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Does he not know that the crisis is here and now, and has been for some time? Does he not realise that savings in this country are at their lowest since the 1960s—a point touched on by the hon. Member for Nottingham, South (Alan Simpson)? Does he not remember that just before Christmas he and his colleagues were finally forced into a humiliating U-turn over the 130,000 pensions victims? I do, however, join my hon. Friend the Member
for Epsom and Ewell (Chris Grayling) in paying tribute to the Secretary of State’s role in persuading the forces of darkness in the Government to relent on the issue.
Does the Secretary of State not know that nearly 2 million pensioners are living in poverty and that the worst-off pensioners are getting poorer in real terms? He has talked about restoring the earnings link for the basic state pension, but he still will not tell us when that is going to happen— [Interruption.] If the Secretary of State wants to intervene, I shall be happy to give way. He talks about taking action, but his Government have been in power for 10 long years, having presided over the pensions crisis and been responsible in some measure for it.
In his press release, the Secretary of State also holds to the line that personal accounts will come into effect from 2012. Is he really still in a position to make that remark in the light of the comments of the new chief executive of the personal accounts delivery authority on Radio 4? When that point was put to the Minister for Pensions Reform, he was good enough to say that he had told the chief executive in no uncertain fashion that he, the chief executive, would introduce them in 2012. That is the equivalent of the military saying, “Take this objective or do not come back alive.” It would be interesting to hear in the Minister’s winding-up speech what response he got from the new chief executive.
We shall have more to say in Committee on the role of PADA, the principles that should drive it and the criteria for its success. Simply to increase the number of savers without substantially increasing the overall amount of savings in this country would clearly constitute failure— [Interruption.] I welcome a former and distinguished Pensions Minister, now the Minister for Energy, to our debate.
One of our main concerns is about so-called levelling down, which was mentioned by the hon. Member for Aberdeen, South (Miss Begg) and my hon. Friend the Member for Castle Point (Bob Spink). Let me be clear about where we stand on the issue. We do not wish to see anything in this legislation that might give extra encouragement to an employer already making more generous contributions than those envisaged in personal accounts to close an existing scheme. PADA must focus on its target group—predominantly those on low incomes with no or inadequate pension savings. That is a real concern, not one dreamt up by the Opposition.
The Pensions Policy Institute has set out various scenarios in a recent report, rather snappily entitled “Will Personal Accounts increase pensions saving?” One of the models that it comes up with is very sobering, but it considers a range of possible scenarios, the most pessimistic of which could result in only 4 million to 5 million new savers in work-based pension schemes. It notes that there is a lot of uncertainty about how employers will respond to the reforms, and goes on to say:
“This poses the question of whether the reforms would be considered successful if they did not increase annual total pension contributions but did increase the number of people saving and made the distribution of saving more equal.”
Soberingly, under its pessimistic scenario, the overall size of pension saving would shrink, despite a healthy
amount of personal accounts, because of the levelling-down effect on existing provision. Ministers need to think long and hard about how we do what we can to ensure that that scenario does not come to pass.
After five years of a rearguard action, the Government have finally agreed that the 130,000 pension victims should get proper compensation. Ministers seem to think that they deserve three cheers for that, but it has taken far too long to face up to doing the decent thing. Let me remind the House that in the meantime some of the victims have died, others have had to work beyond normal retirement age, sometimes with serious medical conditions, and all have faced the prospect of penury.
Mr. Frank Field: Is not there an important distinction to make in charging the Government with failure to act sooner while congratulating the current two Ministers who were successful where previous ones failed?
Mr. Waterson: I am happy to accept that form of words, because it summarises what I have been trying to say and what my hon. Friend the Member for Epsom and Ewell said in opening the debate.
There is nothing about those victims in the Bill as it stands. It could have been in the previous Bill if hon. Members had voted for our lifeboat amendments or had been given the chance to include it by the Government. However, we will consign that to history. What we want to know now is when the relevant amendments to the current Bill will be tabled. Provided that the small print delivers what Ministers have promised, we can assure them that that part of the Bill, at least, will have our enthusiastic support. Prior to last year’s election that never was, my party promised that if we won that election we would ensure that payments reached the victims within three months of our taking office. Can the Minister confirm that these payments will be made as soon as possible, and certainly within that time scale?
We welcome the parts of the Bill that tackle deregulation or simplification—they will have our broad support, as we have already made plain. However, the plain fact is that the future of traditional defined benefit schemes is hanging in the balance—a point well made by my hon. Friend the Member for Ryedale (Mr. Greenway). This may be the last chance to remove as many as possible of the disincentives to good employers who want to keep those schemes open in the future. We think, with respect, that Ministers are being too timid, and we shall table amendments that have the support of organisations such as the Association of Consulting Actuaries so that we can take matters further. I hope that Ministers will give those amendments serious and sober consideration.
The main reason why we will not support the Bill in the Lobby tonight is that Ministers are still clearly in total denial about the potentially damaging effects of means-testing—an issue touched on by the right hon. Member for Birkenhead and others. At least the Secretary of State, judging by his press release, now accepts what he calls the “downsides”, but how can he say that those downsides
“far outweigh the small risk of saving and later regretting it”?
