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Session 2007 - 08 Publications on the internet General Committee Debates Pensions Bill |
Pensions Bill |
The Committee consisted of the following Members:Mark Hutton, Committee
Clerk
† attended the
Committee
Public Bill CommitteeTuesday 5 February 2008(Morning)[Sir Nicholas Winterton in the Chair]Pensions Bill10.30
am
The
Chairman:
I welcome hon. Members on both sides of the
Committee to our thirteenth sitting and hope that they had a relaxing
weekend. My wife and I had planned a restful weekend, but it turned out
to be not quite as restful as we had hoped. None the less, I am here
full of vim and vigour to ensure that we continue to make good progress
on this important Bill. I congratulate the Committee and my co-Chairman
on the progress that was made last week under her
chairmanship.
Schedule 1The
trustee
corporation
Mr.
Nigel Waterson (Eastbourne) (Con): I beg to move amendment
No. 56, in schedule 1, page 51, line 8, leave out
‘four’ and insert
‘three’.’
It
is a great pleasure to serve again under your chairmanship, Sir
Nicholas. I hope that the fact that this is the thirteenth sitting is
not a harbinger of bad news for anyone, but we shall
see.
The amendment is
simple and I can do it justice in a short time. It deals with
the tenure of office of members of the trustee corporation. I do not
know why the Government have alighted on four years. I should have
thought that three years would have been more the norm for the initial
and subsequent periods of appointment, but there might be some logic to
it, so I looking forward to the Minister pointing that
out.
Paul
Rowen (Rochdale) (LD): Like the hon. Member for
Eastbourne, I was a little puzzled by the provision. Three years is the
usual appointment period. I look forward to hearing what the Minister
has to say about a period of three or five years and why the Government
have alighted on four
years.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
Let me also say to you,
Sir Nicholas, what a pleasure it is to be serving under your
chairmanship at our thirteenth sitting. Let us see if I can start off
on a good note by reassuring the hon. Gentlemen about why the terms are
set as they are.
This
part of the schedule deals with the period for which a person can be
appointed a member of the corporate trustee. It restricts the period of
an individual appointment to a maximum of four years and prevents
someone from being reappointed more than once, as a result of which no
one can serve for more than a total of eight
years.
I wish first to
explain that we intend trustee appointments to follow the principles in
the code of
practice of the Office of the Commissioner for Public Appointments. That
code suggests that it is in the public interest to limit the length of
appointments made by Ministers to no longer than a total of 10 years in
order to encourage new blood and new ideas and to give other people the
opportunity to serve on public bodies. It states:
“The number of terms an
individual may serve and the conditions for reappointment
vary...However...the maximum period in office must not exceed
10 years on the same
board.”
Although, in the
case of the corporate trustee, subsequent appointments will not be made
by Ministers, we believe that the good practice of limiting the term of
appointment should be included in the Bill. The question to consider
when determining the length of appointment is what best serves the
needs of the task in
hand.
I am sure that
members of the Committee have noticed that initial appointments to the
Personal Accounts Delivery Authority are for a three-year period. That
is standard practice for non-executive appointments and for fixed-term
contracts, such as the chief executive, but that difference in approach
is also appropriate given the different responsibilities. PADA
will be a relatively short-lived organisation when compared with the
anticipated longevity of the scheme. The most effective blend of
trustee for the longer term trustee corporation will be a mix of new
ideas, experience and corporate memory. We have chosen a period of
sufficient length to match the responsibilities of
the trustee while remaining well within the maximum proposed in the
guidelines of the Office of the Commissioner for Public
Appointments.
Paul
Rowen:
I am listening to what the Minister is saying. I
said that it was normal for a term to be three or five years, and he
has confirmed that the guidance sets out a maximum of two terms of five
years. He has chosen four years, so will he explain why the longer
period recommended by the public appointments committee was not what
was put in the Bill?
Mr.
Plaskitt:
The guidelines set out a maximum of 10 years,
and two terms of five years would obviously go right up to the maximum.
Our view is that by going for a potential maximum of eight years, we
have struck the right balance of staying within the guidelines and
having the right mix of experience and length of tenure of office. This
is not far out of practice with other bodies and organisations. A
four-year term with the possibility of one renewal strikes the right
balance and keeps us within the guidelines. With those reassurances, I
hope that the hon. Member for Eastbourne will withdraw the
amendment.
Mr.
Waterson:
When I tabled the amendment, I had no idea that
it would be so complicated to get an answer. If the Minister had simply
stuck a pin in a series of numbers, I would sit down immediately. He
has made the case for five years and for three years, but he has not
made it for four years. However, life is too short, so I beg to
ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Mr.
Waterson:
I beg to move amendment No. 57, in
schedule 1, page 51, line 19, leave
out ‘the Secretary of State may determine’ and insert
‘it thinks
fit.’
Again—famous
last words—this is a simple amendment that has been designed to
tease out why the Secretary of State should determine the remuneration,
allowances and gratuities paid to members of the trustee corporation.
