COMMITTEE FOR SOCIAL DEVELOPMENT
OFFICIAL REPORT
(Hansard)
Draft Pensions (No 2) Bill
6 November 2008
Members present for all or part of the proceedings:
Mr David Simpson (Chairperson)
Mr David Hilditch (Deputy Chairperson)
Mr Mickey Brady
Mr Thomas Burns
Mr Jonathan Craig
Miss Michelle McIlveen
Mr Alban Maginness
Ms Carál Ní Chuilín
Witnesses:
Ms Margaret Ritchie ) Minister for Social Development
Mr Tony Attubato ) The Pensions Advisory Service
Mr Sam Dempster )
Mr John O’Neill ) Department for Social Development
The Chairperson (Mr Simpson):
We are joined by the Minister for Social Development and Mr John O’Neill and Mr Sam Dempster from the Department for Social Development (DSD) to discuss the draft Pensions (No 2) Bill. We will be joined later by Mr Tony Attubato from The Pensions Advisory Service.
Members will see that the draft Bill is a complex document, and I am sure that we were all reading it last night until 12.00 midnight or 1.00 am and will be well briefed on it. No doubt the Minister will enlighten us on some points that we might have missed, and we will ask questions after her presentation. Minister, will you begin?
The Minister for Social Development (Ms Ritchie):
Thank you, Chairperson. As you said, the draft Bill is a complex piece of legislation. I will give the Committee a short presentation on it, and then we can have a general discussion.
My officials briefed the Committee on the content of the draft Bill on 2 October. Therefore, I will outline what the Bill does and, for reasons that I will explain, request the Committee’s support for its accelerated passage. First, I apologise to Members for the very short time frame within which the Committee can examine the draft Bill. The urgency has arisen due to matters that are outside the control of DSD.
The Committee will be well aware of the principle of parity with Britain in social security and pensions matters and the fact that the Northern Ireland Act 1998 places a statutory duty on me and on the Secretary of State to maintain single systems of social security and pensions across Great Britain and Northern Ireland. Members will also be aware that many pension schemes and all the regulatory bodies in the field operate on a UK-wide basis. Members of the Committee know that the Committee and the Assembly have agreed already that the new personal account scheme will operate as a single UK scheme.
It is normal practice for a Northern Ireland parity Bill to be introduced after the corresponding Westminster Bill has received Royal Assent. It would clearly be inefficient use of Committee and Executive time to consider proposals that remain subject to substantive change, as that would require tabling amendments and multiple referrals to the Committee. The corresponding Westminster Bill, which is before Parliament, was initially expected to receive Royal Assent in July. That allowed sufficient time to cater for provisions in the Bill or consequential measures, which must come into operation in January and April 2009. I will explain that in some detail. Other provisions will come into operation upon the Westminster Bill’s receiving Royal Assent, which is now expected in November. However, the Westminster Bill is still being amended. In fact, well over 100 amendments were tabled for Report stage, which ended on 29 October. That Bill is to be amended further at the Third Reading, which has not yet been scheduled.
The ongoing delays in the Bill’s passage through Westminster are causing significant timing difficulties and present the most challenging of timetables for the Assembly’s draft Bill. We have delayed for as long as possible in order to bring as firm a draft Bill as possible to the Committee without jeopardising operative dates. For those reasons, I request the Committee’s support for accelerated passage.
I had intended to address the Committee on 13 November, when we had hoped to have been in a better position to present a final draft of the Bill. However, as the Committee will be engaged fully on that date, it was necessary to meet today.
The Pensions Commission has described tackling undersaving as essential if future generations of pensioners are to avoid disappointment in retirement. It is estimated that approximately seven million people across Great Britain and Northern Ireland are not saving enough to meet their retirement aspirations, and results from the Family Resources Survey show that 48·5%, or approximately 343,680 people, have no provision for private pensions. Therefore, the draft Bill is aimed primarily at enabling and encouraging private pension saving.
