Richard Burden (Birmingham, Northfield) (Lab):
I think that most Labour Members do understand the relationship between the two issues. My right hon. Friend the Secretary of State asked the hon. Gentleman a question earlier and I am still struggling to understand
whether he has provided an answer. It is a question not of whether there is a relationship between means-testing and automatic enrolment and possible problems there, but of what he would do about it. What is he suggesting? I still have not heard anything from him on that.
My concern is that if the issue is not addressed, the reforms will be launched with a huge hole below the waterline and I do not want the next Conservative Government to have to pick up the pieces. The problem is straightforward; the interaction between means-testing and these reforms means that some people who are encouraged to save for retirement, or are auto-enrolled to save for retirement, will derive no benefit from doing so because they will not be able to save enough money to provide them with a pension income that is greater than they would have received anyway from means-tested benefits. The point made by my hon. Friend the Member for Bromsgrove (Miss Kirkbride), who is no longer in her place, was that that issue will become more pronounced because of the link between earnings and the pension credit threshold. That is a fact; it is not a statement of intent one way or the other about the pension credit threshold increasing in line with earnings. We do not know how many people will be affected.
The Minister for Pensions Reform (Mr. Mike O'Brien): I am listening in bewilderment. Today, one in six people are automatically enrolled into their pension schemes. Many of those who have been automatically enrolled today are on pension credit because their second pension has not put them above the levels to which they should be entitled. Is the hon. Gentleman now suggesting, as he did on Radio 4s Money Box, that every pensioner in that position today and from here on would have to have their contributions refunded? Would every private pension scheme have to do that? Is that what he is suggesting?
Chris Grayling: The Minister has to remember that he is auto-enrolling people on low incomes on to pension schemes. The Secretary of State said that he was going to make it difficult for people not to auto-enrol.
Mr. Frank Field: It is really important for Labour Members to understand the point. There are difficulties now and my hon. and learned Friend the Minister for Pensions Reform made a legitimate point about people being compulsorily enrolled into existing employer schemes. Universal enrolment is a different ball game and I for one do not share this supposed consensus about how wonderful the reform will be.
We do not know how many people will be affected. The Pensions Policy Institute has made some guesstimates; it has highlighted particular at-risk groups, such as people in their 40s and 50s or people who will rent in retirement, who are said to be particularly at risk. But it seems pretty clear that the number of people who could lose out amounts to hundreds of thousands. I for one do not think that that is good enough.
Mr. Heald: Is it not also right to reflect on who these people are? They are people who, at the moment, do not save because they spend all their money on essential items. We are asking those people to make a sacrifice if they are to be part of the personal accounts scheme. They should not sacrifice essential items for nothing.
Chris Grayling: My hon. Friend is absolutely right. Interestingly, my next remark was to be precisely what the Minister just said; Ministers will say that this is a problem for everyone who saves for retirement. This is different, because people are being auto-enrolled for personal accounts. The Secretary of State made it clear that he wanted it to be difficult for people not to auto-enrol.
Mr. O'Brien: Let me just repeat for the hon. Gentlemans benefit that, today, one in six pensioners are automatically enrolled. It is a gold standard that we want to provide universally. That is not a major change. It is a change in numbers, but it does not change the basis of his argument. Is he saying that all those people who, under previous Conservative Governments and under this Government for the past 10 years, have been automatically enrolled into a pension scheme ought somehow not to have been automatically enrolled and should have some sort of compensation? Does this matter now have to be dealt with before he can accept that auto-enrolment has to go further?
Chris Grayling: I fear that the Minister still does not understand the issue. Parliament is legislating to auto-enrol everyone in this country who is not currently in a pension scheme in a system that the Secretary of State says is designed to make it difficult to opt out from. These are low-cost products in the pensions market. No one will be able to afford to provide these people with personal advice about whether they should or should not save. They have to take the decision themselves. We live in a country where, as we know, people have a propensity not to save.
