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The Government have, rightly, signalled that the workplace savings scheme that they are introducing will be targeted primarily on median and lower earnings. We look forward to engaging with the Government in a debate over the summer on the potential benefits of such a scheme and the risks of an auto-enrolment model. The extent to which the Government should become involved in the delivery of a workplace savings scheme is not clear. The key debate—on the personal account system—is likely to revolve around the degree of state involvement, and thus the degree of personal responsibility and choice.
The danger, which Lord Turner has spelled out recently, is that a high degree of Government involvement in the delivery system will be interpreted by users of the system as a Government guarantee of investment outcomes. I am sure that the Secretary of State would be as keen as we are to ensure that that does not happen.
It would be useful if the Government could say what level of saving in the workplace saving scheme they would regard as a success. The White Paper implies an expected opt-out rate of about 38 per cent. The New Zealand Government are warning, in relation to the proposed Kiwi savers scheme, that opt-out rates could be as high as 75 per cent. The success of the auto-enrolled scheme will be a key measure of the success of the entire package. We must have a clear measure of what will count as success and what level of opt-out will trigger a review of the arrangements.
No part of this reform package will work unless we restore trust in the pension system and public confidence in its fairness. Two broad issues must be addressed if public confidence is to be restored. The first is the Government’s response to the ombudsman’s report. Acceptance of the ombudsman’s finding of maladministration would cost the Government nothing. The ombudsman is an officer of Parliament. She was put in place to adjudicate on claims of maladministration. It is unacceptable for the Govt to reject the finding that she has made. To do so is to challenge the right of Parliament to scrutinise the Executive and deliver judgment upon its activities.
In response to the ombudsman’s recommendations the Government have announced, as the Secretary of State said, an increase in the funds available for the financial assistance scheme. However, he knows very well that the benefits available under the scheme still fall far short of the demands of the pensions action group and of the recommendations of the ombudsman.
Jenny Willott (Cardiff, Central) (LD): Does the hon. Gentleman agree that there is a startling resemblance between the current occupational pensions saga with the ombudsman and the previous case about the state earnings-related pension scheme—SERPS—when the previous Administration were criticised by the ombudsman, also for maladministration and giving incomplete information? Does the hon. Gentleman agree that the only major difference is that with the previous case, the Labour Government accepted the previous Conservative Government’s maladministration, whereas in this instance they are refusing to accept anything at all?
Mr. Hammond: The hon. Lady makes a good point.
The issue is not just about the supremacy of Parliament over the Executive. Similarly, it is not just about the justice of individual cases of people who have lost their pensions. It is about restoring confidence in the pension system. As I am sure the Secretary of State will understand, those people will not go away. They are determined to pursue their case. I suggest that as long as the newspapers are carrying stories about failed pension schemes, and about people living in poverty because of what has happened to the pensions that they worked for and saved for throughout their working lives, it will be difficult to re-establish confidence and get people saving again in a national pension savings scheme.
David Taylor: Those people will not go away, including those in the BUSM scheme in Leicester, some of whom live in and near North-West Leicestershire. Does the hon. Gentleman agree that it is important to reach an agreement about what the costs of responding to the ombudsman’s report would be? A figure of £15 billion cash has been suggested, with net present value down to between £2.9 billion and £3.7 billion—but even that does not take into account the fact that compensation would be taxable, which would take a good number of people out of means-tested benefits. Let us reach agreement about the costs before we start to dismiss some of the solutions that might be available. Does the hon. Gentleman agree with that?
Mr. Hammond: I agree with the hon. Gentleman’s plea for transparency. First, we need information. I also agree with the hon. Gentleman that the initial figures—the £15 billion to which reference has been made—were bogus figures, and designed to be misleading.
We need to understand what the costs would be. We have asked the Government to consider seriously the possibility of using unclaimed assets as a way of supporting the group of people concerned. So far I have not seen any response to that suggestion. The Secretary of State, for reasons of high moral principle and a pragmatic need to achieve delivery and acceptance of his White Paper package, must look at the issue again. I believe that I speak on behalf of Members from all parts of the House in saying that if he decided to revise his position and take a more generous approach he would not be criticised in any quarter of the House.
Mr. Hutton: May I once again put on the record my strong view that the figures are not bogus? The £15 billion was assembled in exactly the same way as we produced the costings for the financial assistance scheme in the first place. They are proper, actuarially based figures, and I dispute the hon. Gentleman’s allegation that they are bogus, because that is fundamentally not the case. May I press him on something at which he has hinted, but not said? Is he saying from the Dispatch Box that he would compensate all those pensioners in full? He has criticised the Government for not making compensation available, but is it his policy to compensate them in full if he had the opportunity to do so in government—yes or no?
Mr. Hammond: If, when we are in government in three years’ time or later, the Secretary of State has not resolved the issue satisfactorily, we will make a decision on the issue, as he would expect. However, this is his watch, so he must address the issue that has been raised and deal with the questions that have been presented.
