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Des Browne: As I said at the beginning of my statement, I have always said that we can provide an important military component in the security of Iraq, but military means will not solve Iraq’s problems. We
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need to develop governance and exploit economic opportunities on the basis of the security that we can provide. I speak at the Dispatch Box on behalf of the Government, but principally as the Secretary of State for Defence. The Foreign Office, the Department for International Development, and, indeed, other Government Departments, have worked appropriately with elements of the Iraqi Government, at both national and regional level, to ensure that their capacity and capability are developed to do exactly what my hon. Friend knows is necessary to build up democratic and Government institutions.

To those who think that that country is disintegrating, may I say that its democratic institutions and its Government departments may not be perfect—they are working in very difficult circumstances—but they are all functioning. Some of them are not functioning very well and some are severely challenged, but they are all functioning. That is a long way away from, for example, challenges that we have faced in other areas where we have tried to bring countries out of conflict and have succeeded.

Mr. Tobias Ellwood (Bournemouth, East) (Con): Many would argue that disbanding the Iraqi army and the police was one of the biggest mistakes of the post-Iraqi conflict and has led to sectarian violence and so many deaths, yet this weekend we learned that the former Defence Secretary tried to persuade the Americans to do exactly the opposite. Will the Secretary of State comment on that decision? Does he agree that it illustrates
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why we need a review of what happened in the Iraq war so that we can learn from what happened, both good and bad?

Des Browne: The hon. Gentleman knows that the disbanding of the Iraqi police was principally a function of the de-Ba’athification of Iraq. That was at the heart of the repression of the Iraqi people and is an issue that they will have to address because, like the geography of the area, the people who live in that country will not go away, and they will have to learn to co-exist. As for the Iraqi army, my recollection is that it disbanded itself.

Chris Bryant (Rhondda) (Lab): Given the horrific situation in some parts of Iraq, is it not vital that we send out a clear message that we will not suddenly give up on the people of Iraq? In the light of that, is it not important not only to provide training in Iraq for Iraqi forces now, but to make a long-term British commitment to train a large number of Iraqi officers in the UK at Sandhurst or at Shrivenham, alongside British troops, so that there is a long-term investment in that country into the future?

Des Browne: At the end of the day, as the House will accept, we will respond appropriately to requests for such support, but those requests need to come from the Iraqis. Interestingly, there are at present Iraqi officers doing just what my hon. Friend suggests—training in our defence colleges and with our troops, here in the United Kingdom. He is right to suggest that there is a desire in the Iraqi army and among its senior officers for that training for their army. I can tell him that we are well placed to give them that support if they want it.

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Personal Accounts

4.18 pm

The Secretary of State for Work and Pensions (Mr. John Hutton): With permission, Mr. Speaker, I should like to make a statement on the Government’s proposals to make it easier for more people to save for their retirement.

Despite the welcome fact that people are living longer, millions of employees are either not saving at all or not saving enough for their retirement. As the Pensions Commission noted in its second report, we must take steps now to tackle the problem of under-saving or face serious problems in the future. We have already acted to make sure that the state pension provides a solid platform on which people can save. The Pensions Bill published last month will create a simpler and more generous state pension. The restoration of the link to earnings will result in a basic state pension that by 2050 will be worth twice as much in real terms as it is today.

More generous qualifying conditions will, for the first time, properly treat social contributions on an equal footing with cash contributions, delivering fairer outcomes, especially for women and carers. These and other changes will reduce the extent of means-testing in the future, making sure that pension credit continues to be targeted at the people who would otherwise have been poor in retirement or who have only small savings. But we must build on this foundation by giving more people greater incentives and opportunities to save for their retirement.

Overall participation in occupational schemes has been falling since the late 1960s, and disproportionately high charges are making the personal pensions market uneconomical for those on moderate to low incomes, who often stop contributing to private schemes after a short time. We will therefore be bringing forward legislation to create new low-cost personal accounts as the catalyst for a new savings culture in our country.

This White Paper sets out proposals to give every employee in Britain earning over £5,000 the statutory right for the first time to receive a contribution from their employer towards an occupational pension. Provided that they take responsibility in turn by contributing to their pension from their own wages, employees will be entitled to an employer contribution of 3 per cent. of their salary in a band between approximately £5,000 and £33,500. We will fix the level of employer contributions in primary legislation.

From 2012, employers will automatically enrol their employees into personal accounts or into their own existing occupational pension scheme, as long at it meets the specified minimum standards. That simple but radical step will affect around 10 million employees in Britain, and it will be vital in overcoming the barriers that prevent many people from making the decision to save. There will be a compliance regime to protect the right of employees to be automatically enrolled and to receive an employer contribution. We will consult on the detail of this approach, but expect it to build on the light-touch model of the national minimum wage.

