Mr. Robert Nicholson:

We are certainly open to discussing that point. In terms of the question of in and outs for people who are frequent job changers, one of the most beneficial parts of the system is that traditionally when people leave work and join another employer, there is a window before the employer registers them within the system because it is administratively difficult. With the central processing authority, a person will have a unique identifier from day one and can begin contributing, meaning that the employer and State can begin paralleling that contribution. It will allow a much more continuous pattern of saving for a population that changes jobs frequently. Having said that, it is an earnings-related system, so if one is out of the system and is not contributing, a contribution will not be made. It will certainly increase savings consistency, and will shorten the window where many employees are not saving for retirement. If one is not in work he or she will not be making contributions, as things stand. We have asked in the straw man scenario whether we should be accommodating people outside of work and how it can be done. We have asked for views on that, but as it stands we are operating an earnings-related system.

In terms of employer compliance, we have looked at many international examples and found that non-compliance is not as big an issue as one might imagine. That said, there are always unscrupulous people in every field. As it stands there is an administrative sanction suggested within the straw man proposals and if it does not work, there can be a criminal sanction. We are confident that we can ensure compliance, but it requires the involvement of the pensions regulator. We also have to ensure that we have appropriate compliance facilities. One of the benefits of the central processing authority is that we can have a central element of compliance, in that employers would be legally obliged, whether the individual is in the system or not, to register any employees who have pensions coverage and their details, in order to ensure transparency.

The question of appropriate fund types is certainly one which we are open to discussing. We envisage the central processing authority having that role. In the UK and Australia, environmental and social rules govern the structure of pension funds. It is actually part of the institutions for occupational retirement provision, IORP directive, an EU directive we adhere to. It covers investments in arms, Sharia funds, such as those in the UK, and funds which do not invest in things like tobacco companies. It would certainly feature in terms of how funds are structured.

In terms of risk, as it stands it has been decided that it is a personal pot and will operate on a defined contribution basis. The individual decides the level of risk he or she wants to take. At the moment the first pillar pension involves the State suggesting in its own right that it will guarantee a certain level of pension.

That is the fiscal risk the State takes on on a person's behalf and it redistributes income.

Personal saving is about saving what is appropriate for a person and the State will support a person in doing that. The risk in this system from a defined contributions, DC, point of view would lie with the individual. We then get into the situation of how much risk an individual wants to take. If an individual just wants to put it in the bank or post office and take no risk whatsoever, he or she could do that. If that was the ideal thing for everyone to do, there would probably be no need for this system. We would just legislate to say that everybody should have a post office account and save a certain amount of money and we would probably not be sitting here.