The draft Bill represents the second stage in the pensions reform programme and complements the reforms to the state pension that were introduced by the Pensions Act ( Northern Ireland) 2008. The draft Bill has six parts. Part 1 provides for: new duties on employers to enrol eligible jobholders automatically into a qualifying pension scheme; the functions of the Personal Accounts Delivery Authority (PADA) to be broadened to enable it to advance the personal accounts scheme; the removal of the duty on employers to make a stakeholder pension available; and employers will not have to comply with two sets of legal requirements — stakeholder pensions and personal accounts.
Part 2 contains measures to reduce the regulatory burdens on employers to encourage them to continue to provide good-quality pension schemes and to further simplify the state pension scheme. Part 3 provides for compensation that has been paid by the pension protection fund to be shared on divorce or dissolution of a civil partnership. Part 4 brings forward the introduction of the upper accrual point for the state second pension from 2012 to April 2009. Part 5 contains provision to strengthen and broaden the powers of the Pensions Regulator to increase the protection that is available to scheme members. Part 6 contains technical provisions.
Under Standing Orders, a Minister in charge of a draft Bill is required to explain to the appropriate Committee the reasons for seeking accelerated passage. Members are well aware of the principle of parity with Britain and of the financial and operational benefits. However, there are consequential constraints, such as maintaining parity in the timing of legislation. The draft Pensions (No 2) Bill faces significant timing difficulties because of delays with the corresponding Westminster Bill, which is expected to receive Royal Assent in late November. However, several provisions or consequential measures must come into operation in January and April 2009. Additionally, several provisions will come into operation on Royal Assent. Therefore, if the Northern Ireland Bill is not granted accelerated passage, it is unlikely that it will receive Royal Assent before the end of March.
The relevant provisions have the functions of the Personal Accounts Delivery Authority, that is: reducing the cap on the revaluation of deferred pensions from January 2009; easing the pension-credit-assessed-income period for persons aged 75 and over on 6 April 2009 to help older pensioners; bringing forward the introduction of the upper accrual point from 2012 to April 2009; and establishing the powers of the Pensions Regulator. I can provide further details on those provisions.
People in Northern Ireland will be disadvantaged compared with people in Britain if accelerated passage is not granted. For example, elderly people on state pension credit would not be able to avail themselves of the new easement and would have to continue to supply fresh details of their income and savings. The new measures to protect pension-scheme members will be delayed, the loopholes that they are meant to address will remain open, leaving scheme members in Northern Ireland exposed to risks. The fact that many schemes operate on a UK-wide basis means that, if the two areas of law do not dovetail from the same date, schemes and employers will face serious administrative problems. One of the aims of the draft Bill is to ease the administrative burdens on employers who run good occupational pension schemes. The number of people covered by good occupational pension schemes has been falling steadily. It is vital that we do not do anything to exacerbate that trend or make employers and schemes decide that it is too much trouble to run a pension scheme for employees in Northern Ireland.
I trust that the Committee is broadly content with the thrust of the draft Bill and the need for accelerated passage. I appreciate that shortening the process means that the Committee will not have had the same opportunity to scrutinise the draft Bill in detail. I have a problem with that too, but we are tied by certain constraints. Members may make their views known during the draft Bill’s passage through the Assembly. As members know, there have been some robust debates in the passage of other Bills that concern social security legislation.
The Chairperson:
How will the automatic enrolment be publicised?
Mr John O’Neill (Department for Social Development):
The personal accounts scheme will not come into effect for several years, and plenty of publicity and advice will given in advance of that time. Not all employers will offer the scheme, because people on existing schemes can continue with those. This scheme will involve only new employers, and the employer contribution is being phased in — in fact, it will not come in at the full amount initially; it will be phased in over several years. The new scheme is hoped to be in place from 2012 onwards.
The Chairperson:
Is that the target time for the start of the scheme?
Mr J O’Neill:
Yes. A good deal of organisation has to be carried out. PADA must expand and set up the mechanism for running the new pension scheme.
The Chairperson:
Over 100 amendments to the Westminster Bill have been tabled in the House of Commons. Will the timescale for our draft Bill be affected if that in Westminster does not proceed through the House in time?
