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Mr. Frank Field (Birkenhead) (Lab): Earlier, it sounded as though hon. Members were going to be slightly crabby about the success that the Secretary of State, the Minister for Pensions Reform and staff elsewhere have achieved with the settlement. I do not want that event to passperhaps I will catch Mr. Speakers eye later and be able to say morewithout saying that the Secretary of State and his team have delivered what previous Secretaries of State and their teams failed to deliver to that group of workers, and we should put on record what an achievement that is.
Mrs. Madeleine Moon (Bridgend) (Lab): In my constituency, 4,000 people receive pension credit, which affects more than 5,000 families. How can we ensure that people, many of whom are in low-paid jobs, are prepared for saving and are equipped to deal with the impact of saving further reducing their income in order to allow them to prepare for retirement?
Mr. Hain: That is the fundamental objective of the Bill and of the policy that will be delivered around it. My hon. Friend is right; like her, many of my constituents had low incomes when they worked, and life in retirement would have been dire for many of them without the pension credit. Life was dire for such people before 1997, but they have had a major increase in prosperity since then. We must join together, because the consensus around the Bill, which was assembled carefully, has been important in taking the Bill forward.
Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): Will the Secretary of State consider ways to remove the disincentives on personal responsibility? Perhaps he should consider Help the Ageds idea of at least investigating an income disregard scheme, which would allow the maintenance of some means-tested benefits. Many people at the margins feel that pensions involve robbing Peter to pay Paul.
Mr. Hain: That proposal is being kept under discussion with Help the Aged, which, as the hon. Gentleman knows, has been very supportive of the Bill and is keen that it gets through the House as quickly as possible. Its proposal has significant cost implications, which must be borne in mind.
Of those of working age, around three quarters say that they will need more than the state pension to live on, yet only around 40 per cent. of those who have not yet retired are saving in a private pension. We must get to the point at which saving becomes the norm and a savings culture is embedded in society in general and in the young in particular. Sixteen per cent. of 20 to 24-year-olds are saving for a pension, compared with about half of those aged over 35. Less than half of moderate to low earners with incomes from £5,000 to £35,000 are saving towards a pension, compared with three quarters of those earning more than £35,000. Automatic enrolment into a qualifying pension scheme
introduces for the first time such a presumption to save. Evidence suggests that automatic enrolment is one of the most effective ways to combat peoples tendency not to act when faced with difficult financial decisions. It also has the greatest impact among groups where participation rates are the lowest.
The Bill will introduce a mandatory duty on employers automatically to enrol their workers into a qualifying pension scheme. Many employers are already making substantial contributions to pension schemes and supporting their employees in saving for retirement. To make the package of reforms successful, however, the Government need all employers to play their part. That is why all employers will be required to contribute to their workers pensions a minimum of 3 per cent. on a band of earnings for defined-contribution schemes, as recommended by the Pensions Commission.
Dr. Nick Palmer (Broxtowe) (Lab): We are all concerned that employers in marginal industries do not pressurise their staff to opt out. Is it not an incentive to employers to do so that if an employee opts out, the employers contribution also falls away? If an individual decides to opt out, it would be better if no financial benefit were to result to the employer because of that decision.
Mr. Hain: Despite the best intentions of legislation, it is sometimes difficult universally to enforce rights such as those introduced by this Government on the minimum wage and employment rights, and my hon. Friend has alluded to that problem with regard to small employers and small businesses. However, there will be a legal duty on employers, who would disobey the law and who would be liable to prosecution if they were to use an underhand method, such as recruiting somebody on the basis of a nod and a wink that they would not be in a pension scheme. If that were to happen, that employer would breach the law. It will be difficult to opt out unless there is a good reason to do so.
Ms Sally Keeble (Northampton, North) (Lab): Will my right hon. Friend explain what will happen on empty hours contracts and on employers who deliberately structure contracts to ensure that people do not qualify in order to get round the measure?
Mr. Hain: The Bill includes various restrictions on contracts. Zero hours contracts, especially as they apply to migrant workers, are a curse on too many communities around the country. Such contracts result in people turning up to work in the morning, only to find that there is no work and that there is no obligation to provide it. A pension would clearly be affected by such a situation, which reinforces our duty to ensure that the law is enforced. The law will be clear after the Bill is enacted.
