Personal Accounts Delivery Authority Winding Up Order 2010

I was part way through responding to the contributions from other noble Lords, so I shall continue. Perhaps I may turn next to the inquiry from the noble Lord, Lord Taylor, asking what Article 14 is about. It is important that employers have access to information about NEST so that they can make an active and informed choice about which pension scheme best meets their needs. The Government believe that the NEST corporation will be in the best position to provide information about the scheme. This sort of activity is not normally undertaken by occupational pension schemes, as they usually have close links to a specific employer, and therefore a group of companies. However, this is not the case for NEST as it has not been established by a particular employer for a particular group of employees. Instead, NEST will simply be one of the many pension schemes that employers can choose to use to enable them to fulfil their new duty. As a consequence, there is a clear need to create awareness of NEST and its features so that employers understand how it differs from other pension schemes available to them. The noble Lord also asked about Article 27 and what the reference to general costs entails. These are the normal costs of a pension scheme, including the cost of collecting contributions, investing those contributions and managing members’ accounts. The NEST corporation may cover other costs such as excessive fund switches or non-default investment choice through further charges. The NEST corporation will also have some minor costs associated with its role as an NDPB and in advising Government on pension reforms. These will be met through grant-in-aid rather than through members’ charges. We therefore inserted the word "general" to draw an appropriate distinction between the general costs of running a scheme and specific costs where additional charges can be levied, which are set out in Article 27(7) and (8). The noble Lord went on to ask about the contribution cap: whether in any circumstances the trustee has wide powers to disapply the contribution cap and if this would go against the policy intent. It does not give the trustee a mandate to disapply the contribution limit as it sees fit. The circumstances in which the trustee can exercise discretion are set out in the rules, and if the trustee wished to change the circumstances, it would need to consult. The trustee needs a degree of operational flexibility so that it does not become unnecessarily restrictive to administer the limit, and the rules set out the precise circumstances in which the trustee may exercise this power; namely, where a member dies or the trustee’s liability in respect of a member is discharged in a tax year. The noble Lord asked about funding. My department continues to work closely with the Personal Accounts Delivery Authority to develop a funding strategy to establish the NEST scheme. However, it remains too early publicly to set out the cost of NEST or the detail of how it will be financed. We have always said that we can make final decisions only once procurement activity is complete—that is, when the "i"s are dotted and the "t"s are crossed—and we must avoid the risk that, by responding to understandable interest in the cost and financing of the scheme, we jeopardise PADA’s commercial negotiations. It is vital that we do all that we can to support PADA in securing the best deal for NEST’s members. We expect to be making announcements in this area shortly. The noble Lord also referred to state aid. This was part of our debate during the passage of the Pensions Act. We have always been clear that we will not give NEST an unfair advantage compared to other schemes. The structure of NEST as set out in the legislation is explicitly designed to ensure that it complements the good quality provision that already exists. We need to ensure that all employers and employees have access to a low-cost scheme, even those that other providers do not want. That is why the regulations place a public service obligation on NEST to accept all employers and to charge all members on the same basis. Other providers would not do that. Remember that automatic enrolment cannot operate unless all employers can access a suitable pension scheme, so NEST’s public service obligation will benefit both those currently excluded from pensions saving and the broader pensions industry, because it is necessary to enable auto-enrolment to be introduced, with consequent benefits due to a subsequent expansion in the market. However, this public service obligation, as well as the other limitations being placed on the scheme’s operation, could place unique funding pressures on NEST, and this is something that we will better understand once PADA’s procurement process is more advanced. It seems only right, however, that at this stage we do not rule out compensating the scheme in some way for the burdens being placed on it if the alternative is to undermine its low-cost aims. That concept is recognised in the European state-aid rules, whose purpose is to prevent anticompetitive behaviour. The noble Lord referred to employment agencies and their significance in the current flexible labour market in the UK. Our estimates represent the aggregate costs of the reforms to business, and they factor in enrolment activity and job churn, and take employment agencies and temporary agency workers into account. The administrative costs are calculated separately by firm size, but cannot be separated into those businesses with high and those with low job churn. The noble Lord referred to the length of the initial period in respect of the appointments of the NEST corporation. Prior to the corporation being established and during any initial period, all appointments to the corporation are made by the Secretary of State. At the end of the initial period, the corporation must have at least nine members in place. As I said, we have already recruited Lawrence Churchill as the NEST chair-designate, and we are currently focusing on a second recruitment exercise to appoint a deputy chair and about seven other members. The noble Lord, Lord Oakeshott, referred to someone being appointed to deal with investment matters. I think that that was an appointment to PADA, not to the trustee corporation, but I will come to that point in a moment. The noble Lord, Lord Taylor, asked about certification and avoiding individualised testing. We are committed to developing a user-friendly certification model for workplace money-purchase schemes. We understand that this is a particular concern for employers with existing pension schemes who calculate contributions based on basic pay. We decided to remove certification from the draft workplace pension reform regulations to allow us more time to work with stakeholders to develop a model that meets the needs of employers and ensures that individuals are protected. We have returned to first principles and are talking to employers, the pensions industry and consumer groups about what will work for them. My officials are already engaged in early discussions with stakeholders, including the ABI, the CBI and the NAPF to discuss possible options. The engagement to date has been very constructive. The noble Lord, Lord Taylor, talked about restrictions on the times when members can change investment funds. As I say, this is simply a matter of good administration. It avoids the circumstances where a member makes unreasonable demands by changing funds with undue frequency. The trustee must be reasonable in setting the detail of this provision. We consulted on it, and for the sake of clarity it was included in the draft scheme rules to the order. The noble Lord, Lord Oakeshott, said that the staging was too slow and could have an adverse impact on individuals and their savings. The challenge of implementing these reforms is unprecedented, because they affect more than 1 million employers and more than 10 million people. We are committed to providing the right balance between getting people into pensions saving as quickly as possible, and delivering the reforms safely and fairly. We have done a lot of work with our delivery partners to understand how they will implement the reforms, and we have concluded that staging over four years strikes the right balance to ensure that the effective systems will be in place to support employers in their new duties.