In all these matters, the Secretary of State should keep at
arm’s length, if possible. It should be possible for the trustee
corporation to regulate such matters itself, possibly by way of a
remuneration sub-committee or something similar. I find the reason why
the Secretary of State should have his fingerprints on every aspect of
the detail of the running of the trustee corporation slightly
mystifying. I hope that the Minister can demonstrate that there was
serious thought behind the benefits of the provision and that he can
tell us why it makes enormous sense.
Paul
Rowen:
I found a note given by the Secretary of State
about the difference between the trustees and PADA very interesting. As
this is a non-departmental public body—an arm’s length
body—why is the Secretary of State able to determine the
minutiae of its running? I agree with the hon. Member for Eastbourne
that PADA is a different organisation. It is a delivery authority and
the trustees take it forward. It should be for the trustees themselves
to agree the remuneration, having taken advice and after looking at
what the industry normally does. We seem to have the big footprint of
Government stamped all over a body that in previous debates has been
spoken of as “light touch”. This seems to be anything but
light touch.
Mr.
Plaskitt:
Let me see if I can demystify this. I will try
to reassure the hon. Gentlemen that there are good reasons behind the
arrangement in the
Bill.
The amendment
would remove the Secretary of State’s ability to determine the
levels at which remuneration was set. We intend that the trustee
corporation will act independently of the Government. That is right,
and our aim is for an emulation, as far as possible, of trust-based
occupational pensions schemes in the private sector. None the less, the
trustee corporation is being set up as a public body with a central
role in delivering a key aspect of public policy. Quite rightly, we
expect a high standard of propriety from public bodies, and it is
standard practice to include mechanisms for the Government to ensure
that they achieve those high standards.
There is a balance to be
struck, as the hon. Member for Rochdale indicated. For example, we
intend the trustee corporation, once it is up and running, to have the
freedom to appoint its own members, but in so doing, it should follow
the good practice of the Office of the Commissioner for Public
Appointments. When creating a non-departmental public body, it is
standard practice to give the Secretary of State of the sponsoring
Department the responsibility for remuneration. That is to ensure that
the remuneration paid is in proportion to the role and weight of the
posts. To reassure members, the Treasury 2007 guidance
states:
“Whatever the legal
status of an Arm’s Length Body, the Treasury will expect its
sponsor department to have a mechanism for asserting an appropriate
degree of control over it, especially in financial
matters”.
Furthermore, Cabinet
Office guidance states that Departments are responsible for determining
whether remuneration should be paid to the board members of the public
bodies they sponsor and the level at which that remuneration is set.
The Bill simply follows the guidance. Such a procedure involving
Government guidance on remuneration for key posts also applies to NDPBs
such as the Civil Aviation Authority, the BBC Trust and the Independent
Police Complaints Commission.
Allowing members of the trustee
corporation to set their own levels of remuneration, as implied by the
amendment, would be a highly unusual step in the public sector, since
no other comparable body bears that responsibility. There is a further
consequence of what the hon. Member for Eastbourne is suggesting: the
trustee corporation would be left open to accusations of conflict of
interest, as its members would be in a position in which they could set
their own pay. Many of us in this room are aware of the problems that
that might entail, but that would be especially so in this case as the
members’ remuneration would come from scheme funds and thus
would be paid by scheme members. That is a further reason why it is
quite appropriate that the Secretary of State should have some
involvement. Far from this being a heavy boot, as the hon. Member for
Rochdale suggested, it is an essential safeguard, given the source of
the funding to pay the remuneration, and the potential conflict of
interest if this were done by some other arrangement to the one set out
in the Bill.
In
seeking this power, our intention is not to meddle in the day-to-day
affairs of the scheme, but to use a standard mechanism by which the
Government can ensure that a public body is conducting itself in the
way in which we and members of the pension schemes would expect. With
those reassurances, I hope that the hon. Member for Eastbourne will
agree to withdraw the amendment.
Mr.
Waterson:
I am grateful to the Minister for that
explanation and reassurance. I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Mr.
Waterson:
I beg to move amendment No. 68, in
schedule 1, page 54, line 42, leave
out ‘and’ and
insert—
‘(aa) an analysis of
the potential impact on the financial position of the trustee
corporation of different levels
of—
(i) take-up
of;
(ii) persistency in;
and
(iii) contributions
to,
the scheme, and setting out
appropriate options for managing the financial risks associated with
different outcomes;
and’.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 69, in schedule 1,
page 55, line 2, at end
insert—
‘(2A) In
preparing the report, the Trustee Corporation must have regard to such
independent actuarial advice as it considers
appropriate.’.
No.
65, in
clause 61, page 28, line 29, 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.’.
Mr.
Waterson:
The amendments all aim to achieve the same
thing, so I apologise if there is a certain amount of confusing
duplication involved. We intend that either or both of those
bodies—if either, preferably PADA—should, within 12
months of the passing of the Act, and at other times in the future as
directed by the Secretary of State, publish a report analysing the
impact of the new scheme, which is set up under clause 50. It should
examine rates of take-up, persistency and contributions to the scheme,
and set out appropriate options for managing the financial risks
associated with different outcomes. We also suggest that the authority
should obtain independent actuarial advice and publish that at the same
time. This is all to do with having the maximum transparency as we head
to the starting point of personal accounts, hopefully in
2012.
