Clause 30

Finance (No. 2) Bill – in a Public Bill Committee am 9:15 am ar 28 Hydref 2010.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Again, clause 30 is welcomed by the Opposition, because it ensures that the National Employment Savings Trust will come within the existing  tax regime for registered pension schemes. As members of the Committee will know, NEST is a new pension scheme that has been established by the Secretary of State for Work and Pensions under section 67 of the Pensions Act 2008. The NEST provisions, which had their genesis under the last Labour Government, will ensure that pension entitlement is provided to individuals across the sector, and that such people are helped to save for their pension with the support of employers and of the state as a whole.

The changes will have effect from the date on which the Bill receives Royal Assent. In December 2006, the then Labour Government published a White Paper outlining their workplace pensions reform—including the NEST proposal, which was previously called the personal accounts scheme. That led to the pensions reform set out in the 2008 Act, the contributions for which will be phased in over a period of time. In one way—I will return to this in a moment—I am pleased that the new Government have committed themselves to implementing, broadly, the provisions that the previous Government had put in place.

The provisions introduce automatic enrolment as an effective means of increasing pension savings. The “Making Automatic Enrolment Work” review was announced on 24 June 2010 by the Government, who wanted to look at the commitments of the previous Labour Government to the NEST scheme. The review examined such matters and has concluded, publishing its recommendations on 30 September. Last week the Government confirmed that they would go ahead with the scheme, which I again welcome. The clause ensures that the NEST scheme comes within the existing tax regime for registered pension schemes, and so we welcome it.

The scheme will ensure that between 5 million and 9 million more people will be saving into a pension from 2012 onwards. It will largely consist of part-time employees, which is particularly welcome for women. It is also welcome for mobile, temporary and contract staff, and for the 70% of individuals from ethnic backgrounds who are not currently saving into a pension. The scheme will bring many more people into pension schemes in future, ensure that their employers contribute to such schemes, and help people to save for their retirement in a much more practical way. That is why the tax regime under the clause is welcome.

The Minister will know that there is some controversy concerning the provision. The Daily Mail, which I was reading in the Tea Room this morning, says that some small employers are concerned about the impact of the scheme. I hope that the Government will hold firm on the matter and will not back up on the general scheme; I hope that the tax regime that the clause refers to will reflect the scheme that has been announced and that they will not backtrack on that for small employers. The issue is particularly important for those employed by small firms, because they have just as much right to ensure that they have pension entitlement as those who are employed by the state, or by multinational companies.

The scheme has been introduced, but I am concerned about some small but significant changes that the Government have made as part of the review. The  changes relate to the taxation regime in the clause to date and are still important matters that need to be considered.

Hon. Members will know that the previous Labour Government proposed that the threshold for enrolment into the scheme would be in the region of £5,035 per employee income per year. The review of the scheme has increased that by some £2,000—to £7,475 before individuals will be automatically enrolled into the pension scheme. My colleague Brendan Barber, the general secretary of the Trades Union Congress, has raised two points about that, which reflect on the taxation regime under the clause and also concern the wider scheme. I would welcome the Minister’s comments on that.

Brendan Barber is concerned that the two issues relating to that increase will have a detrimental effect, particularly on part-time women workers and those on low incomes. In relation to the clause, the hon. Member for Thornbury and Yate (Steve Webb), the pensions Minister, has proposed that there will be a higher salary level of £7,475 before automatic enrolment into pensions, rather than the previous Government’s proposal of £5,035. Also, there will be a three-month waiting period before auto-enrolment takes place for those on that higher salary. Whatever we say about the scheme and however much I welcome it, there is a big difference between having to earn just over £5,000 a year before being auto-enrolled and having to earn £7,475 a year before that happens.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East 9:30, 28 Hydref 2010

Some people feel that we should not be a nanny state, but does my right hon. Friend agree that it is important that people have the opportunity to be pensioned? Perhaps he remembers, as I do, when the state earnings-related pension scheme was abolished, and people had more freedom—I certainly did—concerning their pensions. I had a secretary who was fairly typical in saying that she wanted to come out of it. Twenty-plus years on, such people would be much better provided for.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend makes an important point. I emphasise that under the scheme’s taxation regime, individuals are on higher incomes, of £7,475, before being automatically enrolled, rather than on the previous Government’s proposal of £5,000. That means that there are people earning between £5,000 and £7,000 who would have been enrolled in the scheme automatically, but now will not be.

