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If we were to provide, solely for personal accounts, a guarantee that whatever happened anyone holding one would not lose out, it would give personal accounts a commercial advantage over and above any existing private sector schemes. Therefore, we would undermine the very principle of complementing what we currently have. If a low-paid employee can choose whether to enter their employer’s scheme—it might be a good scheme with perhaps a higher contribution from the employer than personal accounts—or a personal account, and they get a guarantee from the latter that they do not get from the other scheme, personal accounts would have a commercial advantage. We need to be careful to bear in mind the basic principles behind the creation of personal accounts and ensure that, in dealing with one problem—and I accept that it is an issue—we do not undermine any of those principles.
Paul Rowen:
I accept the point that the Minister makes, but does he agree that one sure way around that problem is to restore the earnings link to the state
pension so that that increases in value? We could also move to a citizens pension, as we have proposed, that would provide a guaranteed minimum pension in retirement, with anything else a bonus.
Mr. O'Brien: I certainly agree with the hon. Gentleman about restoring the earnings link in due course, and I will come to that in a moment. I would welcome his views on how we could find enough dosh to introduce his citizens pension without taxing people vastly. The money we spend comes from the taxpayer, and we have to balance the interests of the taxpayer with those of the pensioner.
Mike Penning: The point that I was trying to make earlier is that we must give our best shot at predicting what will be in the pot in the years ahead. That is obviously very difficult, but if I went to a private insurance company and said that I wished to invest £30,000 in a scheme, the actuaries would make some sort of prediction about the outcome, and the state pension would be included in that. It is therefore incumbent on the Government to give their best shot at prediction. I accept that it will be difficult. We cannot predict the future, but it has always been the job of actuaries to try to predict the size of the pot. That is why it is important not to guarantee more—it would skew the whole market if people were guaranteed a greater amount than they would get from a separate pension scheme—but to provide a knowledge base and give people some idea of how much they will get. People must have that information.
Mr. O'Brien: The hon. Gentleman makes some interesting points, and I will address them in a moment or two.
Lynne Jones: My hon. and learned Friend mentioned providing an unfair advantage, but it is an important principle that people’s savings should not undermine their ability to collect state benefits. As he says, that point will be discussed when we come to the issue of the earnings link, but it is an important principle in reducing means testing. He mentions taxpayers’ money, but the people who take up the scheme to save for their pension will be low paid. They are taxpayers too, and the fairness agenda means that we must also be fair to those on low incomes who are putting small amounts of money—whatever they can afford—into such schemes. We must ensure that they do not miss out on state benefits later.
Mr. O'Brien: My hon. Friend is right, especially about trying to ensure that we have a state system that provides a proper basis for people. One of the key aspects is the restoration of the link. One argument for restoration arises from this very debate. If we did not restore the link, we would end up with some 60 per cent. of pensioners on pension credit, and we do not want that to happen. We can reduce the numbers on pension credit by about half if we restore the link and provide opportunities for private savings so that people can build up a pension pot that will increase the amount that they would get just by relying on pension credit. The reforms in the state sector are part of the process, and the private sector changes will also help to ensure that pensioners get a better deal—and get more money in the end.
Sir John Butterfill: I accept that the scheme cannot compete unfairly with providers in the private sector or companies’ schemes, but we are talking about persuading some of the poorest people in society to save. Even though they may be saving small amounts, they will be giving up a large—to them—proportion of what they are earning. We are also talking about people who are unlikely to be especially attractive to the commercial sector, because the costs of their business would outweigh the benefits—we know already that the commercial sector turns down small amounts—so we are talking about a special group. However, there will have to be some element of disregard, because someone might be very successful later in life.
Mr. O'Brien: I hear what the hon. Gentleman says. The issues of savings incentives, disregards and trivial commutation can all be considered. We discussed some of them in Committee, and the Government have decided to set up a Government-led work programme to consider the whole issue, evaluate the evidence and consider the interaction between pension savings and income-related benefits in a reformed system. The programme will examine the incentive effects, the balance that we need to strike between alleviating poverty and incentivising savings, and the cost constraints that we face. It is important that people accept the responsibility to provide for themselves and also that the pension credit safety net is there if needed.
The effect of new clause 2, which I suspect the hon. Member for Eastbourne will not press, would be to delay the introduction of personal accounts if the number who may not benefit is greater than 10 per cent. That would deny many individuals the real benefits of starting to save early. The reforms represent the last piece of our pensions puzzle and it would be folly to delay introduction on that basis.
The effect of amendment No. 38 would be to require the annual publication of our projections of the impact of means-testing for members of the personal account scheme and those whose pension savings might be subject to marginal deduction rates of 40 per cent. or higher. We have already published our projections of entitlement to pension credit until 2050, and are currently finalising a fact sheet of projections of entitlement to all income-related benefits for the pensioner population. We expect to publish that shortly.