10.45
am
It will
probably be convenient if I deal now with the broader general issues
and hopefully obviate a stand part debate, as is common practice these
days. It is interesting that in only the past few days, the delivery
authority has published its consultation on a possible charging
structure. It set out four options: first, an annual management charge
when members pay a fixed proportion of the funds under management each
year; secondly, a contribution charge when members pay a fixed
proportion of each contribution that they make into personal accounts;
thirdly, a joining charge—a one-off, up-front fee on joining the
scheme—which might be fraught with problems; and, fourthly, a
combination of a lower contribution charge with an AMC. I am sure that
responses to the consultation will be flooding in. It runs until 22
April, which is a generous period, and the delivery authority will
publish its responses to it by 15
July.
While it is
important to set out the options for how the charges will be
structured, it is impossible at this stage for those running PADA to
have an idea of the size of the charges, and I shall come to that in
more detail later. In its brief on the amendment, AEGON
states:
“In
setting the charges to be applied to personal accounts, the Delivery
Authority will need to make a set of assumptions around take-up,
persistency and contribution levels for the new
scheme”,
hence the thrust
of the amendments. It goes
on:
“Unlike a
group personal pension or a trust-based scheme backed by an employer,
there is nobody ‘standing behind’ the scheme, so the
questions arise as to how any shortfall in revenues will be
covered.”
That brings us
neatly on to public subsidy and the so-called level playing
field.
So far, the
Government have been insistent that the scheme will not require public
subsidy. I dug out the comments of the Minister for Pensions Reform
when he gave evidence to the Committee on 17 January. When I asked him
about public subsidy, he replied:
“In terms of public
subsidy, our aim is that personal accounts should operate in the same
way as most other pension schemes. They would not have a level of
public subsidy which would be unacceptable. Indeed, it is the role of
the members to pay for the operation of that pension
scheme.”
When talking
about getting the costs down to 0.3 per cent., he said:
“I made it clear in my evidence to
the Select Committee that it may well be 0.5 per cent., at least
initially.”
When
referring to the budget for PADA, the Minister drew attention to the
£21 million for 2007-08, for which we voted during the passage
of the Pensions Act 2007, and
said:
“We will
look at what costs PADA will need in the future, and it has an ability
to raise funds if it needs to do so...I want to make sure that
once we get beyond that and into the personal accounts board and having
an NDPB running a pensions scheme, we will have an organisation that is
primarily self-funding.”——[Official
Report, Pensions Public Bill Committee, 17 January 2008; c. 113-14,
Q138-39.]
We agree. However,
obviously the costs are clicking up already. In answer to a written
question that I tabled the other day, the Minister said that
expenditure on consultancy advice about implementing the personal
accounts system had amounted to £6.6 million up to the end of
October. Will the Under-Secretary update that figure? A great deal of
money has been, and is being, spent. It would be interesting to know
how much of the £21 million originally voted for PADA has
already been spoken for.
The Government’s policy
is clear: the scheme must be self-funded. That means no hidden
subsidies, no sweetheart deals, no low-interest loans and so on. We
will come on to the specifics later on. The brief from AEGON
continues:
“But
in the absence of such subsidy, the only recourse would be to borrow
potentially large amounts of money. In the absence of other income
streams or a sponsoring
employer,”
which clearly
this scheme will not have,
“this borrowing could only be
funded by increasing charges to scheme
members.”
It touches on
the possibility that
“charges may rise in the
future”,
and that calls
into question one or two of the options, especially the joining fee set
out in PADA’s recent document about its charging
structure.
Amendment
No. 65 would place a duty on the trustee corporation and PADA to
publish a report that examines the issues in detail and sets out how
different scenarios for take-up, persistency and contributions will be
managed. In short, it would give the Secretary of State a power to
require updates from the authority. That would enable a new Secretary
of State in an incoming Government—hopefully a Conservative
one—to ask for further actuarial analysis ahead of the expected,
although by no means certain, go-live date of 2012.
The proposed reporting duty
falls some way short of that required of trustees of a defined benefit
scheme, as set out in the Pensions Act 2004. However, it goes beyond
that required of a normal defined contribution or money purchase
scheme. In view of the strong public interest about the new system of
personal accounts, and the potentially massive importance of it to many
millions of people, the approach strikes the right sort of
balance.
I shall set out one other
important issue, which was again raised by AEGON. In welcoming
the consultation announcement about the charging structure, it
said:
“it is encouraging
to see a clear acceptance that a flat annual management charge is not
the obvious starting
point.”
That point is
worth making. AEGON also said that it was
“puzzled as to why PADA believes
there are commercial sensitivities over publishing its financial
modelling.”