On the issue of fairness, I should like to say something about the ongoing debate about public sector occupational pensions. Like the state pension, unfunded public sector occupational pensions are paid for by the general taxpayer, who will not take seriously the Government’s strictures about the need to work to the age of 68 to address the challenges of increased longevity while they cave in to pressure from public sector trade union paymasters to continue to allow pensionable retirement at 60. The then Trade and Industry Secretary was right last year when he said of the plans to raise the public sector pension age to 65:
“That argument is irrefutable. For us to say to the private sector you have to work longer and save more money, and to the public sector you stick with your retirement age is impossible”.
Those words were spoken by a senior member of the Government, so the craven surrender to the vested interests of the Labour party’s paymasters in negotiations ranks as one of the Government’s low points.
Let me make it clear: our public servants perform a vital task and are entitled to be treated fairly, just like their private sector counterparts. However, public servants, too, will benefit from greater life expectancy, so they must participate in the necessary adjustment of pension expectations to reflect that increased longevity. Anything less fundamentally undermines the credibility of the Government’s overall package. In the interests not only of protecting the interests of the taxpayer but of restoring the confidence of the man in the street in the fairness of the overall pensions system, it is essential that the Government revisit their wrong and unfair decision to allow retirement at 60 in the public sector for the next 40 years.
I welcome the opportunity to place on the record our support for the “direction of travel”—to use the Secretary of State’s words—of the White Paper. I welcome, too, the opportunity to set out the big issues that must be addressed to build the durable consensus which, I believe, all parties in the House seek. The system itself, however, must be demonstrably robust before the consensus built on it can be so. We must test the package of proposals that the Government have presented, and engage with them constructively—if the Government are willing to engage with us—to address what we perceive as potential areas of weakness. We remain optimistic, despite some unhelpful noises off, that a lasting consensus can be forged, and that on the back of it, a lasting solution to the looming pensions crisis can be built.
4.49 pm
Mr. Terry Rooney (Bradford, North) (Lab):
In recent weeks, the Work and Pensions Committee has taken evidence on the Pensions Commission report and the White Paper. I have attended far too many breakfasts, lunches and evening events. I have stopped eating, but the phrases keep going round in my head. We seemed to hear the same arguments time and again. Nevertheless, we were very grateful for the enormous number of submissions that we received. Not surprisingly, there
were some very, very vested interests. Generally speaking, the employers’ side was anti-compulsion and the TUC was anti any increase in the retirement age. One can understand the position that they are coming from, but the Secretary of State has made the case positively that this is a package of measures, and if we start to unpick one bit, everything else unravels, and we need to be resilient in our arguments for the total package.
I want to concentrate for a minute on the issue of the state retirement age, because at the moment, once one goes beyond 55, the economic activity rate plummets. It has been increasing in the last couple of years, which is partly down to the new deal for the over-50s, but at age 60, about 50 per cent. of the population are in economic activity. There must be a strengthening of training provision for the over-55s and of healthy workplace initiatives, and careers advice must be available. The general architecture must change—we need to start doing that now in preparation, because there is already a problem—to ensure that not only is the retirement age 68, but that people can work to that age and beyond if they wish. We need to ensure that they are physically capable and trained to take those employment opportunities. That participation rate must be a key indicator of the progress that we are making.
Among all the submissions, most gratifying was the general agreement on the principles in the Pensions Commission report. The argument is around the architecture and the implementation. There was fairly unanimous support for the proposals around the state scheme, and I do not propose to dwell on them. The difficulties are around whether we call it a national pension savings scheme or personal account. This is a classic case—I am not looking for work—for a draft Bill. There are many areas of debate and discussion to be had on that, and that would help the case.
The overwhelming message that comes through from all organisations is that there has to be simplicity and transparency in the scheme—primarily simplicity to reduce the cost. We had lots of argument over whether there should be 30 basis points or 50 basis points. We would settle for five. But if it is 50 basis points, as against 1.25 per cent. for stakeholders, that increases a person’s pension pot by 20 per cent. That is what we should be looking at—the individual’s pension pot at the end of the day. That should be the driving factor, not any submissions from vested interests. That is a key indicator that we should be looking at.
In this initial round we must also consider key groups such as the low paid, those in multiple jobs— each of which may be paying less than £5,000, which would exclude them from the NPSS, but which cumulatively takes them over—and those with continuing health problems. There is a laudable target to get 1 million people who are currently receiving incapacity benefit into work, but how will their broken work records affect contributions into the scheme?
There is also a huge issue, which I do not think the White Paper addresses, around the self-employed. I am not blaming anybody, but they seem to have been left out of the debate by both sides of the House and by outside organisations. Around 7 million people are self-employed. They are probably the most under-pensioned group of all and I dare to suggest that they are probably a group with greater means for pensions than others, but I take it no further than that.