There is no need, therefore, for such an amendment to the Bill. Publishing projections of benefit entitlement is routine and represents good practice and we intend to continue with it. Indeed, my right hon. Friend the Secretary of State, when he was in my job, advised Parliament in Committee on last year’s Pension Bill that we already regularly publish that information, usually annually. I am happy to reiterate that statement in order to reassure the House. I believe that our package of reforms represents the right balance.
Let me deal with generic advice, which has been raised both by the Liberal Democrats and by the hon. Member for Hemel Hempstead (Mike Penning). Clause 9 recognises that individuals will need access to relevant and accurate information when they are auto-enrolled, but amendment No. 37 would mean that all those who were auto-enrolled would be entitled to publicly funded independent one-to-one generic advice. I do not agree that one-to-one advice will be needed by
every job holder. That is because the decision to remain enrolled will be straightforward for most people. The employer contribution means that most people will benefit and enjoy a more prosperous retirement. Good information is important and the DWP and other organisations, such as Citizens Advice, the Pensions Advisory Service and the Financial Services Authority, already provide some elements of advice.
We will ensure that every automatically enrolled individual has access to the range of information that they need to understand the process of automatic enrolment, the pensions scheme that they will be enrolled into, their expectations for a state pension and the implications for later life. As Members will be aware, there is at present no legal requirement for individuals to receive any one-to-one advice before they are automatically enrolled on an occupation pension scheme. Giving people a new legal entitlement to one-to-one advice could give them a misleading impression that automatic enrolment is either a risky and complex process for which they must have that advice, or could lead to their making erroneous decisions. We therefore take the view that the best approach is to ensure that people know the basic information about automatic enrolment and what it means for them.
If it is a private sector pension and the person is enrolling into personal accounts, the pension providers will have advice about the implications of their product that they will give to those who are automatically enrolled into the scheme. In many cases, such advice is given now. We will be dealing with many people on low incomes, and although I entirely accept the views of the hon. Member for Bournemouth, West (Sir John Butterfill)—who knows much more detail about our parliamentary pension scheme than I do—advice and information is already being given out by some of the schemes. I do not want to create a system whereby we have to load on a lot of advice for personal accounts in particular, because the cost will end up being paid by people who are enrolled into personal accounts. If we load up the cost, it will end up being a charge on the members of the scheme.
We need to provide generic advice, which is already available. Otto Thoresen has already published a report in which he referred to the provision of generic advice for those who were entering personal accounts. He rightly made the point that that is not just a problem for personal accounts but that it has a broader base. We are looking at the Thoresen review’s details on generic advice so that we can identify ways in which we can take forward the provision of the sort of advice that people on particularly low incomes will need.
John Penrose: Will the Minister give way?
Mr. O'Brien: If the hon. Gentleman will forgive me, I have given way rather a lot and have been on my feet for a while. I know that people want to move on to other issues.
We are pleased that Thoresen’s money guidance will build on provision from the Pensions Advisory Service and other organisations. We agree with him that auto-enrolment and personal accounts do not create a new need for a different kind of information or guidance. I
do not agree that there is a need to supplement all that with one-to-one advice. [ Interruption. ] I hear some chuntering, so I will give way to avoid that if nothing else.
6.15 pm
John Penrose: I thank the Minister, and I apologise for chuntering at him. The reason why I was muttering was that Otto Thoresen has said that his report does not cover the kind of generic advice on personal accounts that the Minister is describing. He came before the all-party Work and Pensions Committee a few weeks ago, and I asked him that question. He said that it does not cover that. The Government might need to re-examine the issue with some care. Ministers have been saying such things for some time. They came to the Select Committee and said, “We will see the results of the Thoresen review, which will tell us how to provide generic financial advice.”
The Minister will know that the promise that is being made to provide such advice to the range of people who will be enrolled in the new personal accounts system is potentially huge. I do not think that it has been done on such a scale anywhere else in the world. The Thoresen review does not provide any help on how it will be done, so it is rather difficult to pray in aid that review when saying how the Government propose to square the circle.
Mr. O'Brien: I hope that the hon. Gentleman will forgive me, but I am not sure that there is a great deal of difference between us. My point was that Thoresen shows in his report that personal accounts do not present entirely new issues. As far as Thoresen is concerned, the need for generic advice in certain circumstances when people are auto-enrolled into pension schemes—that is happening today—is not substantially changed by personal accounts, and so new issues are not brought up. There are issues of scale, but they are not new when it comes to the details of individuals who sign up or do not sign up.
I can pray in aid the report in the sense that Thoresen has identified some ways in which money guidance can be piloted and considered, and we are examining those proposals at the moment. That might—I deliberately use the word “might”—provide some element of guidance on personal accounts and a range of other issues such as when individuals, who are often on low incomes, have to enter into substantial financial dealings, including mortgages and a pension scheme.
I am not sure that there is such a difference between the hon. Gentleman and me as he seemed to think. Thoresen’s references to personal accounts, even though they were brief, did not identify specific points or go into any detail. He basically said that the problems that we will have are much the same as those that we are having on a range of other issues. Providing generic advice is therefore one way to help people to make some of the important decisions that they have to make.
