Mr. Hutton: Dont be ridiculous. We are trying to have a serious debate. The scope of NPSS remains exactly as proposed by Lord Turner: on a band of earnings between £5,000 and £33,000. There is no suggestion of extending the scope of personal accounts.
The hon. Gentlemans final point was the cheekiest of all. He complained about the so-called tax raid on pensions and the £2.5 billion that we have put into the financial assistance scheme to help those who lost out when their schemes went into insolvency. My understanding of his proposals is that he will not spend a penny more on the financial assistance scheme, and that he will not reverse on tax cuts. The less that we hear from him about that, the better.
Mr. Terry Rooney (Bradford, North) (Lab): Will my right hon. Friend confirm that people cannot plan their retirement pension savings from the age of 65, and that they need to do that at the start of their working life, for which NPSS is the best thing that has happened post-war? In the light of that, will he comment further on what he will do to provide high-quality generic advice to prospective entrants into NPSS? Where will the consumer voice be in the delivery authority that he is establishing?
Mr. Hutton: On my hon. Friends last point, the Government have more work to do on establishing the arrangements, on which the White Paper proposes a series of consultations. We must make sure that the voice and interests of scheme members are heard loud and clear on the personal accounts board. That will be important.
We will have to provide good information to all the groups covered by personal accounts, so that they can decide whether they need to opt out. Clearly, that does not mean that auto-enrolment as a principle is not appropriate; it definitely is. One of the striking features of the consensus generated by the Turner commission is the now universal support for the principle of auto-enrolment. I hope that no one in the House or outside would seek to undermine that.
Mr. David Laws (Yeovil) (LD): I also thank the Secretary of State for advance sight of his statement. He knows that the Liberal Democrats agree with most of the details of his announcement today. He is also aware of our concern, however, that the proposals and the consensus that he has been trying to lock together might be undermined by the schemes fatal flaw: the extent of means testing. Is not there a real risk that, at best, many people will not opt into and stay in personal accounts, and that, at worst, there will be accusations of Government-sponsored mis-selling?
Will the Secretary of State respond to three points? First, will he indicate what proportion of the target market for personal accounts will be subject to means testing? Would I be right that the proportion is likely to
be about 50 per cent., especially as those in the target audience for personal accounts are most likely to be on low incomes?
Secondly, when Lord Turner announced the proposals, he talked about a deal whereby for every £1 that people put in, they got £2 out. How much of the target audience does the Secretary of State estimate will get £2 out for every £1 put in? Does he agree that because of the extent of means testing, not just in the pensions system but in relation to housing benefit and council tax benefit, many people will not get that kind of return?
Thirdly, will the Secretary of State confirm that he has now had to abandon his original ambition that nobody should be worse off through personal accounts? Will he confirm that he acknowledges in paragraph 79 of the executive summary that a small group of peopleprobably about 10 per cent.will not see any benefit at all from saving? Does not he agree with the PPI analysis that that group might be bigger than 10 per cent., and that women with caring responsibilities, older people, the self-employed and those on housing benefit might find that they lose moneyin some cases, 85 per cent. of their savingsin personal accounts?
Is not there an enormous price to be paid for the consensus that the Government have secured, and the deal that the Secretary of State has done with the Chancellor of the Exchequer? Was the Secretary of State incorrect to say, in the early part of his statement, that he is building on a firm foundation in the basic state pension? Is not the flaw in all the proposals that he is building on too low a basic state pension with too much means testing and that, as a consequence, he might find it difficult to persuade many people on low incomes to save in personal accounts, and he or his successors might even be accused of state-sponsored mis-selling in future?
The hon. Gentleman made some wider observations. Our reforms to the state pension will, for the first time, provide a genuinely robust platform on which people can save with confidence for the future. As for means testing, many people on income-related benefits in retirement can still expect to receive more than they contributed on the basis of personal accounts. As I made clear in my statement, even the very small minority of pensioners who could face a greater withdrawal of benefits during retirement might receive a positive payback from their saving by taking a lump
sum, potentially reducing interaction with benefit entitlement. Certainly the large majority of people can expect to benefit from saving in personal accounts.
Mr. Hutton: Yes, the vast majority can expect to benefit from that or an equivalent scheme. Even people on savings credit can expect to get back more than they contribute, even when account has been taken of any pension credit offsetstwice as much, in the case of long-term savers.
I hope the hon. Gentleman will want to reflect on what he has said today, and will not go about trying to undermine the personal accounts scheme as he has today. I think he is wrong in his basic analysis of the level and extent of means testing in the system. I have tried to respond to his points today, and I dare say I shall continue to do so; but I consider his proposed reformthe universal state pension, which I think he believes would deal with all those pointsto be simply unaffordable. It would run up massive and unsustainable tax burdens for future generations, and that alone undermines his fundamental analysis.
