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22 Apr 2008 : Column 1194

Mike Penning (Hemel Hempstead) (Con): May I take the Minister back a few moments, to when we were discussing the armed forces? I fully appreciate that most members of the armed forces would not wish to opt out, least of all those who serve 22 years-plus. However, there is a group of people who leave the armed forces early and wish to transfer their rights into another scheme. For instance, when I left the armed forces—the Grenadier Guards—I transferred my rights into the fire service. I appreciate that the Minister may not be able to answer me now, but this is a very important issue for those of our armed forces who are not going to serve for 22 years but have a pension provision to take with them. Will any parts of the Bill affect their right to transfer into other schemes?

Mr. O'Brien: To some extent, but it would not affect the sort of situation that the hon. Gentleman identifies with people transferring from the armed forces into the fire service. Because there are restrictions on the amount that can be transferred into personal accounts, the person concerned would not be able simply to transfer in a certain amount. One of the approaches that we have taken is to say that there is no transfer in and no transfer out of personal accounts, so amounts are not transferred in in that way. Many employers who currently have pension schemes will continue with those schemes. The personal accounts scheme is there as a default scheme for employers who do not have an adequate occupational pension scheme. Our intention is that employers who already have good-quality occupational pension schemes should continue with those schemes.

Mike Penning rose—

Mr. O'Brien: I will give way, although I am anxious to make some progress.

Mike Penning: The point that I was trying to make is that there are tiny amounts frozen within the armed forces schemes, which are useless in the long term as regards when people will get their pensions, but would be useful if they could be transferred into the personal accounts scheme.

Mr. O'Brien: I have a considerable degree of sympathy with that point. As part of the process of developing a consensus, we arrived at the “no transfers in and no transfers out” rule. However, I have repeatedly been told that some employees, including members of the armed forces, have quite small pension pots and that leaving them there is a hassle, so getting them into personal accounts or another scheme would be a better way.

However, some of the providers of pensions, and particularly insurance-based products, have concerns about the provisions that allow transfers in, even of small pension pots. We have said that at the start, transfers will not be allowed into personal accounts. However, we will review the situation in 2015, with a view to ensuring that we look at the matter again. My personal view, which is not reflected in the Bill because it is not part of the consensus, and we have reached an agreement, is that it should be possible to transfer in small pension pots, because it will just be a hassle if that cannot happen. There is no such provision in this Bill, but there will be a review in due course, and at that point, I hope that the practice will be allowed.

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4 pm

Mr. John Redwood (Wokingham) (Con): If the Crown were found by a court to have behaved unlawfully under new clause 17, what redress and disciplinary action could and should follow from such a finding?

Mr. O'Brien: The court would then have to determine what it was able to do, under the provisions relating to various immunities and so on, and what redress there would be. That would be a matter for the court to determine. Obviously, such redresses are limited.

I commend the new clause to the House.

Mr. Waterson: I begin by echoing the Minister’s opening remarks. I thank all members of the Committee—some of whom have retained their enthusiasm for the Bill, while others clearly have not—the officials, Clerks and everyone else involved. I pay particular tribute to my hon. Friend the Member for South-West Bedfordshire (Andrew Selous), who sadly cannot be with us today because of ill health. He made a signal contribution in Committee, and as a former officer in the Territorial Army, he did so in particular on the provisions concerning the armed forces and reservists.

New clause 17 seems fairly clear to me; I suppose it might be called the “Backstairs Billy” new clause, dealing with those employed directly by the Queen or members of the royal family. Sadly, Backstairs Billy is no longer with us, so he will not be able to benefit from the provision. It is right that the Crown’s direct employees are swept into this provision. My right hon. Friend the Member for Wokingham (Mr. Redwood) made a point about enforcement a moment ago; as I understand it, the best that the Pensions Regulator can do is apply to the courts for a declaration that the Crown has failed to comply with any of the duties set out in clause 40(1), which concerns the enrolling of employees into the system of personal accounts. There is no criminal liability at all. I believe that the matter is based on legislation concerning the working time directive. I guess that we will just have to rely on the sovereign doing the decent thing when such a declaration is made.