David Taylor: My hon. Friend is right to focus on the two categories of fragmented employment and self-employment, but does he acknowledge that there is also a problem with fragmented, short-lived and disorganised employers and that when there are large numbers of them on the scene, it places difficulties in the way of many people who are trying to accumulate a pensions pot from them?
Mr. Rooney: My hon. Friend is right, and as he speaks with the voice of the accountancy profession I would expect nothing less. I will come on to the issue of manipulation by employers in few moments, if he will bear with me.
The low paid, people with health problems and those with multiple employers all desperately need generic financial advice—not investment advice, but generic financial advice, particularly relating to their current debts and how best to manage them. It cannot be left to the bandit advertisements on television, which encourage people to roll up all their debts into one as a means of sorting out their problems and having money to spare. By and large, those are not good deals. Sadly, decisions have been taken recently about the funding of advice from citizens advice bureaux and similar organisations, which mean that it is no longer available. I suggest that that is not a good deal. We really need a network of generic financial advice made available to the low paid and underpaid to allow them to make wise choices. As I said, I do not mean investment advice, but generic financial advice.
For the same reason and in line with keeping costs low, there needs to be a strong default option on the national pension savings scheme. As far as possible, we need to take the choice out of the equation. The greater the choice, the greater the need for advice, the greater the opportunity for mis-selling, the greater the complexity and the more costs increase. We also need to keep the scheme simple for employers. I have spoken to hundreds of employers over the last three or four months and they want no role at all in making any choices about the scheme for their employees. They want a simple scheme that allows them to deduct a certain amount of money every month, to send it off somewhere and to forget about it. Simplicity is important both for employer and employee.
There are dangers with this sort of enrolment scheme and we need to be honest about them. Certain less-than-honest employers will seek to induce people not to take part in the scheme. I do not want to traduce anyone, but by and large, the smaller the employer, the greater the likelihood of that happening. There is no better policed system than the national minimum wage, but there are still issues about it. There are still far too many employers who do not pay the national minimum wage. If they are not willing to pay a wage of £5.05 an hour, it is likely to be a problem for them to contribute to the national pension savings scheme. We really need a strong regulatory role— [Interruption.] The hon. Member for Runnymede and Weybridge (Mr. Hammond) is turning up his nose, but I wonder whether he will turn up his nose in 30 or 40 years’ time when people who have spent a lifetime working for an employer find themselves in poverty because they were forced out of the scheme.
Mr. Philip Hammond: I am wary of creating new regulators and having more regulation, but I entirely recognise the hon. Gentleman’s point. Surely the answer lies in the design of the scheme and the design of the opting-out system. That should help to deal with the few rogue and unscrupulous employers who encourage people not to participate in the scheme.
Mr. Rooney: Without naming names, when a multinational company is willing to break the law on trade union recognition, a small employer will be more than happy to break the law to deny people their rights under the scheme. We need to be mindful and wary of that. I would be delighted if there were no need for regulation and every employer played ball, but, frankly, that is cloud cuckoo land. We need to ensure, in the early days, that anyone who plays that game gets hammered hard, thus serving as a warning to everyone else. The regulatory programme could then hopefully be disbanded. However, experience tells us otherwise.
There is also a problem about the stage at which someone enters into a savings scheme. Some organisations say after six months, whereas others say after one month. Nowadays, the standard is that someone starts a job on three months’ trial. The end of that trial period is the logical time for someone to join the scheme. However, there is a difficulty.
There is a connected problem. If individuals choose to opt out of the national pension savings scheme, they should receive standard generic advice on the consequences. Perhaps there should even be a cooling-off period for people to revise their decisions. The advantage of auto-enrolment is that it makes a decision for people. If they then exercise a different choice, it is fair and proper for the Government or somebody to point out the consequences and costs of their decision.
We are considering a period of further consultation, especially on personal accounts. We are therefore in danger of individuals facing six years of inertia. It is possible to consult to death. It is interesting that, in Sweden, where a similar scheme was set up, the contributions were collected for four years before it was established. That made sure of identification and allocation. We need to be wary. Another six years of people avoiding decisions that they did not want to make in the first place is quite a slice of someone’s working life, and of investment activity that is not happening.
One of the commission’s proposals, which the Government rightly rejected, was for an ongoing commission. I do not see the need for a continuing, fairly expensive quango that would have little to do for the next few years. It would be good if the Minister for Pensions Reform set out the review mechanisms that the Government anticipate in 10 or 15 years. I do not accept the need for a standing commission, but establishing the architecture of the review process would be helpful.
5.2 pm
Mr. David Laws (Yeovil) (LD): The Liberal Democrats also welcome the opportunity to debate the detail of the White Paper. As the Secretary of State and his colleagues know, we made it clear when he made his statement to the House a month or so ago that we support the direction of travel of pensions policy.
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