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I reassure hon. Members that the authority will continue analysing the assumptions and risks around take-up, persistency and contributions as part of its
work to develop the funding strategy. However, I will not commit the authority to making public its latest assumptions on funding when it is likely to be in the midst of sensitive commercial negotiations.
Developing the funding strategy for personal accounts is already a complex and challenging piece of work. I welcome the support expressed by Opposition Members for the project, but I cannot provide them with the guarantees that they want in relation to 2012. I have always said that we envisage that the scheme will start to deliver in 2012, but this is a big project and I cannot guarantee that it will happen. There are tight time scales, and some of the things are not in the control of either the Government or PADA, so we must be realistic.
We have employed a high quality chief executive and a high quality chairman, who can deliver in the commercial sector. They have both shown that they have the skills, and they are recruiting good quality staff; we need to let them get on with the job. They have given us their proposals to deliver in the broad terms of the Government’s policy on 2012, which is what I want to allow them to do. I have acknowledged that they may have to take all sorts of issues into account, if certain matters do not work out precisely as envisaged in the plans, which is always the case with a project on this scale.
We have got a policy aim—there is nothing dubious about describing it as a policy aim—and we have got a plan for delivering it in 2012. The plans are tight, but they are deliverable. We should let PADA get on and deliver the project. If the hon. Gentleman wants to discuss how that will be done—the costings and so forth—I have already offered the facility of meeting Tim Jones in order to do so.
Mr. Waterson: I am not minded to press the new clause to a vote, but that does not mean to say that I am wholly satisfied by what the Minister has said. In an attempt to be reassuring, he kept telling the House that the introduction of personal accounts is not going to be a big bang. I am delighted to hear that, but as has been said, we do not want a terminal 5 moment, either. Terminal 5 was a massive project of its sort, and it was not a big bang—it was phased in, but phase 1 turned into an unmitigated disaster.
That is the kind of issue that I am trying to get at in this debate—the nature of the review and its conclusions. I shall certainly take the opportunity to see Tim Jones and get to the bottom of where he thinks things now stand, and yes, of course, if I am told things in commercial confidence I shall not tell anybody else. However, we need to find out precisely what is happening in practical terms.
The Minister said—I wrote it down—that Tim Jones had delivered his report on time. Is the report in such a condition that it can be placed in the Library or made available in what lawyers call a “redacted version”, so that we can at least see the highlights? The issue is not as simple as whether we will get from now to 2012 in one piece, as it were. Presumably, there is a series of triggers, or things that have to happen by a certain date between now and then, hence the charts to which the Minister referred. Once those deadlines start not to be met, the whole thing begins to slide off schedule. That is the key, and without wishing today to detain the House for any great time on the issue, I should say that that is the sort of thing that we will look for.
The hon. Member for Newcastle upon Tyne, Central (Jim Cousins) reminded us that the measures are part of the Turner package. According to Turner, they were to have been delivered two years earlier, in 2010. We have had this debate on other parts of the Turner package, such as on decoupling, and I hope that we shall come to the issue of restoring the earnings link, which is another key part of the package. Such things, including increasing the state pension age, all go together and we let the timings of the essential ingredients of the Turner package start to drift apart at our peril.
I was surprised that the Minister put a lot of emphasis on Royal Assent. Technically, of course, lots of things can happen only when the Bill gets Royal Assent. I do not want to be churlish, but the Bill has been a long time out of Committee and only now are we having Report stage and Third Reading; moving a bit faster was in the Government’s gift. However, leaving that aside, I should say that the Minister talked about contracts of substantial value being put out for tender. I accept that. However, unless he is making out that the Reuters report is a complete fabrication, it should be clear that lots of people—allegedly 100 consultants—are already working night and day to do something. They are not waiting for Royal Assent, and nor will their bills. What are they doing in the absence of Royal Assent, and how much is it costing? One or two distinguished members of the Select Committee on Work and Pensions are here; it is not for me to say, but perhaps the Committee thinks it is important to look into the potential costs overrun and how the project is being managed.
That brings me to the Donald Rumsfeld—the “known unknowns”—point. We do not expect Mr. Jones, and certainly not the Minister, to walk on water. We expect Mr. Jones and his team to deal with the known unknowns, and I presume that the things that he knows are outside his control are clearly flagged up in the report. Even on the Conservative Benches, we do not expect him to be aware of the unknown unknowns, about which the Minister was also concerned. No one expects the Minister to guarantee absolutely April 2012 as the start date—all sorts of things could have happened by then, not least to the economy as a whole.
However, to come to the costs overrun point, it would be worrying enough if the Minister had said to the House, “We can’t tell at this stage what the cost overruns are or are likely to be,” but as I understood it—I accept that I paraphrase—he said, “We can’t say in any event whether there are cost overruns because we do not know what the cost should be.” It seems even more worrying that at the moment we have no idea about what the costs will be, apart from a vague figure plucked out of the Turner process. However, it is clear that costs are being incurred, Royal Assent or no Royal Assent, and we need a clearer notion of what rate and level they have already reached.