The important issue of reservists was raised in Committee by my hon. Friend the Member for South-West Bedfordshire, who felt quite strongly that the distinction between regulars and Territorials has been eroded in recent years. Many Territorials spend a great deal of time on active service in Iraq, Afghanistan or wherever, and therefore they should not be treated any differently from regular members of the armed forces. It was helpful to hear both what the Minister said and what he set out in the letter he wrote to the Committee in February, in which he made clear that reservists can accrue their own benefits under the reserve forces pension scheme.

The Territorial Army, in particular, is a component part of the reserve forces and there is pension provision for reservists who are mobilised or who enter into commitments that require regular attendance under the Reserve Forces Act 1996. However, I remain keen to hear from the Minister about the level of contribution, as well as about the level of likely pension benefit for regular members of the armed forces who have what I
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assume is, in all essentials, a non-contributory defined- benefit scheme. It is important to see not only what the likely benefits will be over a given period, but what contribution the taxpayer will make.

I am sure that the Minister would agree that, broadly speaking, the benefits obtainable under that scheme should be at least as good as those that would be available under personal accounts, albeit without the contribution from the employee, in this case a member of the armed forces. I suspect that if there is any inadequacy in that comparison our colleagues in the Lords will wish to come back to the issue at some stage. Broadly speaking, however, we have no difficulty at all with the new clauses or the amendments in the group and would be happy to see them in the Bill.

Mike Penning: I should like to delay the House briefly to comment on what the Minister said. I understand that he has reached a consensus on people opting in or out of the provisions in the Bill and that he feels it difficult to move from that until 2015. However, the armed forces are an exceptional group of people, the vast majority of whom do not serve their full 22 years—or these days up to 30 years. When welcoming members of the armed forces from my constituency back from Afghanistan, I met someone who has just agreed to do another five years after serving for 22 years and who even hopes to do another five after that, making 32 years’ service in the armed forces. However, that is quite rare. The vast majority of men and women in our armed forces serve for between three and five years. The amount of money in the pension pots that they accrue is minuscule. The administrative costs on the state—in this case on the MOD—of running those schemes from within, rather than their being opted out of, into another Government scheme that could be administered separately, are huge as a proportion of the benefits of the scheme.

I would like the Minister to look into the issue again and to reconsider that exceptional group of people earlier than 2015, to see whether he could reach a consensus among the members of the other groups with which he has been dealing. I am sure that they would understand that our armed forces are particularly affected. There could be groups of people who have served for short periods in the armed forces—perhaps they served only in training, but were injured through no fault of their own and had to leave the armed forces. It seems ludicrous that there should be a tiny pot that will sit until they are 60 years old, but which could be brought into such schemes quite easily.

Mr. Mike O'Brien: First, to respond to the point that the hon. Member for Eastbourne (Mr. Waterson) made, the level of contribution will vary according to the rank and, I would imagine, the length of service of the various individuals.

Mike Penning indicated assent.

Mr. O'Brien: I am getting nods from those who have served in the armed forces and are better informed. However, I will write to the hon. Member for Eastbourne on levels of contribution.

The hon. Member for Hemel Hempstead (Mike Penning) made his point well and I have sympathy for him. That point came up during our evidence sessions in Committee
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and we heard various views on it. The concern among some stakeholders is that there will be a transfer into personal accounts of a significant number of pension schemes, which some of those running such schemes are concerned might lead to what is called a levelling down of the quality of provision. To avoid that, we have said that that should not happen at the start. That provision will run on, and we will look into it when we hold the review.

