Personal Accounts Delivery Authority Winding Up Order 2010

My Lords, I thank the Minister for his thorough presentation of the three statutory instruments, two orders and important set of related regulations, and for his explanation of the background. They are derivative of the Pensions Act 2008, which the Minister steered through this House, and enable the implementation of the provisions of the Act. Taken as a whole, I agree with him that they are not particularly contentious, although I suspect that were they subject to the forensic skills of my noble friend Lady Noakes, the Minister might find himself under some pressure to be light on his feet. As the Grand Committee will appreciate, there is a degree of consensus on the policy; indeed, my honourable friend Mrs Theresa May has today published a pamphlet entitled Providing for Pensions: Principles and Practice for Success. For my own part, I declare an interest as an employer in a family business and as chairman of the trustees of the Conservative Agents’ Superannuation Fund. We are initially invited to approve the winding up of one acronym, PADA, and the establishment, with its property rights and liability, of NEST. However fond any of us might have become of the Personal Accounts Delivery Authority and its personal accounts, we cannot pretend to be greatly exercised by its passing and reincarnation as the National Employment Savings Trust. We should ensure, though, that the new body is constituted to reflect the concerns expressed during the consultation process. Not all the elements raised in the consultation are reflected in the order. Some will depend on the final version of the rules, which will be a matter for the NEST corporation. Perhaps the Minister could confirm that that is the case. We agree with the National Association of Pension Funds that the new body needs to remain focused on employees without access to a workplace pension. We also think it is important that NEST is as free as possible from political interference. It would be useful to have the Minister’s assurance that that is an objective. There has been some modest movement in this direction on the power to remove trustees and on the area covering workers without qualifying earnings. The role of NEST in awareness-raising could distract from its central purpose, which is to extend workplace pension savings to low-income groups that do not currently have access to them. Article 14 appears to tighten up the wording, although it would be useful if the Minister could elaborate on that. I turn to the original proposal that gives the Secretary of State the power to remove trustees. The National Association of Pension Funds rightly argued that the Secretary of State should be able to use the power only in certain specified circumstances. It is encouraging to see that this power has been removed in the final version of the order. I turn to the creation of the panels. The original proposal said that employers and members panels should be established within one year of the commencement of the scheme. The NAPF argued that they should be in place from the start. There is no change in the final version, so this remains a cause for concern. It is essential that strong governance is in place from scheme launch. Indeed, I would argue that it is perhaps the most critical time to have the panels up and running. I hope that the Minister can reassure the Committee on this point. A further question concerns default funds and arises from Article 29(7). I note that the final version of the order gives NEST extra powers to limit the number of occasions on which a member may choose where his or her assets are to be invested and the number of investment funds to which the scheme’s assets may be directed. This was not included at all in the original consultation draft. Will the Minister therefore explain the background to its inclusion in the final version? Article 27 of the order, as the Association of British Insurers has said, provides that: ""The Trustee must make deductions from members’ pension accounts to contribute to the general"—" a key word that does not appear in the original wording— ""costs of the setting up, administration and management of the Scheme"." What is the significance of the introduction of the word "general"—are there non-general costs that will not be so transferred? The Minister will be aware of the widespread concern that NEST must not receive government funding that would distort competition. Given that the setup costs for NEST and, for that matter, PADA, are to be reclaimed through scheme charges, how long is the payback period projected to be, and at what point will NEST be self-funding? It would have helped all of us if the Government had published their decision on the charging level and the structure for the personal accounts scheme. Why have they failed to do so to date, and when can we expect it? It is the lack of transparency that disturbs the ABI. The Minister would acknowledge that spiralling public expenditure on a new national pensions scheme presents a barrier to reinstating responsible fiscal control in the micro-economy. Secondly, a national scheme enjoying taxpayer subsidy and continued funding from the Government for a significant period distorts the market for existing pension provision, and could certainly breach competition law. I make one final comment on NEST. Its stated policy objective is to provide a scheme for the target market of moderate to low income earners. Accordingly, Article 22(1) of the order provides that the maximum contribution that may be made by, or on behalf of, a member of the scheme in tax is £3,600, to be adjusted by the trustee in accordance with changes in the average earnings index. However, Article 22(5) provides that the trustee may determine that paragraph (1) does not apply to a member or a class of member in relation