Pensions Bill

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The Committee consisted of the following Members:

Chairmen: Sir Nicholas Winterton, †Janet Anderson

† Ainger, Nick (Carmarthen, West and South Pembrokeshire) (Lab)

† Alexander, Danny (Inverness, Nairn, Badenoch and Strathspey) (LD)

† Banks, Gordon (Ochil and South Perthshire) (Lab)

† Borrow, Mr. David S. (South Ribble) (Lab)

† Butler, Ms Dawn (Brent, South) (Lab)

Cunningham, Mr. Jim (Coventry, South) (Lab)

† David, Mr. Wayne (Caerphilly) (Lab)

† Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)

Greenway, Mr. John (Ryedale) (Con)

† Jackson, Mr. Stewart (Peterborough) (Con)

† Keen, Alan (Feltham and Heston) (Lab/Co-op)

† Kirkbride, Miss Julie (Bromsgrove) (Con)

† O'Brien, Mr. Mike (Minister for Pensions Reform)

Plaskitt, Mr. James (Parliamentary Under-Secretary of State for Work and Pensions)

Rowen, Paul (Rochdale) (LD)

† Selous, Andrew (South-West Bedfordshire) (Con)

† Waterson, Mr. Nigel (Eastbourne) (Con)

Mark Hutton, Committee Clerk

† attended the Committee

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Public Bill Committee

Thursday 31 January 2008

(Afternoon)

[Janet Anderson in the Chair]

Pensions Bill

Clause 50

Power to provide for a pension scheme

1 pm

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): I beg to move amendment No. 99, in clause 50, page 24, line 10, leave out from ‘State’ to ‘and’ and insert ‘shall establish a money purchase scheme’.

It is a pleasure to be back here under your chairmanship, Mrs. Anderson, with somewhat inclement weather conditions outside. I am sure that our discussion will not be so inclement, and certainly not as inclement as the weather in my constituency, where snow appears to be falling heavily as we speak.

Mr. Nigel Waterson (Eastbourne) (Con): Good for the skiing.

Danny Alexander: Good for the skiing, as the hon. Gentleman has said. I will get back to the point.

The purpose of the amendment is to allow the Minister to clarify why clause 50(1) is currently drafted in such a permissive way. My amendment inserts

“shall establish a money purchase scheme”,

which is what the Government intend. There is no doubt about that, although if there is, then the Minister will surprise us all when he responds. My question, simply, is why should the Bill not say what we are establishing as the personal accounts scheme?

I am grateful for some advice offered to me on this point. It has been suggested that, in order for personal accounts to work, the phrasing that the

“Secretary of State may establish a pension scheme”

is a bit strange, in that it seems to be permissive rather than mandatory, which the Minister has acknowledged by nodding. The scheme concerned must be a money purchase occupational pension scheme. Would it not be better to say so?

The Minister for Pensions Reform (Mr. Mike O'Brien): To clear up any doubts, although I doubt whether there are any doubts, we intend to use the power to create the personal accounts scheme, which will be a defined contribution occupational pension scheme. However, defined contribution occupational pension schemes take a number of forms. Personal accounts will have various unique features, particularly given the target audience, the way in which they will be organised and the way in which we are setting them up. We therefore took the view that rather than having the legislation say that the

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pension scheme was of a particular kind—thereby risking someone at some point deciding to take a judicial review as to whether our decisions fitted exactly with a particular definition—it was better to take a broad power and to be very clear about how we intend to use it.

There is no doubt that the understanding of the hon. Member for Inverness, Nairn, Badenoch and Strathspey is correct. That is what we intend, and there has been no deviation from the Government’s intentions. We have set out the power in this way because we do not want to raise legal risks at a later stage by trying to define the scheme narrowly. Personal accounts will be similar, but not identical, to other DC schemes. We should not pretend that it is a particular kind of pension scheme in the legislation, because some might say, “Well, the way you are working does not exactly fit that definition”. That is the only reason why we have taken that view. With that reassurance—the hon. Gentleman is entirely right about our intentions—I hope that he will withdraw the amendment.

Danny Alexander: I am grateful to the Minister—I almost promoted him to Secretary of State for a second—for his explanation. The clarification is exactly what I was seeking. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 25, in clause 50, page 24, line 10, after ‘scheme’, insert

‘which shall commence operation with effect from 1st April 2012’.

The amendment, unlike some, has the attraction of being incredibly simple and straightforward. All it does is to add to the beginning of clause 50 that the scheme should commence operations from April 2012. Since that is the Government’s stated policy objective, I imagine that the Minister will be happy to accept the amendment. I shall sit down now, if that is his intention.

Mr. O'Brien indicated dissent.

Mr. Waterson: The Minister is shaking his head, so I fear that we must argue the case a little more.

From one point of view, the plan is already two years behind schedule. I have dusted off my copy of the final report of the Pensions Commission, chaired by Lord Turner. On page 400, it talks about an implementation time scale for the various reforms and compares international experience. In Sweden, for example, implementation of the new pension system, the premium pension system or PPM, took six years from the report of the working group—presumably the Swedish equivalent of Lord Turner and his colleagues—to the first year of contributions into the funded scheme. That included not only the introduction of the new funded PPM but the re-casting of the state pay-as-you-go system into an NDC system. The report concludes:

“Since we are not recommending such radical changes to the core state system, a more rapid implementation ought to be possible.”

