moved Amendment No. 103A:

moved Amendment No. 103B:

moved Amendment No. 103C:

I wish to speak to the Question whether Clause 48 should stand part in order to raise questions about how the compliance regime will work in practice. Compliance is to be handled by the Pensions Regulator and Clause 48 amends the duties of the regulator so that it must maximise compliance with the auto-enrolment provisions of the Bill. The regulator has no existing expertise in this form of compliance work and there are concerns among the employer bodies about how it will work in practice. There is a need to reassure the business community that the compliance regime will be targeted at those who seek to avoid the employer duties and that the burden placed on employers who meet the duties is minimal. For example, the CBI believes that businesses should not be required to register with the pensions regulator the fact that they intend to comply with the Act because the Act applies to all employers without limit, so there is no need for the regulator to seek out positively its own population.

Currently, the regulator has registers of schemes and not, of course, of employers. It would be a major task to set up a register. Will the regulator require separate registration which, as I have said, bodies such as the CBI think would be very onerous, or will the regulator receive information from HMRC which, through PAYE and NIC systems, knows the details of all employers in the system? Can the Minister say how the regulator expects compliance to work? Will it be risk-based? When will the regulator publish its compliance proposals? We agree with the CBI that simplicity is the key to minimising employer burdens and to focusing compliance work on those most likely not to comply. That was certainly the experience of implementing the minimum wage. Do the Government and the regulator agree with that?

The Bill will have a big impact on small and medium-sized enterprises in general and on very small businesses in particular. I have already spoken to the issue of the cost of implementing auto-enrolment for SMEs and micro-businesses. However, that group, which is very large numerically, will pose particular challenges in terms of compliance. Who will be responsible for alerting SMEs to their obligations under the Act and for ensuring that those employers are aware of their compliance duties? Will it be the regulator? The regulator will be something of an alien being to most SMEs. The SMEs are more used to dealing with HMRC through PAYE and NIC compliance.

It would seem to us, and it would certainly seem to some of the bodies which have made representations to us, that the Government ought to ensure that the contacts and expertise of HMRC are used to the maximum extent possible when implementing this Bill. By giving the regulator duties, it is not clear that that will happen. Most employers do not want to become noncompliant, but in the early days of the new system mistakes are likely to be made, especially by SMEs that generally struggle with regulatory burdens placed on them. What approach will the regulator take to achieving compliance in that group?

Lastly, I need to raise the issue of costs. Clearly, the Pensions Regulator will need to be funded for the start-up costs of the new compliance regime as well as the ongoing costs. How will the Government ensure that those costs are borne not by existing contributors to the regulator’s coffers but are borne by the whole group of employers? Does that mean that everyone will receive an annual bill from the regulator? How much is that likely to be for different sizes of businesses? What about start-up costs? Will the Government use their powers to pay grant in aid for those costs, or will they be recovered from employers over time?

The Minister will understand that there is considerable concern among the business community not only about the details of compliance and what the regulator will do, but also about how the financial burdens of compliance will fall in practice. I hope that he can shed light on this issue.

I am grateful to the noble Baroness for giving me the opportunity to speak to Clause 48. It provides the Pensions Regulator with an additional statutory objective to maximise compliance with the new duties arising under Chapter 1 of Part 1. As previously discussed, we have tabled Amendment No. 103C to extend that objective so that it also covers the regulator’s enforcement roles in relation to the prohibited recruitment conduct in Clause 49, and the proposed prohibition on inducements at Amendment No. 106A.

Clause 48 amends Part 1 of the Pensions Act 2004 to ensure that the new compliance functions of the Pensions Regulator are covered by its statutory objectives. The additional objective will define and communicate the regulator’s compliance role. It will ensure that the compliance approach is transparent and accountable by setting out clearly the goal of the new compliance powers that this Bill grants the regulator. It will also place the compliance regime on an equal footing with the regulator’s other work, creating a firm foundation for its effective delivery.