Mr. Mike O’Brien: The costs that are being incurred are those that were envisaged under the Pensions Act 2007 in terms of providing advice, creating the initial framework and doing the consultations to which the hon. Gentleman has referred. However, the actual procurement operation will need to wait until the Bill gets through.
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Mr. Waterson: I am grateful to the Minister. I assume that it follows that the £21 million that was allocated in the 2007 Act is yet to be spent and that there is still some money in the kitty; otherwise, somebody would presumably have told us.
It is clear that costs are being incurred, and at quite a high rate. I cannot vouch for the Reuters story, but Reuters sturdily stands by it and by its sources. Of course, I intend to meet Mr. Jones and hear what he has to stay. It would still be helpful, though, if the Minister could produce a copy of the report that he has received, stripped of the commercially confidential issues, so that the House as a whole can get a feel for how this project is likely to develop, or indeed how it has developed so far. As I said, that may be a matter for the Select Committee.
Mr. O’Brien: Given that I am not able to deliver exactly what the hon. Gentleman is asking for but am anxious to be helpful, I wonder whether I could ask Tim Jones to provide a written report for the House indicating where he has got to and how he envisages moving forward. It would obviously be stripped of commercial issues but it would at least allow the House to feel that it is better informed and to see some of the detail of how he plans to take this project forward.
Mr. Waterson: I am grateful to the Minister for that helpful response. If that can be done without producing something that is not very useful, then so be it; I think that it would be worth while in any event.
Terminal 5 was an instance of a massive project that had lots of clever people and lots of money thrown at it—it even had some 3,000 people brought in as extras, as it were, to try to test the system before it went online—but it still failed on day one, day two, day three and so on, and it was being phased in. I have never managed a project of this size or anything remotely like it—nor, I suspect, has the Minister—but Mr. Jones has, although there has never been a project quite like it. We all need to know about this; again, perhaps it is something that the Select Committee might want to take an interest in. I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
‘(1) On or before 1st April 2009, the Secretary of State shall publish his projections of the numbers of people likely to be subject to means-tested benefits (including housing benefit) and in “at risk” groups following the introduction of personal accounts.
(2) If the projected figure published in accordance with subsection (1) exceeds 10 per cent. of the pensioner population, the implementation of the scheme under section 58 of this Act shall be postponed for at least 12 months after the date of publication.
(3) The Secretary of State shall publish any proposals for reform to address the findings in subsection (1) above concurrently with the publication of the projections thereunder.’.— [Mr. Waterson.]
Brought up, and read the First time.
Mr. Waterson: I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss amendment No. 38, in clause 3, page 2, line 37, at end insert—
‘(8) The Secretary of State must publish an annual report on the impact of means-tested benefits on automatically enrolled members of the scheme established under section 58.
(9) Any report published under subsection (8) shall include details on the number of pensioners facing marginal deduction rates of 40 per cent. and above.’.
Mr. Waterson: On the face of it, new clause 2 looks fairly straightforward and inoffensive. It merely says that the Secretary of State should publish projections of the numbers of people likely to be subject to means-tested benefits, including housing benefit, which is particularly important, and to be in so-called at-risk groups following the introduction of personal accounts. It touches on one of the big concerns about personal accounts; the other one is often referred to as levelling down. Those are the two big question marks hanging over the system. To be blunt, in the past we have made it clear as an Opposition that if we cannot square the circle on means-testing, that could affect the likely success of the whole system. There was a time when that was not the consensus view, but I am delighted that it now seems to be so. This has to be addressed, not necessarily during the Bill’s passage through this House, but through a process that has already started, which I very much welcome. That is what new clause 2 does. The Liberals’ amendment No. 38—I am sure that they will speak about it themselves—would require an annual report on the impact of means-testing.
This is, as I have said, a very big issue. In this country, rightly or wrongly—that is not the purpose of this debate—we have gone down a path whereby means-testing has grown very fast. Nearly half of pensioners retiring now do so subject to means-tested benefits. People might well be auto-enrolled who will not be receiving specific advice, because the nature of the Turner settlement means that they will receive so-called generic advice. They might be specifically advised not to auto-enrol into personal accounts, and may save a not insignificant pensions pot as a result, but then end up no better off—or even worse off.
The issue is not an easy one, and I am the last person to suggest that it is. Far cleverer people than I are wrestling with it, such as those in the Pensions Policy Institute, and Professor John Hills, among other luminaries. The issue is difficult, but that does not mean it is intractable. It is pretty clear that just about everyone who could be considered a serious stakeholder in the process now agrees with that proposition. I was looking at the briefing prepared for this debate by the Equality and Human Rights Commission, which emphasises that it is a strong supporter of the personal accounts system and the principle of auto-enrolment, but goes on to say:
“However, we have raised concerns that there may be some individuals for whom saving will not pay, as saving in PAs...will serve to merely replace means-tested benefits (such as Pension Credit, Housing Benefit or Council Tax Benefit)”.