John McFall (West Dunbartonshire) (Lab/Co-op): I congratulate the Secretary of State on his scheme for low income earners who have been excluded from the savings market. He will recall the Treasury Committee report on the subject, which highlighted the need for low charges. The evidence that I have received from private companies to date suggests that they are thinking of management charges of 0.6 per cent. and above.
Low charges are critical. Turners comments are salutary. If we take the figure of 1.3 per cent. for stakeholder products, individuals income over the lifetime of a pension is 20 per cent. less. I want to hear a robust statement from the Secretary of State to indicate that the 0.3 per cent. management charges envisaged by Lord Turner and his colleagues will stick, for the sake of low income earners and their pension pot at the end of the day.
Two things will make it possible for any Minister at the Dispatch Box to say with confidence in the future that the vast majority of people will gain from the new personal accounts system. One is the employer contribution, and the other is the low charges that will be associated with it. As I have said today, we believe that in the long term it will be possible to get down to 30 basis points for the delivery of personal accounts. It will, however, be the job and responsibility of, first, the delivery authority and then the personal accounts board to negotiate with pension providers and the industry to establish the right basis on which charges will be handled in the scheme. We are consulting on that, but let me repeat what we said when we responded to my noble Friends report, and what I have said today. We believe that this system can be run within the funding band that Turner set out, and if we can achieve that it will be a huge boost to the pension incomes of many middle and low earners in this country.
Mr. Henry Bellingham (North-West Norfolk) (Con): I welcome some of the changes in the White Paper. As the Secretary of State probably knows, I represent a number of Albert Fisher pension scheme victims, most of whom are in their fifties, and have lost 22 years worth of occupational scheme benefits. Is the Secretary of State aware that as matters stand, my constituents will receive some assistance from the financial assistance scheme, but that will give them only 50 per cent. of their original pension at retirement date? Is there anything in the White Paper that will help the Albert Fisher Group scheme victims, who feel very let down?
Mr. Hutton: As the hon. Gentleman knows, we have put £2.5 billion into the financial assistance scheme to provide support for those closest to retirement. I also repeat what I pointed out earlier: his Front-Bench colleagues have no plans to increase investment in the FAS. Therefore, his principal concern is with his Front-Bench colleagues, rather than with Ministers.
Mr. Chris Mullin (Sunderland, South) (Lab): I welcome the announcement, but may I press my right hon. Friend a little further on who will gain and whether anybody will ultimately lose out? As he knows, one of the commonest complaints among people on modest incomes with modest occupational pensions is that when they retire they find that they are worse off, or not much better off, than people on benefits. How will this new personal account address that problem?
Mr. Hutton: The account is part of a suite of reforms that include significant changes to the state pension system. The reforms will make it more generous and extend its coverage, taking most people who have a lifetimes worth of contributions and work well clear of the means-tested threshold, so they will be able to keep what they save in the national pension saving scheme. It is for that reason, and for others, that we are confident that the vast majority of savers will benefit from being a part of the personal account scheme.
Mr. Mike Weir (Angus) (SNP): I generally welcome the proposals in this paperwhich are a step forwardnot least because my party proposed something similar three years ago, but we do have some concerns. Given the recent problems with pension schemes and endowmentsand even Farepakthere is widespread suspicion of private savings schemes, especially among the lower paid, and I was concerned about what the Secretary of State said about private involvement. Will he tell us a little more about how this scheme will be presented to the general public? Will they receive a personal account from the delivery authority or a private provider? For many people, the idea that the scheme has state backing will do much to establish it.
I also noted what the Secretary of State said about auto-enrolment and I support that principle, but will he be a bit more specific? Is there an opt out from auto-enrolment, and, if there is, is it restricted to those who opt out of the scheme into an equivalent scheme with an employer, or is there to be a general opt out?
Finally, although the scheme would be welcomed, does the Secretary of State not agree that it would work much better ifto borrow his own wordsthere was a firm foundation for pensions through the introduction of a citizens pension?
Mr. Hutton: It was very generous of the hon. Gentleman to claim ownership of the idea behind the reforms, although I am unsure whether history will bear him out on that. I welcome his general support for the reforms; I thought that we were creating a big tent, but I did not think it would be that big. I cannot say with any confidence, however, that the hon. Gentlemans proposals for Scottish independenceas I understand themwill help smooth the introduction of these reforms.