Mr. MacNeil: As people are saving for tomorrow, they will presumably have less money in the present. Does the hon. Gentleman anticipate that there will be any increase in Government support through mechanisms such as family tax credit to compensate for what people will lose in the present for their future savings?
We know that people in this country have a propensity not to save. By any current standard, the local authorities pension scheme offers attractive benefits, yet local authorities struggle to get all their employees to enrol. We can understand why: we are talking about people who are earning some of the lowest wages. Most people earning £12,000 a year would rather not put aside money out of a tight household budget each week to save for retirement.
What will happen? Whatever I say, or Ministers or other people say, in 2012or whenever plans are now due to be launchedthe same story will be written. Does anyone in this Chamber honestly believe that in 2012 Sun money or Mirror money or the money
column in our local papers will not write stories saying that because of means-testing some people will lose out if they save in a personal account? Does anyone honestly believe that that will not happen? Does anyone honestly believe that some small employers faced by an unwelcome increase in their wage costs will not quietly show those stories to their employees? Does anyone honestly believe that employees generally will not chat about these issues in the pub or the sandwich queue? Does anyone honestly believe that the number of people who decide to opt out of personal accounts will not increase as a result, with the consequence that future generations and future Governments will have to bear a much larger cost for means-tested benefits than they would have done had these reforms worked as intended?
I simply do not understand why Ministers are behaving like ostriches with their head in the sand. Having a proper debate about solving the problem would not undermine the consensus; it would strengthen it. Ministers seem convinced that providing generic advice to potential savers will do the job, but how much real advice do they think they can provide to people from a low-cost product that will have to pay off the start-up costs of the first years of its operation and that will be at the lowest possible end of affordability within the pensions market?
The Minister asks what we should do. Many alternatives have been suggested to the Government. Two detailed approaches have been produced by the Pensions Policy Institute, looking at potential options such as raising the limit for trivial commutation. I have suggested to Ministersit is only a suggestion and I would happily talk privately to them about itthat we might be able to offer those who lose out some form of money-back guarantee, perhaps through a higher lump-sum entitlement. However, Ministers do much to undermine the concept of consensus by not saying in response, Thats an interesting idea; well take a look at it; instead, they accuse us of making uncosted commitments and coming up with ideas without foundation. They do not seem to understand that nobody except them has the ability to work all this through in detailnot Her Majestys Opposition, not the Liberal Democrats, not the right hon. Member for Birkenhead (Mr. Field), not the PPI, not the CBI, not the Association of British Insurers. Only the Secretary of State and the Minister have access to the necessary modelling, data and information to be able to look properly at the optionsto be able to look at how much it would cost us to do nothing and how much it would save us to do something.
Will the Secretary of State carry out a proper public assessment of the available options? Will he look at all the alternatives that have been suggested and what they will cost? Will he look at the cost implications of higher or lower levels of take-up, and the impact on the cost of means-tested benefits in the future? Will he do that work? He has the teams of people to do itI do not have them, and nor do the Liberal Democrats. After he has done that work, will he lay a paper before this House? We could then have private and public meetings; let us discuss these issues and between us try to work out a solution. The Secretary of State cannot refuse to have such discussions and to provide access to his databases and to allow all of us to look at the options, and then accuse us of undermining the consensus; that is not good enough.
Hugh Bayley: I have a point to raise before the hon. Gentleman leaves the subject of means-testing. One way to get away from the problem described would be to reduce the value of means-tested benefits. I would not want that to happenI would not want there to be any reduction in eligibility for pension credit or a reduction in the uprating rulesbut is that what the hon. Gentlemans party has in mind? Does it have in mind reducing the value over time of pension credit?
Chris Grayling: The trouble is that whenever we try to engage in a constructive discussion of what we might do, a Labour Member pulls the debate back to a simplistic option. None of us has any desire to reduce the amount that our pensioners, and particularly our poorest pensioners, receive. I happen to think that the Government have introduced a means-testing system that is much too complex, but I have no desire to remove money from the pockets of the poorest pensioners; they struggle enough as it is. Nevertheless, it is important to get this matter right. The hon. Gentleman should understand that; he should have a private chat with his colleague the right hon. Member for Birkenhead, who understands these issues far better than any other Labour Member. There are many other aspects of the Bill that need to be properly debated, but this is one that they must get right.