to a particular tax year. It is not clear to us why the trustees’ discretion in the regulations is unfettered, although the draft scheme rules for NEST seem to indicate that that is possible only in a limited number of circumstances, notably in the year the member dies. However, there are as yet no final scheme rules. The unlimited discretion for the trustee to override the cap seems incompatible with the policy objective for NEST. Can the Minister clarify in exactly what circumstances the trustee can override the contribution? Why were those circumstances drafted in the NEST rules rather than in the regulations? I turn to the regulations and the issue of auto-enrolment. Conservatives have long believed in auto-enrolment as a way of encouraging pensions savings. However, that does not mean that auto-enrolment is dependent on the launch of personal accounts or NEST. We have a number of concerns about the existing model, most notably the interaction with means-tested benefits. Moreover, given the lengthy delays in implementing NEST, a Conservative Government would bring forward auto-enrolment for existing company pension schemes. Although the regulations are widely seen as an improvement on the draft regulations, there are still some areas of concern. For example, timescales may prove to be unfeasibly short in some cases—I instance information flows. I am pleased to note that the CBI is happy with the scheme quality requirements, but the success of the 2012 reforms can in part be judged by the rules which enable high-quality defined contribution schemes to continue to operate. Those have not yet been laid—rightly, because they are too complex—but when they are drafted after the election, they must avoid individualised testing at all costs. The most important part of the regulations is the change to the 19-day rule, the amendment to the Personal Pension Schemes (Payments by Employers) Regulations 2000, and so on. The refunds procedure is now significantly simpler, but the success of the new process depends on the amendment of the 19-day rule. As the Government noted in their response to the first batch of regulations, the effect of this change is that money will not have to be paid by the employer to the scheme until after the opt-out period has passed, minimising the need for refunds. This will give employers and schemes greater flexibility and enable them to avoid some of the costs and red tape of making refunds, primarily by eliminating third parties from the procedure. Amending the 19-day rule is a necessary adjunct to the extension of the joining-up and opt-out windows and does not undermine the initial policy intent of the current rule, which was introduced in 1993. For the 2012 reforms to be successful, existing rules should be modified in order to work in tandem with the new regulations. With a strong employer and compliance regime, the changes will not bring in any additional risk for employees in the payment of contributions to their pensions. It is this need to fit in comfortably with existing good-quality provision which presents the greatest challenge. As the NAPF points out, more flexibility would protect employers offering good quality schemes from unnecessary costs and reduce the likelihood of employers levelling down. For example, the NAPF has repeatedly called for employers to be allowed more choice around staging dates. These changes are a considerable challenge to, and could place a burden on, employers. Whatever we require should be as straightforward as possible. For example, it is essential that employers can take a common-sense approach to opting out. These regulations set out a prescriptive framework that seeks to limit who can hold forms, when they can be given out and to whom they can be returned. The real world is complicated: things get lost, forgotten, filled in incorrectly and handed to the wrong person. Employers need to feel that they can deal with these situations in sensible ways. This lies at the core of the anxiety expressed by the other consultees, the EEF and the ABI, who spoke of the need for the Government to continue to listen to stakeholders and not to overcomplicate matters by insisting on onerous calculations and individualised testing. I am reminded of the other activities that I undertake in your Lordships’ House, and my view that all Ministers should have a sign above their desks saying, "Remember the Rural Payments Agency and the single farm payment scheme". In the most exposed position, of course, is the temporary work industry. It is not fashionable to speak in support of temporary and contract work but it has provided the UK economy with much-needed flexibility, and the job opportunities it offers will be very important in the recovery. It is essential that workers in this market are provided for properly but, as the Recruitment & Employment Confederation points out, a common staging date would greatly reduce the bureaucracy and cost of their function and remove confusion from workers engaged in this form of employment. In these regulations there is an old-fashioned view of what constitutes a proper job. It is clear that future work patterns will be more flexible. The regulations, which are designed to give proper protection to all, need to reflect this flexibility and the reality of the modern economy. I conclude with an observation. Few areas of government can produce more complex issues than those which these orders and regulations seek to address. Whatever the vision we may share on the challenge of providing adequate protection for all in their retirement, we would be wise to keep this provision as simple as possible. It needs to be straightforward for employers to administer if it is not to be a bar to employment. Complexity can confuse and confound the best of intentions and this is too important a development to end up bogged down in bureaucracy.