John Penrose (Weston-super-Mare) (Con):
The Secretary of State has discussed what he hopes will be the effectiveness of automatic enrolment in getting more people to become part of schemes, but is he concerned that it will affect some of the wrong groups of people? He has mentioned those in the early stages of their working career, for whom such a scheme might
not be a sensible financial decision. The Government are trying to get round that problem with generic financial advice, but does he agree that there are currently no examples anywhere else in the world of generic financial advice provided with the level of detail and on the scale required to make the system work properly in the UK? If he cannot make the system work in the UK, what is plan B?
Mr. Hain: I am going to deal with that problem in a few minutes, and the hon. Gentleman can come back to me at that point. We are doing something very radical; I do not think that there is anything like this anywhere else in the world, which is why it is so important to get it right and deliver it with the maximum consensus.
As a result of our reforms, between 6 million and 9 million people will either be newly saving in a workplace pension or saving more than they would have been. That includes more than 1 million people currently in workplace pension schemes who are getting either nothing or less than 3 per cent. from their employer. We anticipate that up to 7 million individuals may join the new national scheme of personal accounts. It will be a simple, low-cost pension saving scheme targeted where the need is greatest: moderate to low earners currently without access to a workplace pension scheme.
The scheme will have low charges, allowing employees to keep more of their savings, and their contribution, combined with that of employers and tax relief from the Government, means that their own pension contributions will be at least doubled up front. All employees will now have the chance to save, and having a pension will be the norm. That will transform the savings culture in the UK, boosting overall pension contributions by around £10 billion annually by 2015. Automatic enrolment into a pension scheme is widely recognised as the most effective way of combating inertia and myopia.
About one in six employees are working for firms that already offer automatic enrolment, which include some of the most highly respected companies in the UK. The Bill will extend that opportunity to those currently without such access. We recognise that designing and delivering such a pension scheme is not a job for the Government and therefore we have set up the personal accounts delivery authorityPADAto advise on, design and bring about the implementation of the reforms. We intend to extend the remit of PADA to enable it to design and build the infrastructure for the personal accounts scheme. We will also ensure employers compliance with the new duties through the pensions regulator, who has proved to be a very effective regulator of UK occupational pensions over the last two years. The regulator is best placed to deliver an effective compliance regime that does not overburden employers. It will be a light-touch regime, but it will deal effectively with those who refuse to comply.
Politicians from all parties are often accused of putting too much emphasis on sending messages, but it is important that a clear message from the whole House is sent to those who may not face retirement for decades but who need to prepare for it now. That is why maintaining the consensus that was built up on pension reforma greater degree of consensus than on virtually any other complex policy issue in my experienceis so important. If people are to have the confidence to invest in pensions
for the future, they need to know that the rules of the game will not be changed by a future Government. Help the Aged, the Equality and Human Rights Commission and Age Concern, as well as key representative bodies such as the Engineering Employers Federation, the TUC and the National Association of Pension Funds, have publicly acknowledged and emphasised the importance of maintaining the consensus.
I read that the hon. Member for Epsom and Ewell (Chris Grayling) has reserved his position on the Bill, hinting that he and his party may ultimately vote against it. I say to him that we all have a duty to place the long-term interests of future pensioners ahead of short-term party positioning. It would be simply reckless for the Conservatives to abandon the hard-won consensus on pension reform and vote against the most momentous change in pensions since the introduction of the state pension a century ago.
Chris Grayling (Epsom and Ewell) (Con): The Secretary of State just quoted the National Association of Pension Funds at my party. Let me quote it back at him. It believes that without addressing the means-testing issue and its interaction with automatic enrolment, the Government could undermine the whole reform process. Does the Secretary of State accept that he still has work to do?
Mr. Hain: Is the hon. Gentleman saying that because of an argument over what has been described by the CBI as a finer detail of the Bill, he is going to vote against it? If he is going to, may I ask him why he has broken with the consensus established by his predecessor, the hon. Member for Runnymede and Weybridge (Mr. Hammond)? On 9 May, he said to the Pensions Age conference:
Despite the obvious scope for political point-scoring in an environment where long-term, and sometimes difficult, decisions have to be taken, the Opposition is ready to engage in a consensus building exercise.
The hon. Member for Runnymede and Weybridge also said, on GMTV, that the Conservatives would not vote against the Bill because they wanted to see the consensus maintained. I fear that the hon. Member for Epsom and Ewell likes grabbing headlines, but not looking at the long-term interests of pensioners in this country.
