was pleased with new clause 1 and thought that it might have led to the Minister’s tabling new clause 24.

The point has been made to me that

“once an individual is in the employer’s employment, the latter will be completely free to subvert the automatic enrolment process by offering threats or inducements in relation to possible variations of the contract of employment or alterations of its term, so as to secure an opt-out from” the personal account scheme. Nothing in new clause 24 or the other new clauses that we are considering would prevent that.

My correspondent helpfully provides a specific illustration of a practice that he tells me is current within the university employment world,

“whereby it is represented to a member of staff newly appointed on a limited term contract—typically a researcher—that if he or she opts out of occupational pension provision” there just might be a better chance of their contract being renewed next year. I hope that the Minister is following me intently and understanding the argument. My correspondent continues:

“The plausibility of this representation has been heightened by the practice of some research councils (which I believe still continues) of providing grants on the assumption that 14%”— considerably higher than the 3 per cent. that we are talking about in terms of personal accounts—

“will be added to the basic salary costs of a project by way of employer contributions” to the relevant pension scheme. However, they are

“not clawing back the net saving if those employed with the funds opt out of that scheme.”

In other words, research councils are providing money to employ someone and giving an extra 14 per cent. That 14 per cent. is not going into a pension scheme and the university is renovating the science laboratory or employing another secretary or something like that. I am not familiar with that, but it has been put to me that it is a current practice. All of us should be extremely grateful to people up and down the country who, by virtue of the internet, are following in great detail the new clauses and amendments put forward by all members of the Committee, the responses of the Government and so on.

I am reasonably persuaded that there is an issue here because, at the risk of labouring the point, financial pressures on universities in this case, rather than businesses, are acute. Everything is costing more these days, so the desire to save money from any quarter is huge.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am very interested, as I see the Minister is, in what my hon. Friend is telling us. Does not it make him think that if this sort of thing happens in the groves of academe, how much more likely it is to happen in the corner bodywork shop or the fish and chip shop or the small hairdresser’s or whatever?

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

My hon. Friend is absolutely right, although we should not assume that universities are centres of moral virtue in every aspect. The point he makes is that we are legislating for every type of employer, large and small, in every sector up and down the country.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

On the subject of moral virtue in universities, my hon. Friend may know that at the university of Oxford, a lecturer can be removed from office for gross immorality, whereas a professor can only be removed for persistent gross immorality.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Order. I am not sure that the hon. Gentleman should respond to that, unless he can connect it directly to the new clauses.

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

I am grateful to you, Sir Nicholas, for saving me from the—I will not quite say stinging—intervention from my hon. Friend, who has a  delightful habit of enlivening and informing our proceedings in all sorts of ways, even if not entirely within order.

My correspondent has done his homework and has studied new clause 24 in some detail. I feel that it is a bit mean on the Minister, because this letter has come into my possession relatively recently so I have not had the chance to amend the new clause, even if it is possible to do so—probably not. My correspondent makes various proposals to amend the new clause. He has gone into some detail to try to address the points that I have made. I do not think that it would be helpful to go through the specific points that he is making; it would be difficult for the Hansard writers. Perhaps I might share the relevant points with the Minister by way of correspondence later. That would probably be a more helpful way to proceed. Nevertheless, I hope that the Minister has taken my general point. I know that conversations have been had and the Opposition welcome that from the point of view of consensus. All I ask is for the Minister to indicate in his response whether he will look at the proposals in relation to the new clause, and have an open mind to tweaking new clause 24 slightly on Report.

Photo of John Greenway John Greenway Conservative, Ryedale

I will try to make a brief intervention, rather than a longer speech later. What are the two critical points? First, that is a specific problem relating to people who, traditionally, are employed on short-term contracts, which are then renewed. Second, as a consequence, it is not so much a recruitment issue, which is what the new clause refers to, but a negotiation of terms and conditions issue. That may be the area in which the new clause might be amended when the Bill returns to the Floor of the House.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I congratulate the hon. Gentleman for that brief intervention.

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

My hon. Friend the Member for Ryedale is right. Those are the specifics of the case that I laid out. He is right to summarise it in that way. I am still considering whether there might be other cases, perhaps within the field of employment, where it might be best or necessary to amend new clause 24 slightly further. My hon. Friend is right about the specifics of the case that I have read out. I would ask for the Minister’s open-mindedness and whether we might have further discussions on the issue that I laid before the Committee.

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

First, I am grateful to the hon. Gentleman for his indication of broad support for my new clauses. He raised an issue of post-employment inducement, particularly where short-term contracts were involved, which greatly concerns me. He made some telling points. He has asked for an open mind, but I think I have a closed mind: that sounds like something that we have to deal with. I am not sure that we can deal with it here, at the moment, but I appreciate, having sight of his letter and the issues raised, that we do not want that sort of behaviour occurring. I do not think that the appropriate way of dealing with the matter would be by amending the new clause, but probably with another new clause in due  course. Let me have a look at that. He raised some valuable insights, which we need to take account of. I am happy to do that and to respond positively to the hon. Gentleman’s intervention.

Question put and agreed to.

Clause read a Second time, and added to the Bill.