Mr. Tim Duggan:

The Chair is right about communications. We have already ramped up in the past week and we will be ramping up even further in the course of the autumn and going into winter. We will be highlighting to people that they will see a new thing in their payslip, which will be a deduction on their pay. It will be happening at the same time as many other budgetary changes that may or may not emerge over the course of October, so people will be looking at a number of different things, perhaps, in their payslips. We will put a lot of effort into trying to ensure that as many people as possible understand that this new initiative is coming and what it means. The Chair is right when he says that there will be people who will miss all of that and therefore there will be phonelines and other means of getting information for them to use to get the assistance and understanding that they need.

We had very extensive engagement with other jurisdictions. We visited the UK a number of times and had engagement with the Department for Work and Pensions there and with Nest Pensions, which is the Government-operated system there. We looked extensively at what Australia and New Zealand have done. We also looked extensively at what some of the Scandinavian countries, particularly Sweden and Denmark, have done. We also looked at other auto-enrolment systems in other parts of the world, such as in Poland and Chile and places like that. We learned a huge amount from looking at those models. Essentially, the design of this system is a distillation of all of the lessons we learned from those models. Examples would include things like the contribution rate. It became very clear that the contribution rate implemented by most auto-enrolment systems in other parts of the world was not sufficient. If one asks any of the designers or operators of any of those systems they will say that the biggest mistake they made was not building in a step increase in the contribution rates, over time. Now they have a big problem in the UK where they are trying to get the contribution rates increased from 3% and 5%. The scheme is 13 years old in the UK, at this stage. In Australia, they took the view at the beginning that they had to invest in low-risk, conservative funds, with the consequence that people did not make any money in their pots. The situation almost became a scandal and it became clear that they needed to do something very different regarding investments. They found that there is just as big a risk going for low-risk investments in that people's money does not grow and therefore does not provide them with adequacy in their retirement.

We learned those types of lessons. We also learned if it is all done through the market - and we are doing some of this through the market, using market investment managers and market administrators - without a degree of State management and regulation of the system, it can result in a lack of consistency and quite different offerings being made to people. We also learned that the cost can be significantly greater. The beauty of what we are doing is that bringing it all together through one scheme means that the scale allows us to reduce the cost massively. As I said earlier, the assets under investment management charges is a fraction of what one would normally expect in the market. In addition, it is a consistent scheme for every single employee who participates in it.

The last big lesson was to do with incentivisation. I am sure the committee will hear people giving out about the fact that tax relief is not being used in this system and that we are using a State top up instead. Tax relief would not have done a great deal for nearly three quarters of the people who will be in the scheme. This is because they pay tax at 20% or they do not pay tax at all, because they earn so little. Consequently, there would have been little or no incentivisation from the State, if we were to use the tax relief system instead of a State top up. First of all, this approach enhances the pension pot because the money goes directly into it and second, it is consistent, in that regardless of a person's level of income, the State incentivisation is set at the same rate. In this way, it does not favour people who are better off over people who are not as well off.

We learned all of those lessons and distilled them as best we could into the design that is reflected in the legislation now.