If the Liberal Democrat spokesmenboth the hon. Member for Rochdale (Paul Rowen) and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander)want to meet Tim Jones, he would be delighted to do so. The hon. Member for Eastbourne is probably aware that the hon. Member for Wantage (Mr. Vaizey) has already met Tim Jones to discuss some of the cost issues and some other issues, including those of commercial confidentiality as contracts of a substantial value will be offered to set up the scheme. It is therefore important that the schemes commercial confidentiality,
and therefore its viability, is maintained. For that reason, with due undertakings from the hon. Members concerned, I am sure that Tim Jones will be able to discuss some of the issues in detail, provided that that detail does not cross into the public arena, where it might prejudice the various contracts.
We are still four years away from the go-live date for a complex programme that delivers ground-breaking reforms. It would be ludicrous to stand here and say that there are not uncertainties, risks or events around the corner that might change how we see things. We must not lose sight of the fact that it is not just Tim Jones, the Pensions Regulator and the Government who need to deliver to make some of the reforms a success. For instance, the date for Royal Assent for the Bill is, to use a Donald Rumsfeldism, an example of a known unknown. We do not know when the Bill might be delivered. We have made good time in scrutinising it in Committee, but I cannot be sure, even with the best will of the House, of the exact date of Royal Assent. That means that I cannot be sure of the exact date that PADA will get the legal authority that it needs to begin to implement the personal accounts scheme. I anticipate that that will not have much impact on the delivery of the IT or the systems supporting the personal accounts scheme, but we will need to understand the impact on a range of supporting activity, including when we can deliver the information needed by employers and pension schemes so that they have time to prepare.
There are other unavoidable uncertainties, to use a different phrase. The pension accounts scheme will be unlike any other scheme in that it will be the largest occupational scheme in the UK, with 4 million to 7 million active members, and it will interact with nearly 1 million employers. It will be specifically targeted at a part of the market that, by and large, existing providers find uneconomic to serve. No other scheme has restrictions like a contributions cap, and it will be required to admit anyone eligible to join, irrespective of whether the revenue that they might bring in will cover the cost of their account. So although some of the infrastructure needed will already exist in the market, some of it will need to be developed.
We have made assumptions about how long the procurement and build processes will take, and they are good and robust assumptions, but we will not know exactly what is involved until PADA has engaged with potential private sector suppliers and found out what they can do and how they will deliver what we need.
We must also build into our plans the needs of employers, the pensions industry and individuals to ensure that they understand the reforms and can take the necessary steps to be ready for go-live. We have already said that we will bring employers into the reforms in stages and phase in the rate of contributions that they are required to make. We will need to get those aspects of implementation right and ensure that the right employers have the right information at the right time to meet their new duties. We need to avoid a big bang implementation so that the pensions industry, including the personal accounts scheme, and the supporting infrastructure such as advice services for employers and individuals can take on their new roles and responsibilities in a measured and controlled way.
It would be wrong for me to predict exactly what will happen on an exact date in 2012, but I am confident that that is a realistic start date for the reforms, provided that we get the staging and implementation right. That has been the basis of my conversations with Tim Jones, and I am happy for the hon. Member for Eastbourne to have conversations with him about his plans and the outcome of his review. As I understand it, much of that review is on charts and so on, so there is paperwork. If the hon. Gentleman wishes, he can look at the charts, which show the timing involved and various other thingsI had a glance at them, but I rely more on the discussions with Tim Jones than on all those charts, which he drew up for his own purposes.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): I very much appreciate the points that my hon. Friend the Minister is making, but they leave me with the feeling that the start date of 1 April 2012 for the personal accounts is now surrounded by a certain amount of doubt on practical grounds. Can he assure me that the year of 2012 will not be affected? He will obviously see the implications of that year, which we might come to later.
Mr. O'Brien: I do not know quite where my hon. Friend got the date of 1 April from, but 2012 has always been the year in which we have envisaged the scheme starting, and we continue to do so. That is the plan and the proposal, and it is what Tim Jones has been signed up to deliver and designed plans to implement. I acknowledge the hon. Member for Eastbournes point that the project is very big and has all sorts of implications, and in reply may I say that the plan is to start to deliver in the course of 2012. Let us see, when we get a little closer, what precise month or day in 2012 it will be.
It has always been envisaged that this will not be a big bang, and that the scheme will be phased in over a three-year period, with employers starting by making 1 per cent. contributions, then making 2 per cent. contributions in the following year and then 3 per cent. contributions. The scheme will not suddenly appear on one day in 2012 and all be in place. It will be a phased-in project. The question is when we are going to start the reforms, and the answer is 2012. That is what we envisage, but I accept some of the hon. Gentlemans points. There will always be issues that we must examine, not least when the Bill finally becomes law, and all of them will have to be factored into the management of any project date. As far as we are concerned, though, Tim Jones has done as we asked and drawn up plans for delivery in 2012. That is when we envisage that the proposals will come into force.