Those people are likely to be part-time women workers or people on low incomes who might not know their rights at work or be trade union members. If, as the front page of today’s Daily Mail shows, small employers do not generally support the scheme, they are not likely to advise their employees who earn between £5,000 and £7,000 that they can enrol themselves in the scheme rather than being enrolled automatically, because that will cost the employers contributions towards the scheme.

There are significant changes. The Labour Government’s proposal would have ensured that people on the lower income, rather than the slightly higher income of £7,500, were enrolled in the scheme automatically. Again, that is a small but significant change. It means that from 2012, people who earn less than £7,475 will have to enrol themselves in the scheme to get the benefits. That means that they will have to know about the scheme and their rights, and know how to exercise those rights.

Part-time women workers and people on low incomes might not know about such matters or have access to the available information, and their employers might not tell them. The scheme might not be widely taken up. The taxation regime might not deal with such matters in the same way that it would have if changes had been made appropriately in the NEST scheme, as originally envisaged by the previous Labour Government.

I wanted to put those important issues on the record. I have two points to make. We recognise and welcome the clause. It establishes, under section 67 of the Pensions Act 2008, that the scheme proposed will be subject to the provisions of the Bill. We have no problem with that and will support the clause, but it is incumbent on the Minister at least to liaise with her colleague, the pensions Minister, to reflect the Opposition’s concerns that the revised scheme will disadvantage lower-paid, predominantly female part-time workers, who would have benefited under the Labour Government’s original proposals.

I hope that the Minister will also use this opportunity to support her colleague the pensions Minister in giving an indication, to the small firms generating a Daily Mail campaign against the NEST scheme, that she fully supports his proposals, as I know she does, and that she believes that small firms should not be exempt from the scheme and that those who work for small firms have just as much right to a pension as those who work for the state, mid-sized firms, larger firms or multinationals.

I would welcome such a commitment on paper today, for those outside to read—not least the authors of the Daily Mail article. It would give an assurance that the tax regime will reflect the need for small employers to play their part. Will she also explain why she is short-changing part-time women workers and others who would have benefited from the scheme had the Labour Government been re-elected?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

As we have heard, clause 30 provides that the National Employment Savings TrustNEST, as the right hon. Member for Delyn called it—is to be regarded as an occupational pension scheme for tax purposes. That, in turn, will allow NEST to be registered for tax purposes, another requirement of the Pensions Act 2008. Without the clause, it would not be possible for NEST to start enrolling members in April 2011, as we all want.

As the right hon. Gentleman explained, the background to the clause is that the Pensions Act 2008 required the Secretary of State for Work and Pensions to establish a pensions scheme that could be registered for tax purposes. NEST has been set up to meet that requirement. It was established on 5 July 2010 as part of the workplace pensions reforms and has been designed specifically to meet the needs of low to medium earners.

Although the Pensions Act 2008 provides that NEST is an occupational pension scheme, without this clause it would not qualify as one for tax purposes. As a result of the clause, members of NEST will be able to benefit from the tax reliefs available to registered pension schemes on contributions and investment growth.

The right hon. Gentleman made points about auto-enrolment and the threshold. When we looked at the threshold, it made sense to align it with the level at which the employees start to pay tax, because that will simplify how the system works and remove bureaucracy  for small employers. As he pointed out, other employees will still be able to join the scheme and there will be a special communications strategy to make sure that employers know about the available pension choice.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful that there will be a communications strategy. Will the hon. Lady give some indication as to who is communicating with whom, and when and how? How will a woman who works part time in a small corner shop and earns less than £7,500 a year receive that information? Will it be via her employer?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The right hon. Gentleman would be wiser to address those questions to the Department for Work and Pensions, which is leading this policy area. In respect of the clause, we need to have that aspect within the Bill to enable NEST to be registered for tax purposes, which was a requirement of the Pensions Act 2008.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I recognise that the responsibility for the NEST scheme lies with the pensions Minister, and I do not expect the Economic Secretary to know every detail of that particular scheme, because she is dealing with the taxation element.