We do not want to disrupt the regulator’s vital and successful regulatory role or its current objectives, which include protecting the benefits of members of all work-based pension schemes. That protection will extend to members of the personal accounts scheme. The regulator’s new compliance functions will therefore supplement its existing functions, rather than replace them. We will work closely with the regulator to minimise the impact of this work on its current role.

The noble Baroness asked precisely how the regulator will exercise its new powers. Like her, we are confident that the majority of employers will comply with their new duties, but need an efficient and effective compliance regime underpinning the reforms.

The compliance regime that will be enforced by the Pensions Regulator will be crucial to the overall success of these pension reforms. As I indicated earlier today, we are proposing a three-stage compliance regime comprising educating, enabling and enforcing. The initial focus is on educating and enabling employers to meet their new duties.

This Bill sets out a framework of powers that enable the regulator to take proportionate, graduated compliance action where those initial steps fail. Action to combat non-compliance will start with statutory notices, moving to fixed penalties and then escalating penalties if non-compliance persists. This provides a flexible sanctioning toolkit in line with the recommendations of the Macrory review. We have also built on analysis of other regulatory regimes.

The noble Baroness asked whether all employers would be required to register. The answer is yes, they would. Clearly, information will come from HMRC about the range of employers out there, but there will be a requirement for all employers to register. She talked about small employers who will not have heard of the Pensions Regulator and she asked what we will do to help them comply. It will be the Government’s role to oversee the delivery of consistent and coherent information to support the introduction of the reforms, and this will help to raise awareness among all employers that the Pensions Regulator will educate and enable employers in order to help them to meet their new employer duties. The intention is to provide tailored messages to specific segments of the employer population so that, for example, small employers receive messages that are appropriate to them. Employers will have the opportunity to explain their circumstances and obtain support at every stage. Only where there is persistent or serious non-compliance will proportionate penalties be applied.

The noble Baroness asked about the funding arrangements and the costs of this. As noble Lords will be aware, at present the Pensions Regulator is generally funded by a levy on pension schemes, and the general levy funds the activities of the pensions ombudsman and the pensions advisory service as well as the Pensions Regulator. The levy is used to pay for a range of activities, including ensuring that schemes are competently administered, that pensions deficits are reduced in a timely way and that members’ benefits are not compromised as a result of transactions such as company takeover and financing. However, we fully recognise that the Bill significantly extends the regulator’s current role and responsibilities. Moreover, this role is central to the success of the reforms by helping employers to understand what they need to do to meet the new duties as well as by offering protection to individuals.

I am therefore happy to place on record that the Government are committed to supporting the Pensions Regulator to deliver the compliance regime. Set-up costs for the compliance regime will be funded by the Government by way of a separate grant in aid funding stream, subject to parliamentary scrutiny. As noble Lords will be aware, grant in aid can be used for the exercise of the regulator’s functions and to fund the set up of the compliance regime because the regulator’s functions are being extended by the Bill. Expenditure and funding for the establishment of the compliance regime will be kept completely separate from the Pensions Regulator’s expenditure funded by the general levy and will be accounted for separately. As part of its regular stewardship of the pensions regulator, the department will monitor both funding streams to ensure that they are put to their intended use only. We are exploring further how ongoing compliance costs will be funded, and we will take that work forward with the relevant government departments and the regulator in conjunction with the development of the compliance regime.

There is clearly much detail to be worked out, but I hope I have set out the parameters and the arrangements under which the Pensions Regulator will operate. The compliance regime is based on the recommendations of the Macrory review, which underpins the graduated light-touch approach that I have outlined. I hope that that deals with the queries of the noble Baroness. If not, I am sure she will ask again.

I shall. Can the Minister explain why the regulator will require every employer to register with it, given that information on employers is already held within the existing PAYE and NIC system? By definition, no different groups will be brought within the net. Why is a separate registration regime being set up, especially as the regulator will be completely unfamiliar to the vast majority of employers? The only employers who know about it are those with the nearly extinct defined benefit pension provision. Almost everybody else has no idea about the Pensions Regulator; certainly not SMEs and microbusinesses, which are currently not involved in pension provision at all. I am mystified about why the Government are going down this route.