The Minister for Social Development:
If the draft Bill is not granted accelerated passage, that may be the case, and, as a result, people will be disadvantaged. That concerns me. Some amendments are coming through as we speak, and departmental officials are working on those. As members know, drafting legislation and dealing with amendments at Westminster is time-consuming and tedious. However, the process must also be exact and precise.
The Chairperson:
I appreciate that.
Mr Brady:
The reasons for accelerated passage have been trotted out almost ad nauseum, so I will gloss over that for the moment. In principle, it is good that everyone who is employed should be in a pension scheme. However, I have two concerns. The first is about people from the lowest end of the scale and how their contribution to automatic enrolment will have an impact on their income. Secondly, the possibility exists that employers may not want to employ people because they will have to contribute to a pension scheme.
In principle, it is good that people should be enrolled into a pension scheme, because some are not in a pension scheme. However, the most vulnerable people, such as lone parents, are at the lower end of the scale, and their contributions will have an effect on their weekly or monthly income. There is also the fact that employers may use the pension scheme as an excuse to pay people off or to not employ them.
The Minister for Social Development:
I am glad that Mr Brady agrees that there is a need for people to be encouraged to save for a pension and that there is a need to protect people who are in employment. There is an onus of responsibility on employers, and I hope that they fulfil those responsibilities to their employees. All of us — myself, members of the Committee, Members of the Assembly and officials — will seek to ensure that that is the case, and I would like to think that employers will do likewise.
Mr J O’Neill:
The lower limit is currently around £5,000. The state pension already offers higher income replacement rates for people earning below that limit, and those people would be better to simply rely on state pension at that level. However, it has been shown that the income bands that we have set in the legislation, which are between £5,000 and £33,000, are the lowest level of private-pension savings, and we want to target people who are in that income range. As the Minister said, around 48·5% of people have no private pension scheme, and they tend to be in that range. People earning higher incomes are generally in a pension scheme.
When a scheme is attractive, it encourages people to save, which will give them advantages in retirement. However, we do not want a scheme that will place an undue burden on employers. A balance must be struck between the benefits accruing to the person in the scheme and the cost to the employer. There will be provisions to prevent levelling down — that is where employers who offer a good scheme consider going into the PADA scheme. We will be encouraging employers to stay with their current scheme.
Mr Burns:
Are self-employed people covered?
The Minister for Social Development:
That is an important issue, as we have many small and medium-sized industries. We also have people who are involved in the construction industry and others who are self employed.
Self-employed people may opt in to personal accounts. They may contribute amounts of their own choosing at times to suit them, within the limits that apply to all members. Therefore, cover is provided in those circumstances.
The Chairperson:
Does the Department expect any unemployment to result from the introduction of the scheme? Does it expect that any company will reduce its workforce? I understand that employers have to pay a contribution to the scheme; I cannot remember the figure.
Mr J O’Neill:
It is 3%.
The Chairperson:
Do you envisage any difficulties, given the current financial situation — although that may change by 2012? Might companies decide that they have five or six employees that they can do without and then reduce their workforce?
The Minister for Social Development:
A survey of employers carried out by the Department for Work and Pensions found that the majority of employers are in favour of automatic enrolment with a 3% minimum employer contribution. Mr Brady also raised the issue about a possible increase in unemployment as a consequence, which John will now discuss. Undoubtedly, more work will be done as part of the outworking of the legislation.
Mr J O’Neill:
We have some figures estimating the percentage of the overall pay bill that that consequence would represent, and I think that it is a very small percentage.
Mr Sam Dempster (Department for Social Development):
It is about 0·7 % of the pay bill. For very small employers, it is only about 1·1 % of their total pay bill. We think that they are likely to absorb those costs, perhaps through higher prices or wage restraint.
Ms Ní Chuilín:
I hear what you say about the threshold being £25,000 to £27,000 upwards, but the information that the Committee received states that the relevant band will be those earning between £5,000 and £33,000.
Mr J O’Neill:
The target band for enrolment would be those people who earn between £5,000 and £33,000 a year. Below that level, it is probably better for that person to rely on state-pension provision, as that would give them a better return. Above that band, most people are in good schemes already, and there is a high level of take-up of pensions other than the state pension.
Ms Ní Chuilín:
However, the fact is that not many people earn more than £20,000.
