From the TUC

The Pensions Bill’s Beecroft Clause

14 Jun 2013, by Guest in Pensions & Investment

It didn’t get much attention at the time, lost as it was under a hail of dogmatic and poorly conceived recommendations, but one of the main ideas in Adrian Beecroft’s 2011 report advocating a bonfire of employment regulations involved doing away with pensions auto-enrolment for small employers.

Thankfully, we aren’t there yet – but the Pensions Bill, which has its second reading on Monday, contains an explosive clause which could allow a future Conservative majority government to deliver on Beecroft’s disturbing vision.

In short, Beecroft wanted all employers with fewer than five employees to be exempt from auto-enrolment. This means they would have no obligation to make contributions towards a pension for their workers, even though the statutory minimum contributions are set at a very low level, only applicable on a band of earnings rather than full salary, and phased in gradually over several years. He also wanted to give employers with fewer than ten employees the right to opt out of auto-enrolment.

The government didn’t bite. They did promise to ease the implementation process for all employers with fewer than 50 employees, but no employers were let off the hook. Mirroring Vince Cable’s lukewarm response to the report overall, credit is due to Lib Dem pensions minister Steve Webb for steadfastness in the face of this barmy right-wing agenda.

But then came clause 34 of the Pensions Bill. If the Bill passes, it would give the government the power to create exceptions to the employer duty to auto-enrol their workers into a workplace pension.

The DWP consultation exercise (which the government has not yet responded to) that followed the Beecroft report had suggested creating exceptions to the employer duty in three specific circumstances:

  1. When being auto-enrolled would lead to a large tax penalty for the employee
  2. When an employee had given notice of their intention to retire
  3. When an employee had handed in a notice of resignation during the three-month ‘waiting period’ before being auto-enrolled

While it is galling to think that the highest earners close to breaching tax relief limits (scenario 1) need the help of primary legislation to manage their tax affairs, exceptions based more narrowly on these kinds of examples would represent a sober and proportionate policy response. However, the Bill makes no reference to these examples, nor suggest what kind of circumstances may lead to an exception being created.

Of course, regulations would have to prescribe the precise circumstances in which an exception could operate. Yet while Steve Webb’s commitment to including all employers within auto-enrolment is not in doubt (he has focused more on excluding low-earners through raising the earnings threshold), we might not be able to say the same about a future Conservative government.

The power endowed by Clause 34 is therefore far too broad. It risks jeopardising the consensus around auto-enrolment between government, unions and employers that has persisted over many years to turn a revolutionary idea into policy reality.