Mr. Hutton: I think the hon. Gentleman says that that is irrelevant, but it is highly relevant to the future of personal accounts. It is impossible to imagine how Scottish independence will in any way advance the cause of introducing a proper, sensible and sustainable pension settlement in the United Kingdom.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): The Secretary of State rightly talks about restoring confidence in the future, which started to be eroded about 20 years ago when the Conservatives introduced personal pensions, which were mis-sold. Although the proposals are welcome in helping to restore confidence in the future, two things are needed. We do not need financial advice alone; we also need far better financial education, because many people do not understand the advice that they are given. Secondly, I say in the friendliest of terms that we would further our cause more if we were seen to be accepting the ombudsmans report as well.
Mr. Hutton: I was going to say that I was grateful to my hon. Friend, and I very nearly was. In relation to pension schemes that have failed, we have introduced the financial assistance scheme, and we also have the Pension Protection Fund, looking at schemes that might run into difficulties in the future. Those two reforms are a major advance, and I hope that they will be seen as putting in place strong and effective protection.
I strongly agree with what my hon. Friend says about the need for financial literacy and education. Having, I hope, secured the general agreement of this Housealthough the details have still to be discussedwe now face a challenge. We must consider how we spend the next three or four years educating the public about these reforms and explaining them, so that, when they take effect in 2012, the public are aware of the product and understand the benefits to them of saving. It is of vital long-term interest to the pension system that millions of people who are not saving start to do so. They will not be able to do that successfully unless we, the personal accounts board and the delivery board put considerable time and effort into communicating the benefits of these reforms and of pension saving.
Dr. Vincent Cable (Twickenham) (LD): Given that the White Paper accepts that as many as one in 10 people will lose out as a result of membership of the schemeaccording to the Pensions Policy Institute, the figure is one in fivewill the Secretary of State guarantee that, from the outset, there will be a fully independent and generic system of financial advice to prevent such errors from being made?
Mr. Hutton: Yes, that is our intention, and it is absolutely essential that proper education and information be available for people at the beginning. It is clear that some will not gain from being in personal accounts, which is precisely why we are not compelling people to join them. There is the opportunity to opt out, which is the ultimate safety mechanism, but the hon. Gentleman and his colleagues must not conclude that, because some will not get a sufficiently significant return to make it worth while, no one will. That would be a huge mistake.
Miss Anne Begg (Aberdeen, South) (Lab): Like many Members, I welcome todays announcement. My right hon. Friend mentioned reforms to the basic state pension. How will the state second pension sit alongside the newly created NPSS?
Mr. Hutton: The reforms that we are proposing for the state second pension will certainly aid simplicity and clarity and lead eventually, I hope, to a better understanding of pension entitlement. The state second pension is almost the most indecipherable part of the state pension system. A highly complicated formula is used to calculate eligibility and entitlement, and we are movingas the system itself inevitably isto a more flat-rate system by 2030. That will aid simplicity and clarity, help people to understand exactly what they have accrued as an entitlement, and help to inform a wider calculation of what is in their best interests to save.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I welcome the fact that the White Paper is aiming for the simplest scheme possible. In that connection, what is my right hon. Friends thinking on the choice of funds to be made available? Does he agree that although it is obviously important to have a choice of funds, it has to be relatively limited, else some of the benefits of simplicity will disappear from the scheme? What is his concept of, and thinking on, the range of risks available and the various options open when funds are selected by individual account holders?
I agree with my hon. Friend, but our research indicates that as many as one in five potential scheme members joining personal accounts have expressed a preference for some form of choice, and it is important that the scheme offers them that. However, such choice must not compromise the schemes simplicity, as he rightly emphasised, oras I
have been trying to stress todaythe benefits of a low-cost system. The default fund that I mentioned will have an element of life-styling, so the risk will be spread for those who are in it. Alongside that, we envisage a number of bulk-bought funds that might, for example, cover low, medium and high risk for people who want to exercise such a choice, and some branded products. The precise menu available to those who join personal accounts obviously needs to be worked out in detail between now and 2012 by the personal accounts delivery authority and, eventually, the personal accounts board. As I said, it is right and proper that the board be independent of Ministers, so that it can take the right decisions in the best interests of scheme members.
Mr. Chancellor of the Exchequer, supported by Mr. Secretary Hain, Secretary Ruth Kelly, Mr. Stephen Timms, Dawn Primarolo, John Healey and Ed Balls, presented a Bill to permit expenditure in preparation for the imposition of a tax on the increase in the value of land resulting from the grant of permission for development: And the same was read the First time; and ordered to be read a Second time on Wednesday 13 December, and to be printed. Explanatory notes to be printed. [Bill 37].