We intend to establish personal accounts along the lines proposed by the Pensions Commission. The current Pensions Bill provides for the creation of a
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personal accounts delivery authority—an independent body with financial sector expertise that will, in the first instance, advise Government on the design of the operational structure of the accounts and prepare to get the necessary contractual arrangements with the private sector in place. It will then be responsible for commissioning the infrastructure to deliver the scheme from the private sector. The authority will eventually be replaced by a new personal accounts board, which will be responsible for the live running of the accounts. Its decisions will be independent of Government.

Evidence suggests that moderate to low earners prefer not to make a choice of pension scheme administrator. Our approach will offer greater simplicity for savers and maximise participation levels. There will be a choice of funds for those who want it, which we expect to include the option of social, environmental and ethical investments and branded products. For those who do not want a choice, there will be a default fund.

Low charges are critical to ensuring that people build up the maximum pension fund from their savings. The Government estimate that the long-term costs for personal accounts will be in line with those set out by the Pensions Commission of around 0.3 per cent. of funds under management, or even lower. Together with reduced marketing costs, this approach is expected to be 20 to 25 per cent. cheaper than a system based on direct competition between firms for individuals.

These reforms are designed to fill a gap in the existing market, and we want them to complement the existing market, not compete with it. So, alongside the creation of the new personal accounts, we will take action to support existing pension provision. There will be no transfers into or out of personal accounts from or to existing pension schemes, and an annual limit will restrict the level of contributions an individual can put into their account. The limit will be £10,000 in the first year, to allow individuals currently without access to a good-quality occupational pension to save in other non-pension products before 2012 and then to move them to personal accounts. We propose a limit of £5,000 for subsequent years, but we will consult on that.

There will be a simple and self-certifying exemption test for employers who operate schemes of broadly equal value to personal accounts. Additionally, we are consulting on whether companies that offer higher value schemes should be allowed to have a reasonable waiting period before employees join the schemes. We are also interested to learn more about the National Association of Pension Funds’ proposal of a “good pensions scheme” quality mark to help employees identify companies that offer such pensions.

The Government are committed to minimising the burden of personal accounts on employers. Mandatory employer contributions will be phased in over at least three years. The reforms have to be simple to run for a small employer. The central clearing house will mean that employers need only have one point of contact for transferring contributions, and the Government will make minimising the administrative burden on employers a key task for the delivery authority and subsequent personal accounts board.

The vast majority of people can expect to benefit in retirement from saving in personal accounts or an equivalent scheme. Of course, all forms of saving have
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some uncertainty, but thanks to our reforms those who work or care throughout their working lives can expect to be better off from having saved. Indeed, now someone need only work or care for 24 years to avoid pound-for-pound withdrawal; and under existing rules, even the tiny minority of pensioners who receive the guarantee credit only could still see a return from their saving by taking a lump sum.

Simple, low-cost, flexible and portable as people move between jobs, personal accounts may generate an additional £4 billion to £5 billion of net new saving each year, equivalent to around half a percentage point of gross domestic product. They will help millions of people take greater responsibility for building their retirement savings and embed a new pensions savings culture at the heart of a comprehensive and balanced pensions settlement.

I hope that these reforms set a sustainable and sensible course. They are in the long-term interests not only of this generation but of generations to come. I commend the White Paper to the House.

Mr. Philip Hammond (Runnymede and Weybridge) (Con): I thank the Secretary of State for his statement. We have already indicated our support for the state pension reform package and for the objective of providing workplace savings targeted at those who are least well served by the pensions industry—largely lower-paid people outside employer schemes. We have made it clear that we will support the auto-enrolment proposals and the compulsory employer contributions. There is a large measure of consensus around the state pension reform proposals, but there are still important issues to be resolved as regards personal accounts. I hope that the Secretary of State will be able to confirm that the White Paper is a further step in the process and that he is willing to engage in further constructive dialogue. We are broadly comfortable with his proposed structure of a low-cost default fund with the option, for the more adventurous, of opting into branded funds that are more actively managed.

However, I want to draw three major areas of concern to the Secretary of State’s attention. First, there is considerable concern in the industry and among commentators about the risk of levelling down, which he did not mention. Employers faced with the requirement to enrol the whole of their work force may seek to control increasing costs by reducing the level of contributions that they make. The right hon. Gentleman may say that that is a price worth paying for wider coverage, but that would be scant comfort to those who are already in more generous schemes.

Secondly, there is concern that with relatively high levels of residual means-testing, which is projected by the Pensions Policy Institute to affect up to 50 per cent. of pensioners by 2050, it may be difficult for many people who are on lower earnings and are likely to have broken work records to determine whether saving will pay for them. The last thing any of us want is to be here, or for our successors to be here, in 30 years’ time facing the equivalent of a pensions mis-selling scandal, with hundreds of thousands of people having saved but finding that they do not benefit from having done so.