I am sorry, but I do not agree with the hon. Member for Broxtowe (Dr. Palmer), who talked about a safety net and means-testing simply being there in case something goes horribly wrong. We are talking about means-testing that is already affecting nearly half of
people as they retire. The Pensions Policy Institute and others have set out some genuine concerns that go to the very heart of these proposals, but the Government are the only organisation in a position to model the likely effects and to come up with detailed proposals to avoid disaster. All Ministers seem to be able to do is come up with bland assertions that it will be all right on the night. They are sitting on their hands and hoping that the problem will go away.
The situation is worse than that. In recent weeks, Ministers have tried to shut down any debate on the issue. They have tried to bully the Opposition and even third parties into silence on this crucial point. It has been put like this: the Tories are letting the side down and making party political points for the sake of it, whereas what matters is the majority of people who should be better off with personal accounts. [ Interruption. ] I have that more or less right, I think, judging by the reaction on the Government Benches. However, that is simply not good enough. If Ministers wish for consensus only on their own terms, they have come to the wrong shop. We are interested in consensus only if our concerns and those of other people are listened to and taken seriously. That point was also taken up by the hon. Member for Inverness and other places, all of which seem to have a distillery—the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander).
If consensus merely delivers ill-thought-out and poorly designed solutions to the pensions crisis, it is a force for ill and not for good. In its usual painstaking way, the Pensions Policy Institute has identified at-risk groups—people who will be no better off and may be worse off if they are auto-enrolled into personal accounts. However, the institute cannot tell us how many people are likely to be affected. The Government could tell us if they wanted to. They have the model, the manpower and the means. However, they seem to be doing nothing. That issue was touched on, I think, by the hon. Member for Birmingham, Northfield (Richard Burden).
Can the Minister for Pensions Reform tell us what modelling, if any, his Department has done, is doing and intends to do on this subject? How many people does he think are likely to be in the at risk groups—thousands, hundreds of thousands or even millions? Surely he has some idea. His answer may be that he and those advising him have not given it much thought, but I must tell him that the issue will not go away. That point was made by my hon. Friend the Member for Beverley and Holderness (Mr. Stuart). The subject will be written about by journalists, raised by financial advisers and used by unscrupulous employers who wish to induce their employees to opt out. I can assure the Minister that the official Opposition will not let it drop—not because we wish to make life gratuitously difficult for Ministers, but because we are genuinely concerned, as are many interested third party organisations, that the problem, if it is not addressed, will undermine the success of personal accounts.
Mr. MacNeil: Will the hon. Gentleman give way?
Mr. Waterson: I am sorry, but I do not have time.
I can tell the Minister that my colleagues and I are already working with independent bodies and the House of Commons Library to try to find the answers
to those important questions. We will do that in parallel with the passage of the Bill. The process will no doubt be more laborious and will take longer than if the Department was doing it itself. If it will not, we will. Perhaps there is another more selfish motive for our attitude. We do not wish to inherit the problems in government. We wish to be the ones who implement a system of personal accounts that is designed to succeed and not set up to fail. To misquote Marks and Spencer, that is because there is no plan B.
9.43 pm
The Minister for Pensions Reform (Mr. Mike O'Brien): Let me begin by saying that I will take no lessons from the party that introduced pensions holidays for employers and the 1986 Lawson cap on surpluses that saw a drop in contributions. The Conservative party was responsible for the mis-selling scandal, the inadequate Pensions Act 1995, the so-called minimum funding requirement introduced by the right hon. Member for Richmond, Yorks (Mr. Hague) after the Maxwell scandal, and the 2.7 million pensioners left in poverty, some living on as little as £69 per week. Those who had a private pension had their benefits taken from them, pound for pound—a situation unlike that under this Government, who introduced the savings credit. The Conservative party also removed the earnings link. A little more humility from Conservative Members is therefore necessary.
Having got that off my chest, let me say that the debate has been broadly good. Despite the usual knockabout, there has been a fair amount of consensus. There were strong contributions from my hon. Friends the Members for Broxtowe (Dr. Palmer), for Birmingham, Northfield (Richard Burden), for Grantham and Stamford (Mr. Davies), for Aberdeen, South (Miss Begg), for Nottingham, South (Alan Simpson), for Leyton and Wanstead (Harry Cohen) and for Northampton, North (Ms Keeble), from the hon. Members for East Londonderry (Mr. Campbell) and for Caernarfon (Hywel Williams) and from my right hon. Friend the Member for Birkenhead (Mr. Field). The hon. Member for Northavon (Steve Webb), who is, I suspect, even more of an anorak than I am about pensions, made an especially lively contribution. He appears to be following the great tradition of Gladstonian Liberalism in seeking fallen women, albeit only those who have fallen behind with their national insurance contributions. He deserves much credit for that.
We heard some more critical but considered contributions from the hon. Members for Castle Point (Bob Spink) and for Ryedale (Mr. Greenway), as well as a series of interventions from many others, some of which were more helpful than others. I do not have time to deal with all the points that were made but I hope to be able to tackle many of them in Committee.