I take the
opportunity to note that the consultation on charging structures has
been financed by PADA. It would be helpful to have the
Under-Secretary’s input and to hear his thoughts on the four
options, on why PADA cannot publish its financial modelling, and on how
difficult it is at this stage for it to have financial modelling, given
that it is very difficult to predict the actual costs so early in the
game. On that basis, I commend the amendment to the
Committee.
Paul
Rowen:
Schedule 1 sets out how the Personal Accounts Board
will operate. I believe that in setting up personal accounts, we move
into uncharted waters. This is not an employees’ occupational
pension scheme through which, as the hon. Member for Eastbourne
mentioned, a shortfall in the scheme can be met by increased employer
contributions. We have little information. We can make estimates about
take-up, and we have had extremely involved discussions about
contribution levels and how people with varying income levels can
access the scheme. However, we do not know how things will work
out.
The hon.
Gentleman assessed some of the issues, such as the charging structure.
I welcome the fact that PADA has started a consultation on that. I
believe, as AEGON said, that it is important to have flexibility within
the charging structure that is adopted, because it is important that
personal accounts are self-financing. I do not want to see a situation
whereby, because of the nature of what has been set up, a large
Government subsidy is required in future. That would go totally against
the spirit of the Bill. Equally, we do not know what the future holds,
and the ability to report and present actuarial evidence of how the
Personal Accounts Board is operating is important.
We talked earlier about the
need for transparency in what we are doing. Personal accounts will
involve an awful lot of people who currently do not have access to a
pension scheme. We need, therefore, an ongoing mechanism to ensure that
as the scheme cranks up, there are regular reporting points on how it
is progressing. Amendment No. 65 is important because it would require
a report on the financial position that would include evidence of
take-up, persistency and levels of contributions to the scheme, and a
measurement of that against the running costs of the scheme. We know
that in the initial years the costs will be much higher than what will
be recouped by the contributions, whatever type of management charge is
introduced. It is therefore important that there is a mechanism to
ensure that such ongoing discussion takes place.
The financial models that are
used by PADA and the Personal Accounts Board must be made available. We
must know the assumptions on which the board is
operating. Obviously, PADA will be doing a lot of work on this in the
next few years and it is important that that information is made
available and is up front. That is the best way to ensure that personal
accounts get off to being the success that we all want to them to be
and that there is flexibility in the system, so that if changes
occur that were not predicted at the beginning—I cannot believe
that it is possible to predict all the changes—they are reported
and prompt action is taken. The worst scenario would be for the
organisation to continue on its own as an arm’s length
organisation believing that it is doing its best and that it can sort
out a problem in the long term, yet meanwhile storing up huge debts
that will saddle future members with increased costs. It is important
that we have a model from the word go that ensures that costs are
recoverable within a time frame that does not mean that future members
will be saddled with costs for which they receive no
benefit.
Mr.
John Greenway (Ryedale) (Con): I will not detain the
Committee long, but I want to make two brief points. First, as my hon.
Friend the Member for Eastbourne said, the amendments were suggested by
AEGON. I want to remind the Committee that the chief executive of AEGON
is Mr. Otto Thoresen, on whose support the success of the
measure so depends through his work on generic financial advice on
which he will report in about four weeks’ time. While I thought
that it might be helpful to point out that the proposals come from a
good source on which the Government will rely heavily for the success,
or otherwise, of the Bill, I will not labour that
point.
Secondly, there
is a possibility of some confusion about what is proposed in paragraph
17 of the schedule regarding the annual report, so we might be looking
at two different things. We need to know—the Secretary of State
and, through him, Parliament need to know—how the corporation is
functioning. From my reading, that is the clear intention behind the
provision and the note about it.
11
am
Amendment No.
68 would do something slightly different, albeit something extremely
important that appears to be lacking in the Bill. When assessing the
potential success or otherwise of the personal accounts initiative, we
must have regular information about take-up, how many people opt out,
persistency, levels of contributions and so on, because otherwise
Parliament will be in no position to judge whether the scheme is a
success. Given the cross-party consensus on the proposals, irrespective
of whether the Minister accepts the amendments—one suspects that
he will not—will he acknowledge that it is important for that
information to be available to Parliament and the wider world so that
we can make an ongoing assessment of the scheme’s
success?
It will be
several years down the track before the measure comes into effect, so
there will be another elected Government and different Ministers in
place. It is vitally important that a clear commitment is made through
this Public Bill Committee process that, by one ruse or another, that
kind of information will be available to Parliament and the wider
world. There should be an obligation on the delivery authority to
provide that information. This is a way of flagging up the fact that, as
far as I see, there is nothing in the Bill to say that that information
will be published. In reality, I cannot believe that it will not be
made available, but we need some reassurance about
that.
Mr.
Plaskitt:
This is indeed an important aspect of the Bill
and I am pleased that we are debating it. It is right for hon. Members
to seek such reassurances. I am grateful that PADA’s
consultation on charging has been acknowledged and welcomed. It is, of
course, a consultation on the charging structure, not charging levels.