Mr J O’Neill:
Quite a lot of people earn around that.
Ms Ní Chuilín:
Most of those people have good pension schemes. There is evidence that people who earn below that band do not. You said that yourself. My question concerns low-paid people. How will they access good independent advice in order to make a decision about pensions, given that there is an opt-out clause? What provision exists to give people advice? Is the onus on the employer, the individual, or the Department to help people get good advice?
Mr J O’Neill:
The Personal Accounts Delivery Authority, which is the body that is being set up to establish the scheme, will have a role in that. Other bodies will operate the scheme, but the authority will play a role in providing guidance and advice to people. Other bodies will also provide advice — such as The Pensions Advisory Service (TPAS) — and many trade unions already provide advice to their own members on pension take-up. Our aim is not to do away with existing pension schemes, but some people are not in any scheme and are not suited to personal pensions. This will be a state scheme that will be aimed at providing a second pension for those who are in that broad pay range of between £5,000 and £33,000. All the empirical evidence shows that those are the people who are most likely not to have any provision other than that provided by the state pension.
The evidence from the Pensions Commission shows that, with demographic changes, more people will be relying on the state pension. There are affordability issues in relation to how much that can provide, especially if it is going to be someone’s sole income in retirement. People need to be encouraged to arrange an income on retirement other than the state pension. The existing pension system, which is a pay-as-you-go system, means that those people who are in work at the moment are paying for pensions. If there are more pensioners — and estimates are that in this decade, there will be more people over 65 than teenagers, as well as a decreasing workforce — fewer people are paying for the pensions of an increasing number.
At some stage, the figures will not add up, so we must encourage more people to make post-retirement pension provision other than the state pension.
Ms Ní Chuilín:
We also want to encourage a degree of choice for people. Some people fall into the category of the working poor.
Mr J O’Neill:
The scheme will provide for automatic enrolment, but people have the choice of opting out. At the moment, there is often no available vehicle through which such people might save. The charges in personal pension schemes are so high that there may be no real benefit to them, and such people are forced to rely on the state retirement pension.
Ms Ní Chuilín:
Until the recent collapse of the economy, people thought that their pensions were invested wisely. Having paid into a pension scheme for years, they find that that is not the case. Although it is not part of the Bill, there needs to be a clear explanatory note showing how those pension schemes can be ring-fenced and guaranteed by Government. Unless Government make that undertaking, people’s livelihoods and futures are being gambled with.
Mr J O’Neill:
Pensions are a long-term investment. One is looking at perhaps a one or two-year blip in contributions, but that will be spread over 30 or 40 years. Any disadvantage is equalised.
There is already some provision for protection in the pension protection fund (PPF), which protects many schemes that exist already. A financial assistance scheme also exists, and that deals with those pension schemes that have had to wind up through underfunding. Through the PPF and a levy on existing schemes, money is being set aside to deal with situations where schemes default.
Ms Ní Chuilín:
Are you saying that those people will not lose out?
Mr J O’Neill:
There is protection, but people may not get everything that they would otherwise expect from their pensions.
Ms Ní Chuilín:
That is the point.
Mr J O’Neill:
There are no 100% guarantees in any of this.
Mr Craig:
I have looked at the deferred pension benefits. I must declare an interest: I have a deferred pension from an employer.
How will reducing the cap from 5% to 2∙5% help protect anyone who has a deferred pension scheme? The retail price index has increased by 2∙5% already.
The Minister for Social Development:
I will ask John to deal with that query, then I will make a few concluding remarks.
Mr J O’Neill:
That provision brings deferred pensions into line with pensions in payment. When someone is in a pension scheme, they build up a number of years of entitlement. They then leave that employment and move to another. Those years of entitlement are kept in that scheme until the person reaches retirement age. There is a requirement to uprate that by a certain amount each year. At the moment, the deferred pension can be uprated by a higher amount than the pension of someone who stayed in that scheme all his life and then retired. The provision brings the rate of increase into line for both pensions in payment and deferred pensions under the same scheme.