Mr. Hain: Of course it is important that we get it right, but I want to know whether or not the hon. Gentleman will support the Bill. If he has lit upon what has been described by the CBI as a finer detail of the Bill, he can move amendments in Committee, and they will be considered by Ministers. But is he saying that if he does not get 100 per cent. of whatever he is proposingno one has the faintest idea what he is proposing, and I am not sure that he doeshe will sabotage the consensus on the Bill? In the Financial Times on 6 November, the chief executive of the National Association of Pension Funds, Joanne Segars, said:
Personal accounts provide an opportunity for millions of people who will benefit from them to save for retirement for the first time. It would be a pity to see that damaged by people unnecessarily breaking the consensus.
a difference of opinion over the finer details of the bill.
Pension stakeholders from the City are clear: the promise for future pensioners embodied in this Bill must not be put at risk by disagreements about the finer details, still less by political posturing.
Mr. Quentin Davies (Grantham and Stamford) (Lab): What we have just heard from the Opposition is really quite extraordinary. Has it not been the clear rule in this House for generations, and indeed for centuries, that a vote against a Bill on Second Reading is not a disagreement with its detail, but a disagreement with and rejection of the principle of the Bill? It is quite clear that the House is confronted by an Opposition who reject the very principle of the Bill. Otherwise, a vote on Second Reading has no meaning. They want to kill it at the outset. They do not want it to get into Committee, they do not want to look at the details and they do not want to improve it. They have made that absolutely clear this afternoon.
The hon. Member for Epsom and Ewell seems to be backing away. He likes to grab a headline by threatening to vote against the Bill, as he does the whole time, through his spin on various policies, but now he is confronted with a decision, it will be interesting to see what he does in the Lobby. He seemed to indicate in the Financial Times today that he was not going to vote against Second Reading, but he is also continually seeking to derail the progress of the Bill. He may vote against it on Third Readingwho knows?
Before closing I want to address head-on the issue of means-testing and whether it pays for people to save, which was raised earlier by the hon. Member for Weston-super-Mare (John Penrose). The hon. Member for Epsom and Ewell raised questions on this point in the Financial Times today. He previously proposed a refund of contributions for those people who get less means-tested support in retirement because they have contributed to personal accounts.
I ask the House to keep in mind three points. First, our pension reforms lead to less means-testing rather than more. Secondly, those who receive means-tested benefits should still be better off in retirement if they save. The Governments creation of the savings credit, together with the right for all to take a pension lump sum, ensures that. Thirdly, nobody can be sure which individuals will end up needing means-tested support.
What we can say is that few aspire to that, so we must say with a united voice that the downside of people not saving outweighs the small risk of their saving and later regretting that in 30 or 40 years time, when individuals might be in who knows what predicaments.
I also have one simple question for the hon. Member for Epsom and Ewell. Does he stand by his announcement regarding a scheme of refunding contributions or has he recognised that such a scheme would result in chaos and threaten not just Government finances, but the finances of pension schemes throughout the country?
Mr. Graham Stuart: I am grateful to the Secretary of State for giving way. A lot of the misgivings that hon. Members throughout the House feel about the Bill are to do with punishing those with least who have saved when it is not in their interests to save. The Secretary of State has just said that everyone will be better off from having saved, including those on means-tested benefits, but that is not true of everybody. That gets to the nub of my misgivings about the Bill, namely that some of the poorest and most vulnerable people will put money in, but see either no benefit or so little that they would have been better off not investing in the first place. Will the Secretary of State address that point head-on?
Mr. Hain: Obviously if an individual was in a position where pension credit would be forthcoming a short time before retirementthe default position, as it wereit would not be in their interests to contribute to a personal account, and they would sign the form to opt out. That is just common sense. However, what I do not understand about the Oppositions line of attack is this. The hon. Member for Epsom and Ewell is talking about a situation 25, 30 or 40 years ahead, but what is he saying? He is saying, in effect, that we should simply just leave it to the taxpayer, and start a scare almostthat is what the Opposition are doing with all this noiseand thereby discourage people on low incomes from contributing. Those people will then end up in a worse situation and the taxpayer will have to bail them out, unfunded and at an unpredictable level.
The hon. Gentleman also does not take into account the proposals on trivial commutationthat is, to switch some of the contributions into a lump sum of potentially £16,000, an amount that could be kept under review. In other words, by all means let us debate the detail, but let us not use that as an excuse to derail the progress of the Bill.
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