“We have previously called for the Government to commit to a public report on the ‘pays to save’ issue, including modelling the number of individuals likely to be at risk, an assessment of the tradeoffs between different proposals for reform and public consultation with key stakeholders.”
“We were therefore extremely encouraged by the Minister’s assurance during committee stage to work with the Opposition and various stakeholders to consider possible solutions”.
That view is echoed by other stakeholders, such as Age Concern, which says:
“The Government has made some important moves since introducing the Bill to underline its commitment on this issue, most importantly an announcement that it will review the interaction between means tested benefits and personal accounts.”
Rather kindly, it also goes on to say:
“We also welcome the positive response to this approach from the opposition spokespeople.”
Presumably, that includes me. It continues:
“This process has now started and we welcome the opportunity to contribute.”
I might be forgiven for slightly correcting recent history. Although I stress that I welcome what is now happening, and I shall touch on it in a bit more detail, there was a time not that long ago, under the previous Secretary of State, where Opposition Members were painted as the bad guys, who were rocking the boat and letting the side down by suggesting that there was a major problem. In fact, Ministers and some of the outside organisations have made a major shift, and it is now quite difficult to find anyone who does not accept that there is a major problem that needs to be addressed.
That is not to say that there may not be a solution at the end of the process, which I shall describe in a little detail. Various possible solutions have been punted around, but this is not the occasion to go into them in any detail. Attempts to look at trivial commutation, income disregard and a variety of other possibilities that might have an effect on the problem have all been considered. However, the fact remains that almost all the options that have been floated so far carry their own problems, which need to be gone into in detail.
Miss Kirkbride: I am glad that my hon. Friend has put on record the fact that our party was the first to talk about the issue, and it is good that there is now more widespread agreement that it needs to be considered. It is also worth putting on the record the fact that we already receive representations from constituents with personal pensions, who were therefore probably higher up the income chain in their working lives to be able to save for them, who feel extremely aggrieved that, say, their neighbour or someone else they know is accessing benefits from which they are excluded because of that income. Now that we are going further down the chain of income, that problem will become much more acute and affect people with much more modest savings, incomes and pensions. We do not want to undermine the idea that everyone should save for a pension by arousing widespread resentment, so I welcome the greater interest that the Government are showing in the matter.
Mr. Waterson: I am grateful to my hon. Friend, who makes a fair point. Almost by definition, the 6 million, 7 million, 8 million, 9 million, 10 million or however many people who, it is hoped, will be attracted into personal accounts will be those who are currently outside existing pension provision. Many may simply be seen as unattractive propositions by the pensions industry and will be in a marginal situation as to whether the scheme will be good or bad for them.
My hon. Friend’s key point, to which I was coming, was about confidence. At one time, the argument was advanced that there would not be a problem until 2020 or even later, when it would become apparent to people, after they had saved for some years under personal accounts following the assumed start date of 2012, that they were not receiving the returns that they had been led to expect. It has been clear to our party, and it is now clear to everyone, that in the run-up to 2012, and not later, journalists and others, whether we like it or not, will be writing a story to the effect that some people in similar situations will be benefiting and others will not be. If, as journalists say, that story has legs, it could cause untold damage to confidence in the system, not least as a tool for the unscrupulous employer who wants to persuade people not to auto-enrol in the first place.
Now is a good moment to pay full tribute to the Pensions Policy Institute, which has done so much work on that and the other big issue, the so-called levelling down, to which we shall come. The PPI set the foundations of the work that will now be carried forward by identifying the at-risk groups of people—whether low, medium or high risk—under the proposals. The PPI came up with the expression “the funnel of doubt” to refer to the likely level of means-testing even after the reforms.
There is no doubt at all that the level of means-testing will fall somewhat when the reforms are introduced. However, there is still a difference between the Government and the PPI and other experts on what that level will be. As John Hills and others have picked up, it is particularly difficult for people at the beginning of a career or a lifetime of work to predict where they will end up, with respect to a broken work record, marital break-up or whatever else. It is important that we should consider carefully the likely effects of the interaction between means-tested benefits and personal accounts.
No matter how much work has been done by outside bodies, particularly the PPI, all are now at the point at which they can make progress only by having access to the sort of model that the Department for Work and Pensions uses—the Pensim2 model, as it is called. I am particularly pleased that, as a separate and parallel process to the passage of the legislation, we are now all engaged in an attempt to establish the size of the problem, within certain parameters, and to run a slide rule over the suggested solutions. The Minister has been extremely helpful in allowing people access to Pensim2, and in putting together a series of meetings, seminars and all those wonderful things that come to us who are involved in the pensions world. The initial phase has involved ensuring that we are all signed up to the basic assumptions that go into any proposition that is run through the model.
5.30 pm
There has already been one big step forward, for which I claim no credit whatever because it was nothing to do with me. There was a problem, as despite its no doubt excellent other characteristics, the Pensim2 model did not take any account of housing benefit. I am told that that is no longer the case, and that it does now incorporate housing benefit. Why does that matter? It matters enormously because one of the major factors in the at-risk groups identified by the PPI is the question whether people rent their home in retirement. That makes a massive difference to many of those people.
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