It is welcome, and I am sure that it will be important in terms of
finalising the scheme’s details. I am also pleased that there is
general support and recognition for the important principle that the
scheme will be, in due course, self-financing. I hear that there is an
acceptance of the situation during the set-up years—this is a
separate issue—but in the long term, it must be
self-financing.
Mr.
Waterson:
I think it was Keynes who said that in the long
term we are all dead. What is the Minister’s definition of long
term with regard to amortising PADA’s start-up
costs?
Mr.
Plaskitt:
Certainly, in the long term, Keynes was dead and
so were some of his ideas. We cannot put a precise number on that, as I
am sure that the hon. Gentleman understands. It is understood that
there has not been a venture on this scale before. How long it takes to
reach a point of self-financing will depend on the number of people who
come into the scheme and how long they stay in it. It will also depend
in part on the charging structure of the scheme. The hon. Gentleman
will recall that we listened to a number of witnesses giving evidence
on that subject during the introductory sittings of the Committee. No
one can put a precise number on that—I do not suppose that he
can and I certainly could not—but we do know that it will depend
on the decisions that people make and the levels of opt-out. That is
all the more reason why the design and the climate in which the scheme
launches must be right.
We would like the scheme to
reach the point of self-financing as soon as possible. That requires
the launch and take-up to be a success and for matters such as the
charging structure to be right. However, if the hon. Gentleman asks me
to put a date on that, I cannot, and nor can anybody else at this
time.
I appreciate
hon. Members’ concerns about how participation in the scheme and
the contributions to it could affect its financial position and about
whether that could entail any degree of public subsidy to the
scheme—how much and for how long. As I have just reiterated, it
is our intention that the scheme will be self-financing in the long
term, but during the phase when the scheme is being set up and for some
time after the scheme accepts its first members’ contributions,
its revenues will be insufficient to cover its costs. We have asked
PADA to advise us on how best that shortfall in revenues may be
financed in a way that balances commercial viability with low
charges.
The
provisions in the Bill are necessarily wide because an optimal funding
solution has yet to be developed—that is what PADA is working
on. It will depend on a number of things, including the costs of
setting up and running the scheme and the factors that influence the
flow of revenues into the scheme, including those raised by the hon.
Member for Eastbourne: the potential take-up of the scheme and how
much, how regularly and for how long members contribute—the
issue of persistency in contributions to which he rightly
referred.
Mr.
Waterson:
I am following what the Minister is saying
closely. I do not want to run the consultation here and now, but does
he agree that a possible fatal flaw in the idea of a one-off joining
fee is that if it is pitched too low, those members would benefit
disproportionately and there would be an additional amount to be
collected from later joining members, particularly if the persistency
is awful? If one adopts the Steve Bee scenario, a lot of people will
rush for the exit after two or three months because they have suddenly
realised that, due to auto-enrolment, their pay packet is a bit
light.
Mr.
Plaskitt:
The hon. Gentleman tempts me to start opining a
view on the options on which PADA is consulting, in respect of the
charging structure. It would be quite wrong to do that when the
consultation is just getting underway and it is a matter for PADA
anyway, not for me. He is right to say that there would be difficulties
in opting for just a joining fee approach, but that is pointed out in
the consultation document. It is a potential shortfall that PADA
identifies. The purpose of the consultation is to run out all of the
options for a charging structure, with a view to coming to a conclusion
about what is the best charging structure. Each option that it looks at
has plusses and minuses to it; it must reach a view, in the light of
responses that come into the consultation, about what the appropriate
charging structure is to achieve the ideal outcomes that we want. It
will engage in precisely the sort of debate that he has just
raised.
The precise
costs of setting up and running the scheme will not be fully known
until the authority is much further down the track in negotiating the
contracts for services underpinning the delivery of the scheme.
However, we anticipate that, based on data and latest research among
employers and individuals, the scheme could have up to 7 million active
members. I am confident that the scheme can be delivered in a way that
ensures that there is no unfair subsidy from Government and that meets
our intention for the scheme to be self-financing in the long term and
to deliver at no cost to the taxpayer.
Amendment No. 65 would require
the authority to publish a report on the potential impact on the
financial position of the scheme under various revenue scenarios,
within 12 months of Royal Assent. Amendments Nos. 68 and 69 would place
a similar requirement on the trustee corporation and suggest the
corporation seek independent actuarial advice. The authority will
continue analysing all those factors in developing an optimal funding
solution and will consider how it may be adapted under various revenue
scenarios. That includes a rigorous analysis of the assumptions and
associated risks around take-up, persistency and contributions and how
they impact on the financial position of the scheme. Specific
provisions
in the Bill are not needed to ensure that that work is done. Indeed, it
has to be done.
I see
no benefit in adding to the already comprehensive regime of financial
accountability between non-departmental bodies and their sponsoring
Departments. As non-departmental bodies, both the authority and the
trustee corporation will be required to publish annual reports and
accounts to Parliament. The trustee corporation will also have an
overriding duty to act in members’ best interests, including the
prudent financial management of the personal accounts scheme. There
will therefore be transparency in the scheme’s financial
position. Any revenue received would be shown in the accounts of the
scheme or the authority, whether it has come from membership charges or
other sources including, of course, the Government—if that were
required.