Mr. Graham Stuart: Does my hon. Friend share my dismay at the approach of Ministersand, indeed, of many other Labour Memberswhich is one of indifference to the most vulnerable in our society, who could spend decades paying into something that does not benefit them? This is not insincere indignation on our part; it is a genuine concern. It is extremely disappointing that the Secretary of State fails to take this issue seriouslyand, perhaps, to give figures at the Dispatch Box todaynot least for those who may well lose out if we do not get this right.
Chris Grayling: My hon. Friend is right. I hope that a Minister will, either now or in the closing remarks, say, Yes, were happy to do that. Were happy to open our books and have a dialogue, and to work through models and alternatives, and to make all that public and let the Committee discuss it, so we can really work through this issue properly. I still hope that they will offer to do that.
Ms Gisela Stuart:
I am genuinely puzzled. The hon. Gentleman does not make a sufficiently clear distinction between state pension provision and occupational pension provision. Let us consider any modelling or any actuarial assumptions that he might choose. Employment patterns, for example, have changed over the past 10 years. Even the Government Actuary has had to keep changing assumptions over the past 10 years. There is a notion that if we talk for long enough we will arrive at the proper answer. The Turner report tried to reach a compromise between what the state does and what the individual does. Tapering of benefits has always been a problem. The hon. Gentleman needs to be a little clearer about what he considers to be the alternative to the Governments answer to long-recognised problems.
Essentially, he has slagged off the Government. The hon. Gentleman also should not patronise us by saying we do not understand, as some of us have been Members for longer than him and have been interested in pensions for longer than him. I have no sense of what he is proposing, other than that he does not like what we are proposing.
Chris Grayling: If the hon. Lady really had taken an active interest in pensions for all those years she would understand both the difference between a DB scheme and a DC scheme in terms of the issue of mis-selling and that the original Turner report made its recommendations on the assumption that there would be no expansion of means-testingindeed, that the opposite would be the case. I have made a request to the Secretary of State and the Minister in the spirit of the consensus of us all wanting these reforms to work. I hope that that will be taken up in the winding-up speech or at any stage over the next few weeks, as it is essential that we get this right.
Let me turn to other areas where there remain issues that need to be debated. Ministers need to explain in much more detail how they are addressing the issue of levelling down. Concerns have been raised about that in the debate, and it has been raised as a concern by the PPI and actuaries over the past few weeks. Ministers have not had that much to say about it. The Secretary of State tried to reassure us but did not address all the issues. There is a danger that many small employers will choose to close down existing provision, including some of the stakeholder schemes that got off the ground as part of the Governments last set of reforms. The risk is that if levelling down does take place the amount saved will be affected and there will not be the increase in overall saving levels that we want to see.
Ministers should remember that the success of these reforms will depend not only on attracting more savers, but on generating higher overall saving. That is why the Secretary of State must do better in ensuring a level playing field for different types of pension provision, and particularly different types of pension product. It would be disastrous if existing provision were downgraded because it was easier to operate a system of personal accounts.
That is why the Governments failure to sort out the issue of auto-enrolment for group personal pensions is so disappointing. There is no logical reason why auto-enrolment should be acceptable for personal accounts but not for group personal pensions. We know that, in fact, the reason that has not happened is European law, but why have not Ministers sorted this out in Brussels? Does anyone actually believe that the Secretary of States French counterpart would not have sorted things out by now? There might even be solutions that avoid Brussels altogether. There have been detailed discussions between the Secretary of States Department and the industry, which has identified possible solutions to this problem, but he and his team have not acted on them. Why not? Will he introduce amendments to the Bill in Committee that will address this issue?
Kelvin Hopkins: Would the hon. Gentleman be prepared to accept the high level of contributions to social provision that employers in France make? Does he think that that would go down well with his friends in the CBI?
