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(3) No recommendation shall be made to Her Majesty to make an Order in Council under subsection (2) above unless a draft of the Order has been approved by resolution of each House of Parliament.. [Mr. Waterson.]
(2) The condition is that it appears to the Secretary of State that in excess of 29 per cent. of the population over state pension age will, at the time of the introduction of personal accounts, be entitled to claim pension credit or another means-tested benefit.
New clause 7 is concerned with the design of personal accounts. As you know, Mr. Deputy Speaker, that is the new system that the Government have introduced to encourage pension saving, which is based on the proposals in the Turner report. So that there is no doubt, the official Opposition wish the personal accounts system to succeed, so we wish it to be designed properly. We do not wish to inherit a system that is flawed or designed to fail. New clause 7 is largely taken from that part of the Government White Paper that sets out the criteria for the operation of personal
accounts. However, there is a serious philosophical difference between the Government and ourselves on this part of the Bill. They are far too keen to set up the personal accounts delivery authority and leave it to the authority to sort out the detailed design of personal accounts and make all the difficult decisions. We do not see it that way at all. There are serious issues that need to be addressed now, and in the next pensions Billthere is always another pensions Bill around the cornerby politicians. I am not suggesting for a moment that we should second-guess the experts on the detailed technical stuff, but it is the job of politicians to make decisions about the broad structure of personal accounts and the way in which they sit alongside existing pension provision.
I am delighted that we are supported by such bodies as the Association of British Insurers, which we heard about a little earlier, and the National Association of Pension Funds. The ABI, in its briefing that it produced for the debate, states:
The Delivery Authority needs sound governance and clear objectives...They should be set out on the face of this Bill, which is not currently the case.
take account...of the potential impact on the existing pensions market, including the need for a level regulatory playing field; ensure that Personal Accounts are designed to focus on the target market
...and avoid taxpayer subsidy by ensuring all costs are ultimately recovered.
the PADA should be given clear statutory objectives in this Bill.
In particular, we think it is vital that PADAs objectives include minimising the impact of Personal Accounts on existing good quality pension provision.
Indeed, at a seminar on 16 January this year, which I was not privileged to attendI cannot imagine what I was doing that daythe Minister told an NAPF audience that the personal accounts system would have
a specific legal objective of ensuring that the impact on the existing market is minimised.
We need to hear more about whether he has resiled from that position, intends to accept our new clause, or merely intends to put that clear legal objective into the next pensions Bill. The NAPF goes on to say that
PADA should be set an objective to ensure that it operates in such a way that does not interfere with existing occupational or personal pension schemes.
On Monday this week, at a seminar organised by Scottish Widows, Mr. Robert Wyllie of Scottish Widows had some trenchant things to say along similar lines. He talked about the target market, the initial capital requirement of between £1 billion and £2 billion for establishing personal accounts, the need to enshrine the lack of a Government subsidy for the delivery authority, and the need for a level playing field. Of the contribution limit, which I will deal with in more detail in a moment, he said:
Frankly there is no way to guarantee that Personal Accounts will not lead to some degree of levelling down.
At the same seminar, the highly respected pensions guru, Mr. Alan Pickering, said that it was the role of politicians to make these key decisions rather than the people running the delivery authority.
Many of the points set out in the new clause are, I hope, largely uncontroversial, not least because they were, as I say, lifted almost word for word from the Governments own White Paper. I particularly want to concentrate on paragraphs (a), (b) and (e). Paragraph (a) refers to
ensuring that the overall outcome, taking account of the impact on the existing market, is an increase in the number of people saving and the overall amount being saved,
optimising levels of participation and contribution among the target group,
minimising the impact on other high-quality pension provision.