I hope that
our debates have put members of the Committee in no doubt about the
Government’s intention that the personal account scheme will not
be given unfair public subsidy. They are right to raise concerns about
the extent to which the number of future members and their level of
contributions might impact on the financial strategy for the scheme,
but I assure them that we are confident that the scheme will be viable
within the parameters that have set publicly. Its financial position
will be made transparent through existing reporting and accounting
requirements that apply to both the trustee corporation and the
delivery authority. Given those reassurances, I hope that the hon.
Member for Eastbourne will agree to withdraw the
amendment.
Mr.
Waterson:
I do not want to prolong matters, but we shall
continue to unpack such issues in the next couple of debates. One
man’s unfair public subsidy is another man’s sensible
precaution. We will need to probe a little further into exactly what
the Minister means by “unfair” and “long
term”. For the moment, I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
The
Chairman:
With this it will be convenient to discuss
amendment No. 60, in schedule 1, page 55, line 11,
leave out from ‘which’ to end of line 12 and
insert
‘shall include
conditions about repayment and interest at commercial
rates.’.
Mr.
Waterson:
In a film, the late, great Kenneth Williams
memorably said, “Infamy! Infamy! They’ve all got it in
for me!” I hope that PADA does not feel that I have it in for it
by trying to block a source of income or personal accounts at the start
of its fledgling career. It is important to pin down the Minister on
exactly what the Government have in mind in respect of propping up PADA
in its early days, particularly if is not as successful as Ministers
hope and
predict.
Amendment No.
59 is straightforward. It would remove “grants” from the
provision. I do not know on what basis the Government are considering
making grants to the trustee corporation. Perhaps we should be
told. The nature of a grant is that it is not expected to be repaid, so
what notion of grants is the Government looking at? What size and basis
do they have in mind? In what circumstances would a grant of
taxpayers’ money be appropriate to an organisation that is
conceded by Ministers to be self-financing in the long term? I would
prefer them to use the description “medium
term”.
Amendment
No. 60 is designed to make sure that, if money is lent by the Treasury
or the Department, to PADA, it is repaid and that the terms of such
loans should be transparent and based on commercial rates, with a
proper and appropriate period for
repayment.
11.15
am
It would send
some serious messages to the industry if the Minister were not prepared
to accept at least the second of these amendments, and to clarify the
nature of grants in this context. Looking at the evidence of
Mr. Stephen Haddrill, from the Association of British
Insurers, when I asked him about the level playing field and the public
subsidy issue, he
said:
“The
primary one that concerns me is that there is a power in the Bill for
the Secretary of State to make loans to the personal accounts system
and to do so without necessarily charging any interest and I cannot see
why that should be the case.”——[Official
Report, Pensions Public Bill Committee, 15 January 2008; c. 35,
Q50.]
I am sure that many of the
companies that make up the Association of British Insurers would be
delighted if the Government were prepared to offer them
interest-free loans with rather loose arrangements
for repayment. He goes
on:
“It is very
important that the system and the consumers of it—the people who
go into it—absorb the costs of it just as people who are in
other pension schemes have to absorb the costs of those pension
schemes...Why should someone who is in a personal account get a
taxpayer subsidy other than the basic pension subsidy when somebody in
another scheme does not?”——[Official Report,
Pensions Public Bill Committee, 15 January 2008; c. 35,
Q50.]
That is a good question,
one that I hope the Minister will feel able to answer.
We talked about borrowing.
There is not an unrealistic view from the industry. Dick Saunders said
at the evidence-taking
session:
“There
will be a need for the scheme to borrow in the early years to beat that
J-curve, which any business plan has. Obviously, that borrowing should
be on arm’s-length terms; I am sure the Treasury will not want
to lend to it interest-free.”——[Official
Report, Pensions Public Bill Committee, 15 January 2008; c. 36,
Q50.]
In addition,
Mr. Haddrill
said,
“what we do feel
is, if there is a level playing field with no taxpayer subsidy, that we
will take on the competition. That is the sort of industry it
is.”——[Official Report, Pensions Public Bill
Committee, 15 January 2008; c. 37,
Q52.]
I commend that kind of
thinking.
I do not
think that ABI members or others are fearful of personal accounts; they
made it clear in their oral and written evidence that in principle they
support the notion of trying to tackle the problem of the target group
or groups, who are not currently saving for their retirement and should
be. In fairness, they have trooped into the endless seminars,
discussions, working groups, consultations and everything else, trying
to be as helpful as possible. Where they draw a line, on behalf
of their shareholders, is unfair Government subsidy to make personal
accounts overly competitive with existing provision. That would be bad
for business, but more importantly, it would erode existing pension
provision, where we know that the average employer contribution in DB
schemes, according to the National Association of Pension Funds, is
something like 16 per cent., which dwarfs the 3 per cent. envisaged in
personal accounts.