The purpose of the measure is to ensure that employers are not overburdened. There is a balance to be struck between benefits to the pensioner and costs to the employer. Many schemes that have a large number of deferred pensioners will face increasing costs if the cap is not imposed at the same level as it is on pensions that are already in payment. We must equalise the cap for deferred pensions and for those in payment.
Mr Brady:
I have only one point to make. None of this legislation would be necessary if we had an adequate state pension scheme. I have heard our state pension scheme described recently by an economist speaking on the radio as the meanest pension scheme in the developed world. Historically, that has been the case. That point is worth making.
The Minister for Social Development:
Mr Brady’s point is a matter for Westminster and Whitehall, because these are reserved matters.
Mr Brady:
What about parity?
The Minister for Social Development:
There is an important issue in this: it is crucial for everyone to participate in the parliamentary arrangements that are available to us.
Pensions are a long-term investment. I appreciate fully that people, at different periods in their lives, may find difficulties in remaining in pension schemes and may have to opt out. That can happen to any of us.
However, the important thing to remember is that people in Northern Ireland will be at a disadvantage if accelerated passage is not granted to the draft Bill. No one wants people to be disadvantaged, and we do not want to penalise anybody. Therefore, it is important to ensure that ordinary people in Northern Ireland, who comprise the majority of our citizens, and our older population, which statistics prove is growing, are not disadvantaged in comparison with their counterparts in Great Britain. Elderly people on state pension credit would not be able to avail themselves of the new easement and would have to continue to supply fresh details of their income and savings. That is why it is important that accelerated passage is granted and that those arrangements are in place. Accelerated passage is also important, because it would give us a facility to deal with new fuel-poverty measures, which are urgently required this winter.
The Chairperson:
I thank you all for giving evidence to the Committee.
I now welcome Tony Attubato from The Pensions Advisory Service (TPAS).
Mr Tony Attubato (The Pensions Advisory Service):
I thought that it would be sensible for me to explain what The Pensions Advisory Service is, given that I am conscious that some Committee members may not be familiar with it. We are an independent voluntary organisation that is funded by grant-in-aid from the Department for Work and Pensions. We help members of the public who are seeking free advice and information on pensions. We also help those who have a dispute or a problem with their pension provider.
Our service is provided primarily by volunteers, particularly in the dispute section. We run a national helpline, which receives 60,000 calls each year. We also run a website, which we try to make the font of all knowledge on pension issues. Recently, we have started to provide advice on a workplace service, where we try to encourage employers to bring advisers into the workplace to talk to employees about retirement saving.
I have been asked to talk to the Committee about the draft Pensions (No 2) Bill. The Minister may have touched on some of what I say already, but I may have more detail on those issues. The main talking points in the draft Bill include the automatic enrolment of eligible employees into a qualifying work-based pension scheme and the introduction of compulsory employer contributions for employees who remain opted into that work-based pension scheme. The other proposal in the draft Bill is the introduction of a national occupational-pension scheme, which for the time being is being called personal accounts. There are other features in the draft Bill that aim to simplify the state pension and ease the burden of running defined-benefit occupational-pension schemes.
Generally, TPAS welcomes the draft Bill, because it is keen to promote retirement saving. Auto-enrolment has occurred on a similar scale in New Zealand with the KiwiSaver, which was introduced several years ago. That exists to combat inertia because unfortunately people who face difficult financial decisions tend not to act at all, sometimes without consideration. Research has shown that if people are opted in, they tend to take more consideration of those choices and are more likely to carry on with their retirement saving.
In New Zealand, when the figures were examined in September this year, 800,000 people had auto-enrolled and remained in their KiwiSaver; only 150,000 chose to opt out. That scheme seems to work in combating inertia.
The introduction of compulsory contributions is also an issue, and if you consider stakeholder pensions, many those schemes are empty and are not being contributed to. The common denominator in many of them is that there is no matching contribution from the employer. Where there is a contribution from the employer, employees are more likely to want to participate.