A number of important technical aspects of these reforms also need to be debated in detail, and I hope that Ministers will be ready to listen to sensible advice on them. We know that this Bill has been rushed into the House for entirely unrelated parliamentary reasons, and, as a result, too many details remain unresolved and too many clauses leave most of the important elements to subsequent regulations. We will need a lot more information as it is considered in Committee. Let us take the example of lump-sum contributions to personal accounts. Many groups are arguing that people who save in personal accounts should be able to make one-off contributions to them. I understand the logic of, for example, allowing people who take a career break to make catch-up contributions, but Ministers must not forget the nature of the product that they are launching. A pension plan that allows only 0.3 per cent. for running and marketing costs is going to be as basic as basic can be in the pensions world. Proper advice to savers is not going to be available. I am not convinced that it would be right to encourage payment of lump sums such as an inheritance into a personal account when proper independent advice cannot be obtained first. I hope that Ministers will address that issue as the Bill goes into Committee.
Ministers must handle the enforcing of auto-enrolmentthe Bill does not contain all that much on thiswith extreme care. There is rightly a duty of auto-enrolment on employers, and there will rightly be a sanctions regime for those who do not comply; equally, we know that employers are going to be at the sharp end. They will receive questions from employees about what to do, and they will be unable to avoid ending up in some form of discussion with them. There is precious little in the Bill to explain how those conflicting pressures will be balanced.
There is also far too little in the Bill about the role and remit of the personal accounts delivery authority. We want to see a much clearer definition in the Bill of the role of the authority and its successor body. We want clear provisions that prevent mission creep in the years ahead. The authority will become, if not the biggest, certainly one of the biggest pension organisations in the UK. If we are not careful, it could have a significant and disruptive impact on other aspects of the pensions market. It has an important role to perform, but that role should be properly defined and set in statute.
We also want to see rapid progress in the governance of the new authority. At the moment, its board is made up of a chief executivewho clearly has had one or two friendly conversations with the Minister in the past few weeksa highly controversial chairman and a non-executive director from the TUC. The Secretary of State and its current directors need to do a lot better than that if the authority is going to operate in the way that it should.
I want to touch on two final points, the first of which relates to the regulatory package in the Bill. The Governments proposals are a useful step, but they also represent a missed opportunity. The job of this House should be to ensure that adequate regulation is in place
to provide the protection that investors rightly expect, but it is not our job to do the pensions industrys job for it. Over the past decade, the Government have interfered much too much in the detailed management of pension schemes. They have made it more difficult to run schemes, more difficult to adapt to changing circumstances and more difficult to innovate. That should change. Many of the professional bodies in this field have put forward ideas that have the potential to help pension provision evolve and improve; some of them require deregulatory measures of a kind that this Bill simply does not address. We will press the Government in Committee on such improvements, and I hope that Ministers will respond constructively to those discussions.
My second point relates to the timing of the measures set out in the Bill. As the Secretary of State knows, the reform package introduced by his predecessors had a specific target start-date of 2012, and he is required to set a date for the re-linking of the basic state pension to earnings by the end of this Parliament. Given that this Parliament came within one green bottle of ending last October, can he confirm definitively to the House today when the full reform package will come into force? Will it be introduced in 2012? We now know about the discussions that have taken place on personal accounts, but will the rest of the packagein particular, the re-linking of the state pension to earningsstart in 2012? I will happily take an intervention now from the Secretary of State if he wants to answer that question; if not, I ask the Minister to address it in his winding-up speech.
This Governments track record on pensions in the past 10 years has been lamentable. They have presided over the rapid decline of our pension system and let down many of our most vulnerable elderly people. Their past efforts at reform have failed abysmally. The one man on the Labour Benches who appeared to have any idea how to tackle our pensions challenge had his ministerial career summarily terminated by the then Prime Ministerprobably because he is smarter than him. I want these reforms to work and this Bill to make a difference not just because they are right for the pensions of tomorrow and for all our futures, but because we fully intend that a Conservative Government will implement these reforms in four years time.