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The report then talks about New Zealand, where, even more surprisingly, the report of a working group was followed only nine months later by a budget commitment in principle, with implementation planned for just two years after that. It talks, however, about the possible slippage of that time scale, which I think has been true. The report importantly concludes that

“the Pensions Commission believes that it is reasonable to plan on the assumption that the NPSS could be in place and receiving first contributions by 2010.”

The NPSS was the original proposal that was replaced by personal accounts. We are already two years out from that date.

Being a sad person at heart, I was listening to Radio 4 between Christmas and new year and caught a bit of the “Money Box Live” programme, presented by the estimable Paul Lewis, a great expert who has followed many of our debates closely. He was interviewing Tim Jones, the new chief executive of PADA, who has given evidence to the Committee. He pressed Tim Jones hard on the implementation date for personal accounts. I managed to obtain a transcript of the interview. Paul Lewis said:

“There is an awful lot to do, isn’t there?”

Pausing there, I think we can all agree with that. He went on:

“This scheme is scheduled to start in April 2012, just over four years way. Is that a realistic target?”

Tim Jones replied:

“The honest answer to that is I don’t know yet.”

Paul Lewis then said:

“So there might be a delay?”,

to which Tim Jones replied:

“Well, it’s not a delay because I don’t know yet.”

He then talked about reviewing matters as the incoming CEO:

“I understand the desire for 2012 and so far I’ve not seen anything that says it’s unachievable, but I need to do that review and when I’ve done that review I’ll then be able to have a conversation about what a proper date is.”

The key part of the interview was where Tim Jones said:

“Because this is so hard what’s critically important is not exactly when it starts but that it starts well when it starts.”

In the final exchange, Paul Lewis said:

“So there is a possibility that in a few months time you’ll be going to ministers and saying my view is we cannot start this when you’ve scheduled it—April 2012. It will have to be another date in the future?”

To which Tim Jones replied:

“There is that possibility, yeah”.

Since then, Mr. Jones’ apparent concerns have to some extent been dissipated. In the oral evidence sitting, I asked him about the commencement date. He said:

“The policy intention is that the personal accounts scheme will launch in 2012, and it is my job, and the delivery authority’s job, to meet that intention. We have no evidence at this stage that that is unachievable.”——[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 7, Q11.]

Indeed, when I raised the matter at Question Time only the week before, the Minister said:

“we intend it to begin in 2012, and the chief executive has been informed that that is what we intend.”—[Official Report, 7 January 2008; Vol. 470, c. 6.]

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Mr. O'Brien: There was a bit more emphasis on certain words.

Mr. Waterson: The Minister can read it out himself with the proper emphasis. I do not know whether you have ever seen the film “Downfall”, Mrs Anderson, about the last days of Hitler in the bunker, but the situation is reminiscent of the phantom divisions that were sent out to attack the Red Army and that were told not to come back alive if they did not win.

We still have a contradiction here. Let me stress that the official Opposition want the scheme to start on time. We want it up and running in 2012. Earlier would be nice, but nobody who has met Mr. Jones could be anything but persuaded by his massive competence and experience in these matters and by the extent to which he and his chairman, Paul Myners, appreciate the scale of the task they are facing. Nothing quite like this has ever been tried before, which I recall is a line from the movie “A Bridge Too Far,” but we will not go down that route.

So it is a massive challenge. There is still a missing link between what the Minister told Mr. Jones and what Mr. Jones told Paul Lewis. Very honestly, like any successful man of business, Mr. Jones has apparently initiated a review in his new job. He has the office furniture, he has the chairman, he has one or two non-execs, and things are gradually picking up, but he has reviewed the state of play. I have the impression that that review is taking a while, and it has certainly not been concluded yet. I would like the Minister to tell us about his understanding of the situation, because despite the slightly greater confidence that Mr. Jones exuded when he came to this Committee compared with the confidence that he exuded at the end of last month, he is clearly still in the midst of this review.

Perhaps the Minister will share with the Committee what he has been told about how the review is going, including when it is likely to be concluded, what the preliminary indications are, and whether he will publish the advice he gets when Mr. Jones’s review is finished. The eyes of the world are on us and, in particular, Mr. Jones. I have stressed our support for getting on with it in 2012, but the only thing that is worse than not starting on time is having a botched start, which is clearly something that concerns Mr. Jones.

The brief from the Equality and Human Rights Commission states:

“Like the Conservatives, we are keen to see personal accounts ready to commence in April 2012. We are extremely supportive of the new accounts and the benefit that they offer to the target market. It is imperative that the new scheme is in operation as soon as possible to allow people the opportunity to save for their retirement in a way that is not offered by the savings products currently on the market.”

I agree with every word of that. Indeed, the Minister’s own predecessor, now his new boss, made quite a good speech a little while ago when he was in the pensions job, making the point about what we might call the “planning blight” on people’s pension savings between now and 2012. There will be a significant period between now and then when people will still not be saving for their retirement. Such people will miss out on several years’ contributions, the benefit of which they will never be able to make up.

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Frankly, the guy in the saloon bar who finds pensions difficult and puzzling will have another excuse for not doing anything at the moment, because he has read that in 2012 it will all be sorted. I am very interested in what the Minister has to say, particularly about Mr. Jones’s ongoing review.

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Prepared 1 February 2008