I
must pin the Minister down on these amendments; he
must give a satisfactory explanation, to the Committee and the
industry, of the circumstances under which grants will be given from
the Government to PADA, and the basis on which loans would be
advanced.
Paul
Rowen:
I do not know whether those who drafted the
schedule were trying to do the usual civil servant catch-all and
include all possibilities in which money or assistance might be sought.
That is one possible interpretation of the word “grants”.
It is important that, given the Minister’s earlier comments, we
have clarification of what the trust board should do. There is one
circumstance and one circumstance only where it is proper that the
Government can give grants, although I am not sure that those should be
to the trust board. We had an earlier discussion about advice and
information and provision for that. Looking at schedule 1, I do not see
it as being the responsibility of the trust board to provide that
information. However, it is legitimate for that sort of information to
be provided with some form of Government subsidy or advice alongside
the range of other financial advice available through Citizens Advice
or whatever. That is a separate issue to schedule 1, which deals with
the trust board.
Again, I agree with the hon.
Member for Eastbourne: if we are setting this up, we should state
clearly from the beginning that there is no subsidy and that any loans
granted will be paid back. We must know the terms on which those loans
will be granted. Unless it is a usual civil service catch-all, I see no
need to include the possibility of obtaining finance for including the
word “grant”. If the trust board administers the funds
and invests them to ensure a return on someone’s pension, it
should operate, as should every scheme, with its costs fully covered.
In this case, as it is not an occupational pension scheme, it must be
covered through the charges that it makes.
Mr.
Plaskitt:
As hon. Members have identified, this is an
important aspect of the Bill. It is right to seek these reassurances
and I will try to oblige. There is understandable interest in how the
personal accounts scheme will be funded, whether the scheme will
receive financial support from the Government, and if so, in what form.
Let me reassure the Committee of the Government’s intentions in
that area.
The
personal accounts scheme should be self-financing in the long
term—I know we will discuss that further—through charges
paid by the members of the scheme, and be delivered at no overall cost
to the taxpayer. I want to stress that if any degree of Government
support is involved in helping the scheme get up and running, it will
be fully compliant with all European requirements on competition and
state aid—it must be, it should be, and it will be. However, as
with many new businesses, there will be a period of time during the
scheme’s early years when revenues will be insufficient to cover
set up and operational costs. That is understood and
accepted.
No decision
has yet been made on the best approach to filling that funding gap. It
will be for the personal accounts delivery authority to consider the
range of funding options available and to make
recommendations to the Secretary of State about the best possible
approach. Before the authority can provide such advice, it must carry
out further work on the detailed design of the scheme, refine its
estimates of the costs, and engage with private sector suppliers who
will deliver the services that underpin the
scheme.
Mr.
Waterson:
If I remember rightly, the consultation document
on the charging structure says that by July this year, the authority
will announce its conclusions. Is the Minister aware whether, in that
same time scale, it expects to have reached a conclusion as to the
likely actual costs that must be recouped? On that basis, it seems to
be a tight time scale and could seriously affect certain
options—I touched on the initial one-off joining fee. I do not
want to draw the Minister too far down that route, but I raised it as
an example where, crucially, the amount to be recovered makes it either
a viable option or not.
Mr.
Plaskitt:
I think that PADA expects to have sufficient
information on which to base its decision by the end of the
consultation on the charging structure. The consultation will come to
an end and there will be a period of deliberation in response to that,
which will provide further time. During that time, sufficient
information will become apparent to give it a basis for reaching a
decision.
The hon.
Members for Eastbourne and for Rochdale both referred to what I might
call the competition between the trustee scheme and commercially
provided schemes on the question of whether it is appropriate to have
any degree of public funding. However, one crucial difference needs to
be underlined. When giving evidence to the Committee, Paul Myners
said:
“We have
a universal service provision
obligation.”——[Official Report, Pensions Public
Bill Committee, 15 January 2008; c. 14,
Q14.]
That makes it different
from the commercial sector provision. The schemes cannot pick and
choose who they take on; they have to take everyone. That fundamentally
alters the nature of those pension schemes, putting them in a different
situation with respect to charges and running costs, and ultimately
returns, to privately provided purely commercial pension schemes, which
can exercise far more choice in that respect.
The personal account scheme is
therefore unique, but we should not underestimate the challenges that
the authority will face when setting it up and developing it. As I
said, it is the largest occupational pension scheme in the United
Kingdom. When up and running it could easily have as many as 7 million
active members. It will be specifically targeted at those who do not
have access to a good, low-cost workplace pension scheme;
and as Mr. Myners said it cannot pick and choose its
customer base.
Once the authority has developed
the scheme and its procurement strategy, it will provide advice on the
funding solution that provides the best balance between commercial
viability and low charges—and I accept that the charges will be
important to making the scheme successful. However, all that work can
happen only once the authority’s powers have been extended under
the Bill, so that it can take the next steps to implementing the
scheme. It is therefore important that we do not second-guess the
outcome of its work—nor, as the amendments do, should we place
undue restrictions on the authority in its consideration of the funding
strategy.