We are being asked to ally those schemes with taxation purposes accordingly. I am concerned about uptake and the understanding of those who earn less than £7,500 and who would have qualified for the scheme had the original proposal from the previous Government gone ahead. It would be helpful if the Minister could, before Report, at least raise those concerns with the pensions Minister on behalf of the Committee, so that we can have a letter, from either her or him, that indicates how those matters will work out, particularly in respect of a communications strategy.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I am absolutely sure that my colleague the pensions Minister will come forward with more details about how the precise communications strategy will work. The decisions that we have made about the threshold are sensible; even the right hon. Gentleman’s party leader discussed the need to support small businesses earlier this week. As a Government, we are absolutely committed to doing that, which is why, rather than going ahead with an increase in the rate of small companies corporation tax, we chose to bring forward reductions and why, rather than going ahead with rises in employers’ national insurance, we also brought forward reductions.

In many regions of our country, those setting up new companies, which have the fewest employees at the start, will be getting additional national insurance holidays for extra employees whom they support. We are committed to ensuring that small companies will be able to play their role in boosting economic growth and employment in our country. Clause 30 means that there is a far better chance that employees in these new companies will get the benefit of an occupational pension scheme.

I hope that we all welcome this clause. I have no doubt that the right hon. Gentleman will continue to pursue his questions with my colleagues at the Department for Work and Pensions.

Photo of Alison McGovern Alison McGovern Llafur, Wirral South

It is a pleasure to serve under your chairmanship, Mr Caton.

I want to ask a few questions for clarification and to make a few remarks; I hope that the Minister will be helpful. I did not want to intervene while she was  speaking, because that can ruin the flow of proceedings. A couple of questions arose from what she said. She mentioned that lifting the level at which people started to be automatically enrolled in NEST was intended to align that level with the point at which people started to pay tax. She said that that would save on bureaucracy. That is easy to say, but hard to measure.

What work has been done to clarify how much that would save in bureaucracy? Will she say a little more about why? What costs are we talking about and what scale of administration will be saved? If, on the grounds of savings in bureaucracy, we are depriving core groups with very low incomes of automatic enrolment, it would benefit all the Committee to understand that more. I would be grateful if the Minister said something about that. It concerns me that we might be acting too quickly and I would like to know more. Why will the process be simpler and more straightforward?

My second point is about the communications strategy. I have worked in communications and am aware that an achievable target is mapped out carefully and clearly before any communications plan goes ahead. Then its impact is measured. The history of pensions policy can be broadly characterised as people trying to communicate the long-term benefits of having a pension and the public, by and large, not always paying attention. I do not believe that the public are aware of any pensions communications strategy that has been as successful as we hope this one will be.

The Minister has just said that the issue is the responsibility of the Department for Work and Pensions but, again, it would benefit the Committee greatly if we heard a little more about the sort of targets that the communications strategy is expected to play to. In my experience, that is the sort of thing that should be planned out very early on; we would have a sense of the scale of behavioural change that the Government are trying to achieve. I would be grateful if the Minister made some remarks about both those points.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 9:45, 28 Hydref 2010

To go back to my earlier comments, small employers in particular will have fewer ongoing admin costs in terms of setting up these schemes during the first year of establishment and, of course, in terms of the ongoing administration involved in running the schemes once they are in place. The cost savings to employees will probably be around £10 million in reductions in first-year administration and £6 million on an ongoing basis in reduced administration. That shows that we are talking about real money.

If those who run small companies were here representing themselves directly, they would probably say that the time they spend on bureaucracy literally costs money; it is time that they could have been spending on the phone to suppliers and new customers. Unnecessary bureaucracy has very direct consequences, perhaps for smaller companies more than larger companies. We have sought to strike the right balance in the proposals, and I think that we have achieved that.

The DWP has developed a strategy, and has in its sights small employers and their employees. They are the main target of the measure. I assure the hon. Lady that a communications strategy has been worked on.  Given her experience, I have no doubt that if she gets in touch with the DWP and feeds in her thoughts in a more detailed manner, Ministers will be interested to hear from her.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.