The best indicator of that is the Governments attitude to the contribution cap. The Turner commission could not have been clearer in its recommendation that it should be set at £3,000, and the official Opposition agree with that level. It is a ground for genuine concern that the Government inexplicably announced that they wished to increase it to £5,000, which would mean that personal accounts could include nearly 95 per cent. of existing pension savers, thereby straying a long way from the concept of the target audience. We were therefore delighted when in a recent answer at DWP questions the Secretary of State said that he was reconsidering the level of the cap. That is a relief for us, as an increase to £5,000 would be unacceptable and would jeopardise the future of consensus building between the main parties.
Some argue for an even higher cap or no cap. With all due respect, I believe that they are misguided and fail to grasp that the point of personal accounts is to target the unpensioned. We therefore wish to make it clear that the success or failure of personal accounts crucially depends on increasing not only the number of savers but savings overall.
Proposed paragraph (b) is self-explanatory. The point is to optimise participation among the target group as defined in the Governments White Paper. Proposed paragraph (e) expresses our concern about the dangers of levelling down. It is said that some levelling down has already occurred and, with more than 60,000 schemes closed on the Governments watch, that can hardly be denied. The Minister is fond of saying that there is currently nothing to stop levelling down. However, how many companies, having calculated the cost of increased participation based on auto-enrolment, will be tempted to close their existing and more generous schemes and point their employees towards personal accounts? It will be all too easy for the contribution levels inherent in personal accounts to be perceived as the norm, whereas they will not deliver a comfortable retirement.
Much work remains to be done on restricting transfers, exclusions and the sort of quality mark that the NAPF proposes for existing schemes. However, the contribution cap is an important litmus test of the Governments true intentions in the Bill. Do they genuinely intend to target those groups in society that do not save for their retirement, or are they more concerned with the back-door nationalisation of the most successful private pensions system in the world?
New clause 29 deals with means-testing, which is a cancer that eats away at saving for retirement. It can be intrusive and demeaning and it is no guarantee that help will get to those who need it most. Pension credit has tested to destruction the theory that means-testing is the answer to poverty. Some 1.5 million people who are entitled to pension credit do not claim it, and some 2 million pensioners live in poverty in this country. The ABII am happy to rely on its views on the matter and on many other issuesstated that much greater clarity was needed on the Bills impact on future levels of means-testing. That is absolutely right.
There are conflicting views about means-testing, even in Government. The Chancellor is keen to extend the number of people who depend on the state. He has vastly increased the number of people who are employed by the state. Approximately a third of peoplemore in Scotlanddepend on the state for all or part of their livelihood. Nearly 50 per cent. of pensioners are already subject to means-tested benefits.
To their credit, Department for Work and Pensions Ministers, in extolling the virtues of their pension reforms, point to the fact that, if we go on as we are, some 80 per cent. of pensioners will be means-tested by the middle of the century. On any view, the likely amount of means-testing after the reforms will be crucial to the success or failure of personal accounts.
As the official Opposition, we naturally wish savings to be restored to the sort of levels that prevailed under the previous Conservative Government. Will personal accounts achieve that? I believe that the answer depends on whether means-testing can be reduced significantly. It was clear, even before the Bill was introduced, that significant differences existed between the Governments projections on means-testing and those of independent bodies such as the Pensions Policy Institute. It reaches sharply different conclusions from those of the DWP.
James Purnell: I just want to clarify the intention of the hon. Gentlemans new clause. We already have a situation in which more than 29 per cent. of pensioners are means-tested in retirement, and the figure was more than 29 per cent. when the Conservative party was in power. It is also forecast to be more than 29 per cent. in 2012. Is the hon. Gentleman saying that the Conservatives would not introduce personal accounts unless the figure dropped below 29 per cent.? If so, what is their plan to get the figure below that level?
Mr. Waterson: I am delighted to tell the Minister that I shall deal with those very points in a moment. He will probably already have guessed, however, that this is a probing new clause, albeit an important one that is designed to squeeze out of him a commitment to reducing means-testing to those kinds of levels. I shall develop the point that he has raised in a moment.
a base case of no change from todays level of 45 to 50 per cent..
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