The process will start in 2012 and the review will happen not long afterwards. In any event, there will be a three-year running-in phase. Reaching the compromise involves precisely the problem that the hon. Gentleman has identified; I do not dispute anything that he has said. Some people will end up with very small pension pots not being transferred in, although it would be better to do so. However, this is part of getting broad consensus and support and, although it is not what we might otherwise have wanted, it is a price worth paying to get everyone to sign up to agreeing that this is the right way to proceed. I understand the hon. Gentleman’s point. Indeed, it was discussed in Committee. Having said that I sympathise with him even though I cannot deliver exactly what he wants, I hope that he will none the less offer his support to the new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 18

Armed Forces

Brought up, read the First and Second time, and added to the Bill.

New Clause 19


Brought up, read the First and Second time, and added to the Bill.

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New Clause 1

Start date of personal accounts

‘The pension scheme established by the Secretary of State under section 58 of this Act shall commence operation with effect from 1st April 2012.’.— [Mr. Waterson.]

Brought up, and read the First time.

Mr. Waterson: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss the following:

New clause 3— Costs incurred by Pensions Regulator-

‘The set-up costs incurred by the Pensions Regulator in carrying out its duties under Chapter 1 of this Act shall be funded from the Consolidated Fund.’.

New clause 4— Costs incurred by Personal Accounts Delivery Authority-

‘The set-up costs incurred by the Personal Accounts Delivery Authority in carrying out its duties under section 58 of this Act shall be recouped through charges to members over a period of five years from 1st April 2012.’.

New clause 5— Financial assistance to Personal Accounts Delivery Authority-

‘Any financial assistance given to the Personal Accounts Delivery Authority by the Secretary of State must include conditions about repayment and interest at commercial rates.’.

Amendment No. 15, in clause 66, page 33, line 7, leave out paragraph (b).

Amendment No. 16, page 33, line 9, leave out subsection (4).

Amendment No. 9, in clause 69, page 34, line 11, at end insert—

‘(3A) The Authority must within 12 months of the passing of this Act, and at such other time as the Secretary of State directs, publish a report analysing the potential impact on the financial position of a scheme under section 50(1) of different rates of—

(a) take-up of,

(b) persistency in, and

(c) contributions to

the scheme, and setting out appropriate options for managing the financial risks associated with different outcomes.

(3B) In preparing the report under subsection (3A) the Authority must have regard to such independent actuarial advice as it considers appropriate.’.

Amendment No. 13, in clause 70, page 34, line 31, at end insert—

Amendment No. 27, in clause 72, page 35, line 13, leave out ‘grants’.

Amendment No. 28, page 35, line 15, leave out from ‘(which’ to end of line 16 and insert—

Amendment No. 14, page 35, line 16, at end insert—

‘(3) For the avoidance of doubt, all the costs incurred by the Authority in establishing the pension scheme under section 58 of the Pensions Act 2008 (c. ) shall be recouped through charges to members over a period of five years from 2012.’.

Amendment No. 10, in schedule 1, page 62, line 11, leave out ‘grants’.

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Amendment No. 11, page 62, line 12, leave out from ‘which’ to end of line 13 and insert—

Amendment No. 12, page 62, line 14, leave out from ‘may’ and insert ‘is required to make’.

Mr. Waterson: It is a great pleasure to commend to the House new clause 1 and the associated new clauses and amendments in this group. This group falls neatly into two distinct categories, and it is important for hon. Members to understand that there are two major issues involved. One is the commencement of the personal accounts system. The second is what was referred to in Committee as the level playing field issue, namely the extent to which personal accounts will or will not compete on equal terms with existing alternative pension provisions.

For once, I can say with hand on heart that there is no shadow of a doubt about the Government’s policy. It is that the new system should commence in 2012. Of course, even that is a couple of years late, because the Turner commission originally foreshadowed personal accounts as a new system to be set up in 2010. None the less, the Government have made it abundantly clear—as did the Minister in Committee—that 2012 was to be the start date, and that continues to be the Government’s firm intention.

We might therefore wonder why a similarly worded amendment in Committee did not find favour with Ministers. New clause 1 is pretty simple in its drafting, and all that it seeks to do is to ensure that personal accounts established

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