Let me see if I can help the noble Baroness. It is the Pensions Regulator’s job to ensure compliance with this regime; therefore, it needs to possess the key relevant information. HMRC will be a key source of that information because, as we discussed earlier, it is the one database of employers across the UK.

We envisage that the registration process will be web-based and will ask employers about the pensions arrangements that they will use to meet the new requirement. Every employer will be required to register once for each of his PAYE schemes. Information from HMRC can be used to contact employers to effect that. The Pensions Regulator will then check that registration had been completed for every employer PAYE scheme, and that checking process is likely to be highly automated. The regulator will determine the most effective approach to gathering this information in support of its objective to maximise employer compliance. The regulator will intervene early with those who do not register, using reminders and penalties where necessary.

We recognise that seeking information from employers will impose a cost on them, but believe that that will be outweighed by gains achieved by higher compliance overall. We also believe that costs will be relatively low because most employers will complete the registration process only once for each of the PAYE schemes that they run, and will then have very low ongoing contact with the Pensions Regulator. The operational design of the registration process will take into account the need to minimise employer burdens. By enabling early identification of non-compliance, the registration process will minimise further burdens on compliant employers and help to prevent non-compliant employers gaining an unfair commercial advantage.

I listened carefully to what the Minister said about costs. He was pretty clear that the extra costs of setting up the extra regime for the Pensions Regulator arising from this would be met by a separate grant-in-aid. What I did not hear him say, which perhaps he would, is: “We have not yet decided, once it has been set up, how all the extra costs of the Pensions Regulator being involved in so many schemes will be funded and shared”. The noble Baroness fairly asked how we will ensure that there is not cross-subsidy from existing pension schemes. Is that still work in progress? We would be very grateful to hear how far the Government's thinking has developed. Setting up is one thing; sharing the cost of a greater regulatory regime is another.

The noble Lord is right to press me on that matter; but he is also right to say that the question of ongoing compliance costs is still work in progress. We need to be mindful of the fact that the regulator already has powers to pursue late payments to pension schemes. At present, that activity is funded by the levy. That makes it potentially difficult to draw a distinction between the regulator's existing role and its new one, especially in the area of late payments, but that is something that we need to work through.

I answered the question today, which I am not sure we had been asked before, about whether the levy will operate for personal accounts. It would, so there is another potential source.

I am disappointed with the approach that the Minister seems to be taking, which is that the regulator will create lots of de novo processes existing in isolation. The regulator is probably the least appropriate body to deal with small and medium-sized enterprises, which will form the majority of the organisations with which it is required to interface. The Minister gave us a mantra of, “Educate, enable and enforce”. I do not suppose that the regulator has any idea of how to educate or enable small and medium-sized enterprises, let alone micro-enterprises, whereas other parts of government have a little more existing expertise. I am very disappointed with that response.

The noble Lord, Lord Oakeshott, rightly challenged the Minister on costs. Major employers are very clear that they would regard it as quite unfair for their levy payments to be diverted to funding the cost of compliance across the whole auto-enrolment sphere. That has nothing whatsoever to do with the purposes for which the levy is raised and would be completely inappropriate. However, the Minister says that that is work in progress, like so much of the Bill. That is a very unsatisfactory way to proceed and gives no one any assurance that the scheme will operate fairly, cost-effectively or in a sensitive way for the generality of employers, small and large.

We get these persistent challenges and a sense of bad faith about how this will all work. We have clearly put on record our approach to compliance, being mindful of burdens on employers and doing what we can to retain existing good quality provision. The noble Baroness has to recognise that this is a framework Bill. Of course, lots of practical detail has to be worked through, some of which we cannot get under way effectively until we pass this legislation and can give the appropriate powers. It really is unfair for the noble Baroness to continue with this line. We have been very open about the basis on which this Bill is structured and how we want to see it implemented.

The Minister was very open, but he does not have the answers to the questions. We are bringing to this Committee the concerns expressed to us, in particular by employer groups. It is not acceptable that the Minister stands there and says that they have not worked out the answers and that it is unfair to criticise them for not having done so. Day by day, the Minister exposes that this Bill is not ready to come through the parliamentary process because too little is understood. We will not pursue this again today but we will return to the theme.