It is important to note that employees can choose to opt out. From our perspective, we are very keen that when making that decision, employees are making an informed choice. Opting out may be appropriate in some circumstances, but we hope that people make that decision with the full knowledge of the options that are available, while knowing potential implications. We are very keen that there are good communications and that people are made aware of where they can get advice, guidance and information on auto-enrolment. Auto-enrolment applies not just to personal accounts; it applies to other work-based pension schemes as long as they meet a minimum benefits test or a quality test. An employer contribution is required. We understand that to ease the burden, that will be phased in over an 18-month period, and the regulations allow for that.
I referred to minimum standards because it is not just personal accounts that come into question — the press talks about auto-enrolment into personal accounts. Employers can auto-enrol, but they do not have to auto-enrol their staff into personal accounts if they have a qualifying scheme. If any of the terminology that I am using is baffling, please stop me.
There are basically two different tests that are needed in order to meet the requirements for a qualifying scheme. If a money purchase scheme is in question, there must be a minimum employer contribution of 3% and the employee must meet the shortfall. If the scheme is a final salary or a defined-benefits scheme, it either has to meet the contracting-out test or it must provide a pension accrual rate of one one hundred and twentieth. Auto-enrolment will apply to those schemes, as opposed to personal accounts.
It is important that compliance is considered. We are glad that the powers of the Pensions Regulator have been enhanced to oversee compliance, because issues may arise, for example, with employees being unduly encouraged to opt out, or there may be mixed messages in recruitment. The draft Bill also includes improved employment protection to cover the entire auto-enrolments picture.
The Minister touched on the other measures in the draft Bill that will ease the burden on running defined-benefit schemes. Defined-benefit scheme membership in the private sector has fallen considerably over the past decade, but hopefully the proposed measures will help to stop that slide.
One of those other measures is the abolition of safeguarded rights. Safeguarded rights have become almost an irrelevant or strange requirement, so we think that it is sensible to remove them. Safeguarded rights means that, on a divorce settlement, if there is any contracted-out liability in the pension-sharing order that has been credited to the ex-spouse, that contracted-out portion cannot be touched until that person reaches 60 years of age. There are also restrictions in how the pension is paid. That is a historical position: it used to match the protected-rights requirements. Those protected-rights requirements have been removed over time, so it seems illogical that they still exist for safeguarded rights. Those rights put the ex-spouse back on the same footing as their former spouse or partner.
The other main measure is the change to the cap on revaluing deferred benefits for leavers. The cap has now been cut to 2∙5%. I do not think that the point was made in the previous presentation, but that cap applies only to service that was built up after the change, not to service before the change. Therefore, existing deferred members retain their original rights.
There are also measures that affect the state pension scheme. Unfortunately, the state pension scheme is very complex and understood poorly by most people. The changes are complex but, hopefully, they will simplify the scheme in the long term. The main change is the consolidation of the additional state pension, which is earnings related. It can fall into three different parts. It will be consolidated into one value that can be identified on people’s statements and revalued forward, up to their state pension age.
It all seems sensible to us; all measures to simplify the pension scheme are good news. Also, as has been touched on, there is an easement in the assessed income period for pension-credit members. Again, it is more unlikely for individuals who are aged 74 and older to have variations in their incomes or assets. Therefore, that seems to be a sensible move.
One other matter that has sneaked into the draft Bill is the abolition of contracting out on a money-purchase basis from 2012. We are aware that an exercise is taking place to agree a communications exercise for everyone who is involved in that.
My final point concerns an amendment dealing with voluntary National Insurance. That amendment was pushed through last week, so some members might not have seen it. I believe that the House of Lords agreed an amendment to allow six years of voluntary National Insurance to be purchased in addition to the normal allowance. However, there are caveats to that. It applies only to people who reach state pension age between April 2008 and 2015. They must already have 20 years qualifying record, and they can buy years only after 1975. However, the Department for Work and Pensions estimates that up to 500,000 individuals, particularly women, will benefit from that change. Our organisation made a point back in 2005 that we thought that there should be some easement in the voluntary National Insurance allowance. Therefore, we welcome that change.
The Chairperson:
Thank you very much, Tony. I will start by asking a couple of questions that were asked during the previous presentation. In The Pensions Advisory Service’s opinion, will the Government guarantee the value of pensions on the scheme, starting from 2012? Does the service believe that it will be beneficial for low-paid employees?