One of the key issues in the debate was: will it pay to save? It was raised by Conservative and Liberal Democrat Front Benchers as well as the hon. Member for Ryedale and my hon. Friend the Member for Nottingham, South. It is a genuine and important matter, but the potential solutions are far from easy and often expensive. I am happy to discuss them in detail in Committee. However, the difficulties of resolving the issue should not undermine the need to support the Bill, promote personal responsibility, build confidence in pensions and be fair to the taxpayer in the process.
For most people, the downside of not saving far outweighs the risk of saving and later regretting it. Some people will find that their lives did not turn out in the way they expected. Some people who saved for a pension end up on pension credit.
Mr. MacNeil: Are not we in danger of setting up a monopoly with the personal accounts delivery authority? If contributors find a better product elsewhere, how easy will it be for them to transfer? Will they be stuck with the monopoly that has been established?
Mr. O'Brien: The personal accounts delivery authority is there for development. The hon. Member for Epsom and Ewell (Chris Grayling) was wrong about it. The PADA will not become the organisation that delivers personal accounts. That will be done by the personal accounts board, which is a follow-on organisation. [Interruption.] The hon. Member for Na h-Eileanan an Iar (Mr. MacNeil) is signalling—I have no idea what about, so perhaps he had better intervene again.
Mr. MacNeil: Regardless of whether there is to be yet another body, which could be a monopoly behind a monopoly behind a monopoly, what sort of competition will there be to achieve the best return for the investor?
Mr. O'Brien: There will be widespread competition with the private sector—those who currently provide various schemes. We hope that they will continue to do that. The idea of personal accounts is that they will complement rather than compete with current provision. We want the current provision to stay and we expect many people who benefit from automatic enrolment to be automatically enrolled not into personal accounts but into the private pension scheme that the employer is currently running.
Chris Grayling: The Minister obviously did not hear me correctly because I referred to the delivery authority and its successor body. Will he assure the House that there will be a constructive debate in Committee on the amount of prescription that should appear in the Bill about the remit of the two bodies to ensure that there is no mission creep in the years ahead?
Mr. O'Brien: Of course, there will be a debate in Committee and I am sure that we will have a substantial opportunity to consider all the issues. I look forward to that.
Let me deal with one of the hon. Gentleman’s key points, which was whether it will pay to save. People will face health and employment problems—the sort of risks that we all face in our daily lives. It is vital that, if those problems arise, and people retire without adequate provision, there is a state safety net for them. Most people should still be encouraged to save, which is what the Pensions Commission recommended and what we are seeking to encourage as part of the process of pension reform. By disproportionately focusing on those people who might get low returns because of health or employment problems, we need to avoid creating a problem by which those who would benefit from saving lose out. We therefore need to be careful about how the debate is developed. We should ensure that those who
could benefit substantially from years of employer contributions and investment returns are enabled to do so, and we should not encourage people to gamble on what benefit levels will remain in place for the next 20, 30 or 40 years.
The hon. Member for Epsom and Ewell has been very vocal on the issue, and he has gone to great lengths to try to rewrite Conservative social philosophy. He told the BBC that the state should give an explicit guarantee to those who save, which is an innovative idea. He has asked me to welcome innovative ideas, and I am certainly interested in that idea, which I want to discuss because it seems to undermine the idea of individual responsibility. It would create an administrative nightmare, and it would probably create a nightmare for the hon. Member for Tatton (Mr. Osborne), who would have to find the money to fund it. Where would he find that money?
Let us look at the detail of what the hon. Member for Epsom and Ewell has said. He wants to create a
“mechanism that would allow people to retrieve contributions”.
What does he mean by that? Let us explore the idea. Is he saying that he wants only those in personal accounts “to retrieve contributions”, or will that apply to every pension scheme now and in the future? Or is he saying that all private pension schemes should make provision to repay premiums to anyone who gets less than pension credit levels?
Is the hon. Member for Epsom and Ewell saying that pension schemes with automatic enrolment should have to repay the premiums? That is what he seems to be saying. Today, one in six people are automatically enrolled—they work for companies such as Tesco. Some of them will retire, and some of them will be on pension credit. Is he saying that those pension schemes must repay those premiums? Or is he saying that the retrieval mechanism would apply only to personal accounts, in which case would that not give personal accounts a competitive advantage against private schemes by providing a state guarantee? That would be an extraordinary step for the Conservatives to take. I am sure that the pensions industry would not be terribly impressed by those proposals, which would mean that it would have to repay anyone who is on pension credit. If he were in government, he would have to come up with a plan to pay the extra funding for all the people who would have to claim extra pension credit. It is an ill-thought-out proposal.
Chris Grayling: I simply ask the Minister what he is going to do.
Mr. O'Brien: I have set out the various problems arising from the various proposals in a number of speeches. It has been suggested that we should increase trivial commutation, which would be very expensive and likely to lead to some wealthy people using it as a way to avoid taxation. A further option would be to deal with the issue by having a disregard, which has been proposed by the Pensions Policy Institute, but the cost would be enormous at more than £600 million. If it were to apply only to personal accounts, the cost would still be substantial, and applying it across the board to other sorts of pension schemes would be enormously expensive.
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