Clause 48, as amended, agreed to.

moved Amendment No. 103D:

moved Amendment No. 103E:

I declare an interest as a trustee of the Pensions Advisory Service. Clearly, this provision will expand the role of the Pensions Ombudsman if he or she is seen as the final court of appeal for any challenge to the pensions structure. First, what has happened—and what is it therefore expected will happen—to the original proposals for amalgamating the functions of the FSA and the Pensions Ombudsman? Are we now expecting to keep the Pensions Ombudsman as a separate resource? It may be that we will wait until the Thoresen determinations are finished before we decide how that pattern will emerge.

Secondly, given the substantial delays at the moment in getting recourse from the Pensions Ombudsman, what additional resources will there be? What extra work does the ombudsman expect to face as a result of personal accounts? Clearly, any new scheme coming up in this way is likely to generate a degree of uncertainty and people may choose to go down that route rather than other adviser or financial advice routes to have their problems resolved. My noble friend may care to write to me at some length, because I have not given him notice of these questions. It seems to me that there is still a question mark over how this function of government will develop over the next few years. Is my noble friend in a position yet to say how the Government’s thinking is going?

The noble Baroness, Lady Hollis, tempts me to remind her that the Government—I think under her watch—spent some time ignoring the ombudsman, which is why eventually the financial assistance scheme was set up.

I take issue with that. The financial assistance scheme had nothing to do with the role of the Pensions Ombudsman or its neglect. I cannot think what the noble Lord is referring to in that respect, unless he is thinking of the Parliamentary Ombudsman and not the Pensions Ombudsman.

I apologise to the noble Baroness. I am reminded on all sides that it was the Parliamentary Ombudsman. However, the fact remains that, as long as the Government ignore the ombudsmen, one wonders what role they are to perform in the future. That said—I do not expect an answer—I have no problems with the amendment. As the ombudsman exists, this is a proper role to consider.

I have a sense that I should quit while I am in front. On the relationship between the FSA and the Pensions Ombudsman, the Bill does not contemplate any change. There may be an ongoing review of that area but the Bill, in a sense, notes that the involvement of the Pensions Regulator in the regulation of the schemes means that there is an ombudsman process. That general ombudsman process is carried forward by using the regulator under the regulators Act. The small technical amendment that I have just moved is to correct an exception to that generality because of the concept that someone is considered never to have been in a scheme if they have been properly enrolled and properly opted out. It addresses only that simple point. The whole issue of the appropriate level of resources for the regulator is a developing field of policy. As soon as we have more concrete proposals, we will be happy to share them with noble Lords.

On Question, amendment agreed to.

Clause 49 [Prohibited recruitment conduct]:

moved Amendment No. 104:

I am sure that we all agree that employers should be prevented from screening out job applicants according to whether or not they may opt out of pension scheme membership. The aim of Clause 49, which was introduced by a government amendment in another place, is to prohibit certain forms of employer behaviour designed to give the indication that the job on offer is conditional on the applicant agreeing to opt out of pension scheme membership. We do not expect the majority of employers to behave in this way, but it would be naive not to anticipate that some may and we cannot allow them to gain an unfair commercial advantage by avoiding their responsibilities in this way. We are determined that employers should not be allowed to sift out applicants who wish to remain in pension schemes.

I am grateful to the Minister. He said that one way would be by a complaint by the interviewee that I illustrated, as a result of the interview. What other ways are there? That way is obvious, but it is a little more difficult to see any others.

I can imagine that there might be a number of ways. For example, the employer might have trade union representation, which might indicate trends in how the firm recruits. There may be other ways that I cannot think of off the cuff, but in a sense it does not matter; the prohibition is there, and if people breach it there is a right to remedies.