I hope that on the basis of the points that I have made, the hon. Member for Eastbourne will feel able to withdraw the new clause. I thank him again for the way in which he introduced his discussions on pay-as-you-save.
Mr. Waterson: The Minister has rightly surmised that I do not intend to press new clause 2 to a vote.
I want to say a couple of things. First, despite my huge respect for Lord Turner, I do not think that the house insurance analogy holds water. We are saying that people will save for their retirement and then not get something to which they would have been entitled. With respect, that is not quite the same as saying, “I haven’t been burgled, so can I have my money back?” to an insurance company. That is the challenge.
As I have made clear, we are embarking on a process. We are all going on a journey together and we will see where we will end up. We could well end up in a situation like the scene at the end of “Planet of the Apes”, where they come back to where they started, see the statue of liberty and discover that they have not been anywhere. Who knows? We will certainly give it our best shot, and I am sure that the Minister and his officials will, too. We have to see how the process pans out.
We will certainly keep a close eye on how the process works. We reserve the right to bail out at any point if we are not happy with the way in which it is developing, but we want to see it go forward, as do lots of other people. We are, in a rather twee way, included in the Minister’s definition of stakeholders, but I suppose that there are other stakeholders out there who are every bit as important and whose involvement is also extremely welcome. On that basis, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
‘In accordance with its functions under section 69 of this Act, the Personal Accounts Delivery Authority must, to the best of its ability, minimise any adverse effects from its activities on existing, good quality occupational and personal pension schemes.’.— [Mr. Waterson.]
Brought up, and read the First time.
Mr. Waterson: I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss the following amendments: No. 29, in clause 3, page 2, line 28, leave out subsection (5) and insert—
‘( ) Subsection (2) does not apply if there are prescribed arrangements under which the jobholder is entitled to become an active member, with effect from the automatic enrolment date, of a qualifying scheme which is a personal pension scheme of a prescribed description.
( ) An order will be made under this section to prescribe the terms under which it is applicable, and the basis on which its application may be withdrawn with respect to specific scheme providers or employers.’.
No. 20, in clause 70, page 34, line 25, after ‘in’, insert ‘existing’.
No. 21, page 34, line 25, leave out ‘qualifying’ and insert ‘occupational and personal pension’.
No. 17, page 34, line 26, at end insert
‘among those on low incomes and who are not currently saving enough for retirement.’.
No. 22, page 34, line 26, at end insert
‘, and the Authority shall at no time seek to provide financial products beyond the scope of personal accounts;’.
No. 23, page 34, line 29, after ‘on’, insert ‘existing’.
No. 24, page 34, line 29, leave out ‘qualifying’ and insert ‘occupational and personal’.
No. 18, page 34, line 38, at end insert—
‘(g) the best interests of prospective members in the period prior to 2012 are served;
(h) the level of savings shall be increased as well as the number of existing savers, and that in general better retirement incomes are achieved.’.
No. 19, page 34, line 41, at end insert—
‘(4) The Secretary of State shall collect and publish appropriate data annually, and will consult with the industry, to measure the extent to which the Authority has achieved these principles in carrying out its function.
(5) The Secretary of State shall by regulation identify the data and targets to be sued for this purpose.’.
Mr. Waterson: This is another group of amendments that is rather like one of those cars that can be bought at certain scrap yards that have the front of one car and the back of another. The amendments refer to two distinct issues, so I shall separate them immediately. New clause 6 and all but one of the amendments are concerned with levelling down, which is the other massive issue that lurks throughout the Bill. I shall come separately to amendment No. 29, which is on another matter that was important in Committee: workplace pensions and group personal pensions.
What do we mean by levelling down? We mean a scenario whereby, with the advent of personal accounts, finance directors advise their board that participation in their own defined-benefit pension scheme could double almost overnight, with the cost implications that that would carry. Companies that had not already closed their existing defined-benefit schemes to new or even existing members, assuming that there were any such companies by that stage, would then take the opportunity to say, “Well, we are closing our scheme now, but there is a perfectly good new scheme called personal accounts, backed by the Government, that we would point you in the direction of.”
If I have learned anything doing this job as shadow Pensions Minister, it is that there is an active desire on the part of large tranches of the population not to know anything about pensions, or to find out what level of contribution they should be paying and what pension such a contribution would produce in later life. There is almost an unwillingness to engage in the issues. At almost every seminar to which I am kindly invited, some academic seems to get up and say that he or she has done a study and come to much the same conclusion—that the vast majority of people in this country do not really engage in the pensions issue. Almost any effort from any quarter to try to improve that situation has to be welcomed. However, when the moment comes, many employees may simply not inquire whether it would be sensible to move from a DB scheme run by their employer, in which the level of employer contribution may be much higher than is envisaged under personal accounts, and what difference it would make to their pension.
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