Mr Attubato:
The point about the pension protection fund was raised by the previous set of witnesses. The pension protection fund safeguards members of defined-benefit schemes. Personal accounts would be a much —
The Chairperson:
Do you mean defined pension schemes?
Mr Attubato:
I mean defined-benefits or final-salary pension schemes, which are linked to service and salary.
Personal accounts will be a money purchase scheme. Money purchase schemes depend on the level of contribution and the return that the person achieves on their investment. Therefore, there is no underlying guarantee; it is a long-term savings vehicle. It is important that good, clear information and guidance is available to people to enable them to make sensible investment decisions.
In money-purchase situations, if there is a default fund, there is a natural tendency for people to lean towards that fund. Therefore, a lot of attention must be paid to the build of that default fund. Default funds can be risky — although I am reluctant to use that word, because risk is not always a bad thing — and, perhaps, one would want to avoid risk and volatility as one approaches retirement age. A great deal of attention must be paid to the default fund to ensure that it is appropriate for most people.
Mr A Maginness:
Thank you for a lucid exposition of the draft Bill. As I understand it, the auto-enrolment is really a beneficial way of catching people by ensuring that employers make a contribution to their pensions, and it will therefore enhance their position. However, the experience seems to be that many people do not want to enter a scheme because they do not feel that it will ultimately be beneficial to them. The fact that an employer will make a contribution is a clear advantage and a good incentive, but I will leave that aside for a moment.
My point is that if opting out is still an element of the scheme, people will slip through the net by choice, because some, for many different reasons, will decide that they simply do not want to be involved in that pension scheme. Pensions are a form of compulsory saving, and many people do not want to be compelled to save. Therefore, the net problem of people being reluctant to save will remain. Without an element of compulsion, I cannot see how the scheme will be much more successful than what currently exists. A particular problem is that people reaching pensionable age at the end of their working life do not want to enter into a scheme for the obvious reason that it would not benefit them. Leaving aside that issue, does the scheme not require a greater element of compulsion?
Mr Attubato:
The problem with compulsion is that, depending on their circumstances at the time, it may not be appropriate for some groups to save in personal accounts in or in a work-based scheme — for example, people with large debts or those who are close to the age at which they will receive a state pension and have little or no savings. However, people’s circumstances change continually, and it is extremely difficult to forecast someone’s work patterns and personal circumstances over a long period. If someone chooses to opt out, they will be required to re-enrol no more than three years later. Therefore, people will have to face that decision at least every three years throughout their career.
Probably the most important factor is that people have a source of information and guidance to enable them to make an informed decision. The worst outcome would be for people to make an ignorant decision. Our greatest concern is that employers and employees are made aware of the draft Bill. Many employees, when faced with a financial decision, tend to turn to their employer, and they may be reluctant to give information or guidance on the matter. Therefore, employers must be made aware of where they can get help.
The Chairperson:
Tony, do you consider that the changes in the draft Bill have been communicated widely and appropriately enough?
Mr Attubato:
From speaking to friends of mine who are employers, they knew nothing about the draft Bill, and it came as a shock to them when I mentioned it. That is my litmus test. We have spoken to trade bodies, and they are doing their best to communicate the contents of the draft Bill to their members. The feedback that we received from some organisations was that many members think that it will simply not happen: it is so far in the future that they will worry about it in four years. My gut feeling is that a communications exercise is required to promote greater awareness among employees and employers.
The Chairperson:
Thank you, Tony, we appreciate that.
Members, we need to return to the Minister’s presentation on the draft Bill. We must reach consensus on whether to agree to accelerated passage. May I have your views so that we can proceed or otherwise. Are we agreed on accepting accelerated passage?
Ms Ní Chuilín:
The amendments mean that we cannot agree without prejudice.
The Committee Clerk:
I think that in previous instances when accelerated passage was requested, the Committee was recorded as supporting the Minister’s intention without prejudice.
The Chairperson:
Are members happy enough with that?
Mr Brady:
I do not want to be struck by a thunderbolt for disagreeing.
The Chairperson:
Is the Committee agreed?
Members indicated assent.