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Thirdly, the right hon. Gentleman spoke of personal accounts complementing rather than competing with the existing market. We support that targeted approach. However, in turning his back on Lord Turner’s recommendation of a £3,000 cap on contributions to personal accounts and setting it at £5,000, as he said today—or at least £5,000, as it says in the White Paper—he is hugely expanding the scope of personal accounts and reducing the focus on those who are being most failed by the existing marketplace. He will make it much more difficult to assess the extent to which he has succeeded in his principal objective of getting people on lower earnings into long-term savings, and he is running the risk of undermining the already battered private pension saving sector.

Will the right hon. Gentleman assure the House that he is alert to, and willing to address, all those issues? In particular, will he commit the Government to focusing over the next couple of years on the deregulatory review of occupational pensions, to ensure that the occupational pensions sector is as robust as possible before personal accounts are introduced so that the temptation for employers to level down is minimised? Will he look again at the need to focus the scheme on the lower paid and therefore review the proposed cap of at least £5,000?

When the Government damage pension provision or confidence in our pension system—for example, through their continuing £5 billion a year raid on pension funds, U-turns on the tax treatment of pension schemes and the continued unresolved suffering of the victims of pension scheme failures—we will continue to hold them to account.

Similarly, when the Government have got it right, as in the state pension reforms, we will say so and actively support their proposals. When the general direction is right, but problems remain, as with personal accounts, so long as the Government are genuinely willing to engage in a continuing dialogue, we will try to work with them to build an agreed model because we believe that, on a long-term issue such as savings, seeking that cross-party consensus is in the interests of Britain and the British people. I hope that the Secretary of State will confirm that he intends to continue to try to reach that consensus in the next nine months.

Mr. Hutton: I welcome what I believe to be the overall support that the hon. Gentleman continues to signal for the proposals. A consensus behind them here and elsewhere is important because a sense that politicians say one thing here and another outside would undermine public confidence. I was therefore worried to read what the hon. Gentleman wrote inthe Financial Times about the proposals somehow being an attempt to nationalise Britain’s pensions savings industry. What a load of nonsense that criticism was.

Mr. Hammond: That is the effect of the higher cap.

Mr. Hutton: I shall come to the cap shortly. We are not nationalising the occupational pensions savings scheme. No reasonable, fair-minded critic, who considered the proposals and Lord Turner’s recommendations, on which they are largely based, could reach that conclusion. The hon. Gentleman cited
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Lord Turner’s report earlier. He might like to know that, today, Lord Turner said of the proposals that he hoped that there would be widespread support for the way forward that the Government propose. If the hon. Gentleman wants to escape from the big tent that Lord Turner has been carefully constructing, he will find it difficult, given Lord Turner’s support for the proposals.

The hon. Gentleman has raised several important points and I shall try to deal with each of them. I hope that the White Paper will help sustain the consensus to which he has been a party because we want that to continue. The White Paper clearly signals that further consultation is required on several matters—the hon. Gentleman referred to one or two of them. One is determining the personal contributions cap, and we are consulting about that. If people believe that £5,000 is too high, they can present their arguments, to which we will listen.

There is further consultation to conduct about governance of the national pensions savings scheme. We shall do that in the open way in which we have set about the matter so far.

The hon. Gentleman raised three or four more specific points. On levelling down, personal accounts are designed to complement, not compete with, existing employer provision. We can do four simple things to try to ring-fence and ensure that personal accounts work as we intend. One is to prohibit transfers—I have dealt with that. The annual cap and contributions will help, too. The simple and straightforward employer exemption test will be helpful, and that also applies to the new quality mark proposal from the National Association of Pension Funds.

It was widely argued when we introduced the national minimum wage that it would level down wages. That did not happen and I do not believe that it will happen to occupational pensions. It is important to understand that employers are levelling down contributions now—there is currently no floor to the contributions that they offer. Personal accounts will, for the first time, set a minimum below which contributions cannot fall. Personal accounts will increase, not undermine, total levels of pension saving.

The hon. Gentleman asked whether it was safe to auto-enrol and prayed in aid the Pensions Policy Institute. The Department and the institute basically draw the same overall conclusions about personal accounts. The Pensions Policy Institute says that they will help most people and are a big improvement. We agree. Our figures are similar. We have different assumptions about annuity rates from the PPI, and its analysis does not take into account the fact that some people may choose to take some or all of their pension pot as a lump sum, but we both agree that auto-enrolment is a good idea and that most will gain from it. Some might have low returns but the vast majority will need good information and we have work to do to put together the generic information that will go out with personal accounts. However, people can decide to opt out. That is the ultimate safety mechanism to ensure that people gain when they are enrolled—it is a conscious choice.

In relation to the £5,000, the hon. Gentleman said that we were extending the scope of NPSS. We are not doing so.

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