Clause 6 - Postponement or disapplication of automatic enrolment

Part of Pensions Bill [Lords ] – in a Public Bill Committee at 5:15 pm on 12th July 2011.

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Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 5:15 pm, 12th July 2011

I am very glad that my hon. Friend asked me that—I will reflect and give a more detailed response in a second.

I am backing up my questions, so I will return to the cost of auto-enrolment. I do not have the exact figure to hand but we have produced an impact assessment which includes the cost to business, which I am sure that the hon. Member for Leeds West has seen. We estimate the cost of auto-enrolment for individual firms, varying it according to size. As one might expect, we found that  for the giant employers with HR departments the cost per head is pretty straightforward. For the small firms, it is much more of a hassle, with the start-up cost that I described, although we hope that the ongoing cost will be relatively modest, especially as NEST and so on will be mainly online. From memory, I think that we are talking about several hundred pounds, but I will check that figure.

Going back to the big picture, under amendment 36 we are being invited to give employers a maximum waiting period of one month. What has not emerged in the discussion is that the existing legislation—the 2008 Act passed under the previous Government—includes a three-month period called a postponement period, but it only applies to what are called quality schemes. The previous Government therefore thought, “Actually, we will let people wait for three months, if we think that they have a really good scheme.” The Bill’s waiting period replaces the postponement period so, if we do nothing, there will be three-month waiting periods called postponement periods, but they will be much less flexible than what we are proposing, because the three-month postponement period does not allow people to opt in. Whereas we propose a waiting period during which people have the chance to opt in, the legislation we inherited deprives people of the chance to contribute at all during that period. What we propose is more beneficial and flexible. It would enable the employer to stagger auto-enrolment over a three-month period—which cannot be done with a postponement period—or make it coincide with pay periods. That is not a new idea; three months of waiting is already in the legislation, but we are making it more flexible and available across the board.

The answer to the question asked by my hon. Friend the Member for West Worcestershire about maternity pay is obvious to her, I imagine, if not to me. Statutory maternity pay is included in earnings as part of a total amount. If occupational maternity pay were to stop and a person ended up on statutory maternity pay, they could drop out of the system if they went below a certain threshold, but when their earnings went back up they would go straight back in. That is key to my hon. Friend’s question, and I thank her for raising the issue.

The key point is that each year there will be 2 million enrolments. Of those, 190,000 will be for workers who will leave within three months. If we do not make this change, nearly one in 10 enrolments will be for people who will be gone before three months have passed. The Labour party perhaps slightly understates the importance of buy-in by employers. At the end of this morning’s sitting, the hon. Member for Erith and Thamesmead said that employers have duties to pay tax and national insurance, and that it is part of their civic corporate responsibility to do stuff. That is true up to a point, but I would emphasise the issue of proportionality. It is fair to ask employers to do things, and in answer to the hon. Member for Kilmarnock and Loudoun, we are not planning to reimburse small firms for the cost of implementing the scheme. We think that auto-enrolment is part of employing someone, just like national insurance and tax, but we will try to minimise the cost. NEST has been specifically designed for small firms, and the Pensions Regulator has been working with software companies and will publish guidance to make it easier to set up schemes.

The Department has engaged with a range of stakeholders that represent small businesses, including the Institute of Chartered Accountants, and I have had meetings with small business groups. Rather than incur a heavy cost for the taxpayer, we are trying to minimise the cost. As the hon. Lady said, we recognise that it is part of an employer’s responsibility to participate in auto-enrolment, but we want to make it easy and flexible, which is where the three-month period comes in.