The noble Lord previously asked how we could ensure that the introduction of the prohibition will not stifle genuine negotiations about pension arrangements above the qualifying minimum, or that it will not prevent positive communication about pension saving from the employers during the recruitment process. Under ordinary employment law, employers and employees are currently free to negotiate and agree remuneration packages and to offer choices between different benefits, rates of pay and pension scheme membership. We do not want to interfere with any right the employer and worker may have to negotiate the type of qualifying pension arrangement that will be offered. The right to negotiate the type of qualifying pension arrangement also includes the right to change from one qualifying pension arrangement to another, with or without an inducement, even where the new pension arrangement is less advantageous to the member than the old one, provided it is still a qualifying one. Clearly, we do not want to prevent employers communicating the positive benefits of the qualifying scheme that they provide to their workers, and nothing in this measure would stop that.

I am grateful for that addendum. I am glad that the Government do not want to prevent the positive benefits that can be accrued and that this measure is purely to police a negative matter, if one would like to put it like that. My mind is heartily relieved, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 105:

moved Amendment No. 105A:

moved Amendment No. 106:

I shall certainly try to help the noble Lord. Clause 49 prohibits certain forms of employer behaviour during the recruitment process that indicate that the job on offer is conditional on the applicant agreeing to opt out of a pension scheme. Although we do not expect the vast majority of employers to try to screen out job applicants in this way, an effective compliance regime must be in place to manage the risk that some might try.

Clause 50 gives the Pensions Regulator the power to issue compliance notices where it believes that a contravention of the prohibition in Clause 49 has occurred. The proposed amendment would prevent the regulator issuing a compliance notice requiring a current or past contravention to be put right.

We recognise that there will be circumstances in which a contravention of the prohibition has happened and there is nothing that the employer could do retrospectively to put it right. In those situations, we want the regulator to be able to issue a penalty notice to penalise and deter such behaviour in the future. However, there may be other circumstances in which the regulator might want to require employers to put right what they have done wrong. It would be useful for the regulator to be able to issue a compliance notice specifying what the employer needed to do and by when to remedy the situation or to prevent it being repeated. For example, the regulator might require an employer to change a specific job advertisement or application form that is in contravention of the prohibition or to issue a retraction. The clause gives the regulator the power to issue such notices. I hope that that has clarified matters for the noble Lord and that he appreciates that it will not be possible in all circumstances for what has happened retrospectively to be put right, but that there will be circumstances where it can be the appropriate remedy. That is why the clause is structured in this way.

I said in my remarks that I fully understood subsection (2)(b), which relates to the contravention being remedied. The Bill states,

“prevent the contravention being repeated”.

However, I am still confused. It would help if the Minister could give an example. He said that paragraph (a) covers situations where there is nothing that the employer can do to put the contravention right. I am surprised by that, because I should have thought that in virtually every case there was a possibility of putting a contravention right.

There could be a one-off situation, with the recruitment of one employee when the prohibition had been breached. Let us say that a decision was taken and somebody had been appointed, but the individual concerned had not been appointed. The ability to remedy that by making that appointment retrospectively is unlikely to be available. That is one circumstance in which it may not be possible to remedy the contravention of the prohibition; in other cases, it might. If, for example, there is an ongoing recruitment exercise and the literature for all that has been produced and that literature falls foul, that is a circumstance in which it could be the case. It is obviously a question of degree, but it is right that both are catered for in the clause, so that a remedy in the circumstances where that is possible can be dealt with.

I should clarify also that the reference to remedying a contravention in this clause does not mean that the Pensions Regulator would be able to require employers to give unsuccessful applicants a job. That simply is not the case. The emphasis here is simply on trying to prevent employers avoiding their new employer duties from the start by screening out candidates who might want to assert their new rights to join a pension scheme.

The last point I certainly readily understand. I congratulate the Minister at this time of night on failing to use the word “flexibility”, which subsection (2) of course gives the Pensions Regulator. But I am not going to pursue the point at this time of night. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 50, as amended, agreed to.

Clause 51 [Penalty notices]:

[Amendments Nos. 106ZA and 106ZB not moved.]

Clause 51 agreed to.

Clause 52 agreed to.

moved Amendment No. 106A:

moved Amendments Nos. 107 and 108:

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at 9.58 pm.