The second element of this group of amendments and new clauses relates to the funding arrangements for PADA, but first I shall say something about the Reuters story, which appears to derive from something said by a person claiming to have worked as a consultant at PADA for a time. The £500 million figure seems to be based on the Pensions Commissions assumption in respect of the loan needed to set up the scheme, an estimate that preceded two White Papers on pension reform, the Pensions Act 2007 and this Bill. We now know much more about the scheme, but we cannot say exactly how much it will cost until its full design, as well as the procurement of the services underpinning it, has been completed. Moreover, we cannot even begin those processes until this Bill has received Royal Assent.
This legislation authorises PADA to do the job for which the hon. Member for Eastbourne wants me to provide figures as to cost but, until PADA has started talking to the people who will provide its IT and other infrastructural requirements, it will be very difficult to know the costs involved. In any event, the size of the contracts means that anyone who had a detailed breakdown of the cost figures would be at a considerable commercial advantage. Because of that, I am happy for the hon. Gentleman to talk to Tim Jones, as long as the conversation is in appropriate confidence. We do not want to read about it in the papers afterwards, but I am sure that we can trust him in that regard.
Mark Durkan (Foyle) (SDLP): My hon. and learned Friend is right to say that it would be wrong to introduce the changes in a big bang on one day, as that would be like asking for a terminal 5 debut for something that is very important to a lot of people. However, some of us are worried that all the other costs being talked about might prevent him from delivering on his promise to consider certain other matters, such as the small number of schemes that are known to fall between the Pension Protection Fund and the financial assistance scheme. Will he assure me that the costs that we have been discussing will not have implications for any decisions made about those few schemes?
Mr. O'Brien: I know that my hon. Friend has concerns about those few schemes, involving a limited number of people, which fall between the FAS and PPF schemes because of the dates involved. I hope that we can move to deal with them in the other place, and I am still in discussion with colleagues to that end. I encourage him to retain some hope, but I cannot give him any guarantee. I want to make it explicit that I have still to talk to colleagues about some of these matters, although I assure him that this Bill will not affect the outcome of those talks.
John Penrose: I understand what the Minister has said about commercial confidentiality preventing him from saying too much about costs, but may I press him a little further on the matter? If PADA has done enough detailed work to know that the timings involved can be achieved, at least in theory, it must also have made some estimates of the costs involved. I appreciate that there could be commercial ramifications if we were to go into the detail of those costs, but will he offer the House some reassurances that the total costs being considered are not wildly different from the numbers that have been projected? It is important that the House understands that, because if the numbers are twice or three times as high as those in the projections, to choose a deliberately extreme example, the implications for the long-term overall costs of the scheme will be negative and very serious. Will the Minister at least give us the basic assurance that there are no show-stoppingly large and unexpected figures in the plans that he has seen so far?
Mr. O'Brien: The hon. Gentleman is right that there are time scales, and it looks as though they can be delivered on, all other things being equal, by 2012. There are also estimates about various contracts. Again, for the reasons that he gave, I do not want to go into that.
The hon. Member for Eastbourne is wrong when it comes to the figure of £500 million, which came from
the Pensions Commission years ago. That was just an estimate that it made. We have not, at this stage, put forward another, separate figure, but the figure cited is not the figure that we are aware of; however, I cannot go any further than that at this stage, as regards broad figures.
John Penrose: I suppose that the bottom line is that everyone will want reassurance that the Minister has not seen anything to lead him to believe that in the long term we will not be able to reach the target number of basis points of the long-term cost, which the hon. Member for Rochdale (Paul Rowen) mentioned earlier. Has the Minister seen anything that leads him to believe that that is not possible in the long term?
Mr. O'Brien: No, I have not seen anything that has led me to think that the charging levels are not achievable. I think that that is what he is asking about, and I have given him the answer as straight as I can.
Sir John Butterfill: While we are on the subject of costs, may I ask about the transition from PADA to the trustee body, which is not named as yet? What does the Minister think the trigger will be for the transition, and does it have an impact on cost?
Mr. O'Brien: If the hon. Gentleman is asking at what point we will make the transition from PADA to the Personal Accounts Boardthe delivery authority for the pension schemeit is envisaged that we will come to that point in 2012. That is when the Personal Accounts Boardthe trustee corporation, in effectwill take over and start to deliver a pension scheme. The aim of PADA is to create the mechanism that will deliver the scheme. The Personal Accounts Board, which will control the trustee corporation, will then provide a personal accounts pension scheme. It is envisaged that that will come into effect in 2012. Does that deal with his point?
Mr. O'Brien: There will be an overlap. There will not be a sudden cut-off of PADA and then creation of the Personal Accounts Board. There will be a period when the board runs alongside PADA in a shadow process. When PADA goes livewhen it starts taking in money and building up a pension schemethat is when we will know that the handover has in effect taken place. PADA may have to continue to exist for a short period thereafter before being wound up, so that we can ensure that the processes are properly carried out; there may be some advice given to it, and there may be services that it is providing. However, it is envisaged that PADA will start to wind up around 2012. I do not have an end date for it, but it will not go on long after that. It will then hand over completely to the Personal Accounts Board and the trustee corporation, which will run the pension scheme.
Let me deal with some of the issues in relation to funding. The unique nature of personal accounts will present a challenge in developing a funding strategy. Before any decisions can be taken, the authority must first complete the design of the scheme and commercial negotiations with private contractors. It cannot do this until after Royal Assent. The measures in the Bill provide it with a degree of flexibility in developing funding options. That is vital in ensuring that we do not rule out options that could later prove to be in the best interests of members.
However, we have been absolutely clear that any funding strategy must meet a core set of aims. We have always said that we would bring employers into the reforms in stages and that we will phase in the rate of contribution that they are required to make. We will need to get those aspects of implementation right, as well as ensure that the right employers have the appropriate information.
That is the basis on which we are proceeding, and we intend to ensure that that is how we deliver. The unique nature of personal accounts is the key. We want to ensure that the strategy delivers low charges to members, and that it is based on our intention that the scheme will be self-financing and delivered at no cost to the taxpayer in the long run. We want to ensure that the scheme is commercially viable, consistent with European law and not unfairly advantaged.
The hon. Member for Eastbourne tabled a series of amendments that seek assurances and answers to specific questions about funding. As I have explained and for the reasons that I have given, the authority is not yet in a position to provide all the detailed answers. Our intention is that the costs of setting up and operating the scheme would ultimately be recouped from revenues from membership charges. However, during the period of set-up and in the early years of operation, membership charges will not cover all costs. The Bill therefore contains provisions to allow the authority and trustee corporation to bridge the gap through borrowing, and for the Secretary of State to provide financial assistance through grants, loans, guarantees or indemnities. This does not mean that any of these specific provisions will be used, but it does mean that the authoritys ability to maximise value in its commercial negotiations will be strengthened.
Borrowing from the private or the public sector could be one option to achieve our intention for the scheme to be self-financing. However, that would be prevented by amendment No. 15, which is why I cannot accept it. New clause 5 and amendments Nos. 11 and 28 would require any loans from the Government to the authority or the trustee corporation to be made on a commercial basis. If there is any funding from the public sector, it is intended that that would not provide an unfair advantage and would comply fully with European state aid rules. This is a guiding principle of the funding strategy.
Amendment No. 16 appears to be designed to ensure that the independence of the trustee corporationthe Personal Accounts Boardis not compromised by the requirement to gain the Secretary of States consent for any borrowing or investment. The Bill clearly establishes the trustee corporation as independent of Government.
However, as a non-departmental public body, the trustee corporations financial arrangements would be taken into account in the Departments budget. It is therefore right that this should be subject to scrutiny by the Secretary of State to ensure that the wider interests of the taxpayer are taken into account.
The hon. Member for Rochdale had a brief exchange with me on the subject of grants. There are some areas of the authoritys work that he is right to say envisage giving advice to Government and others, and providing services which, because of the sheer scale of the undertaking, would be unlike those that other commercial bodies have to operate. Grants from Government to the trustee corporation may be necessary in the futurefor example, if the Government asked the trustee corporation to provide advice or information to help them and Parliament to assess the success of our overall public policy ambitions. As this would not directly benefit scheme members, it would be unfair to expect them to meet the cost. I therefore cannot accept amendments Nos. 27, 10 or 12.
At this point I would like to reassure Members that the costs that the regulator incurs in establishing the compliance regime will be borne by the Government. That will be done through existing powers, achieving the same aim as new clause 3. I have made it clear that low charges will be at the heart of the personal accounts scheme. However, difficult trade-offs will need to be made between the initial level and structure of charges and how quickly the scheme becomes self-financing. That is one of the issues that PADA is exploring in its public consultation on the best charging structure for the personal accounts scheme.
New clause 4 and amendments Nos. 13 and 14 demonstrate why we should wait for PADAs advice before taking decisions in this area. New Clause 4 and amendment No. 14 would require the scheme to repay the costs of establishing the personal accounts scheme within five years. That would be likely to lead to unreasonably high charges for the first cohort of members, impacting adversely on their savings and potentially leading to high levels of opt-out at the time when we most need to establish the confidence of savers. I am not saying that it is a wrecking amendment, but it is not far off it.
Amendment No. 13 would initially cap charges at an annual management charge of 0.3 per cent. It therefore pre-empts PADAs charges consultation and risks inappropriately extending the time that it will take for the scheme to become self-financing. I am not prepared to pre-empt decisions on the funding strategy in this way and therefore cannot accept the amendment.
Finally, the hon. Member for Rochdale asked for various reports. Amendment No. 9 would require the authority to report on the financial management of the scheme within 12 months of Royal Assent. The financial position of PADA and the corporate trustee as non-departmental public bodies will be reported to Parliament on an annual basis. Further, as a trust-based pension scheme, the trustee corporation will be required to provide annual statements to its members. I see no reason to add to those reporting requirements, which would involve additional bureaucracy.