It is common
practice—the hon. Member for Rochdale alluded to the
fact—to take broad powers to finance a non-departmental public
body involved in a major project, especially such a one as this in
respect of personal accounts. However, I stress that it does not mean
that any of those specific powers will necessarily be used. It simply
ensures that the authority has the flexibility to identify the funding
strategy that provides the best deal for members. In my view, it would
be wrong to fetter the development of the best funding solution by
insisting on the removal of a potential approach to delivering that
financial support.
Mr.
Waterson:
May I make clear that my
amendments are not designed to fetter the authority? They are designed
to fetter the Government. Apart from saying, “We stuck it in
because that is what we do in these circumstances,” the Minister
has yet to give us a scenario in which he might consider making a
grant—presumably a non-recoverable one—to the
authority.
Mr.
Plaskitt:
That brings us back to the heart of the debate.
Indeed, it is the point that I am making—that before PADA has
completed its work and before decisions are made on how the funding gap
should be addressed, it is important to keep our options open. Without
any of those things having been done, I cannot say now what precise
circumstances would lead to a grant. It would fetter the operation if,
at this stage, before any of those decisions had been made and that
work done, the Government or PADA removed the possibility of extending
the grant to the organisation.
As I said, it is standard
practice when setting up non-departmental public bodies to have that
funding option. That does not mean that it will be used, but given the
scale of what has been taken on and given that PADA has yet to make
decisions in respect of the funding structure, it would not make sense
to remove one of the options. Indeed, it is sensible to include it in
the suite of funding arrangements that the authority could draw
upon.
I reassure the
Committee that we have no intention of unfairly subsidising the
personal accounts scheme. If any Government support is involved, it
will be fully compliant with European requirements on competition and
state aid. Transparency will ensure that it is also known about, which
is clearly very
important.
11.30
am
Mr.
Waterson:
On the issue of transparency, will the Minister
confirm that loans will be repayable within a reasonable and set
period, and that they will be subject to commercial rates of
interest?
Mr.
Plaskitt:
That is not exactly the same as the transparency
point. On the issuing of annual reports, any funding source that has
come into the authority will be reported. In that sense, it is
transparent, as are the terms on which that funding is provided. It is
not for me to anticipate what kind of deal might be offered. As regards
public confidence, it is important that there is transparent reporting.
With those reassurances, I hope that the hon. Gentleman will agree to
withdraw his
amendment.
Mr.
Waterson:
I am not at all content. The Minister is giving
us no assurances about there not being grants of any size for whatever
purpose—presumably they will be non-recoverable. Nor has he been
prepared to give any assurances about commercial rates of interest and
repayment over a sensible and normal period. However, he has promised
us that when such things are done, they will be transparent. That means
that we will get to know about them, which is great. I am not an expert
on the European legislation, but I think that the Europeans might have
something to say about a non-interest bearing loan, let alone a grant.
With all due respect to the Minister, I do not want to leave it to the
European Union to sort this out. We need to know the situation
now.
The Minister has
not said—quite the opposite—that he would not be in the
business of issuing grants or non-interest-bearing loans to PADA. In
this Bill, it is very important that we set out the parameters for
PADA—not only for funding, but for other things—so that
it knows that it can cut its coat according to its cloth. The cloth
must be made available. If it is apparent to PADA that an escape route
of Government grants or non-interest-bearing loans will always be
available, it might not concentrate its mind as much as it should on
getting its sums right. Whatever deal—to use the
Minister’s word—is concocted between the Treasury and
PADA, it needs to be known about in
advance.
The industry
has a legitimate concern about a level playing field. The Minister
still talks about long-term rather than medium-term funding when most
organisations are in the business of predicting profit and loss. I am
not content. Unless the Minister can give me more reassurances, I am
minded to press the amendment to a
Division.
Question
put, That the amendment be
made:—
The
Committee divided: Ayes 6, Noes
8.
Division
No.
3
]
AYESNOES
Question
accordingly negatived.
Mr.
Waterson:
I beg to move amendment No. 61, in
schedule 1, page 55, line 13, leave
out ‘may’ and insert ‘is required to
make.’
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 43, in
clause 62, page 29, line 13, at
end insert
‘and initially
based on an annual management charge of no more than 0.3 per cent. per
annum.’.
No.
52, in
clause 64, page 29, line 39, at
end add—
‘( ) For the
avoidance of doubt, all the costs incurred by the Authority in
establishing the pension scheme under section 50 of the Pensions Act
2008 (c. ) shall be recouped through charges to members over a period
of five years from
2012.’.
Mr.
Waterson:
This interesting group of
amendments raises some subtly different issues. Amendment No. 61
continues on from the previous debate and would insert into schedule 1,
where it
says,
“The
trustee corporation may make charges in connection with the exercise of
its functions”,
an
obligation on such a body requiring it to make charges. That is
sensible in terms of bringing revenue into the trustee
corporation.
Amendment
No. 43 relates to clause 62 and I will return to it in more detail
later. It is a probing amendment that would insert a provision to the
effect that the annual management charge should
be
“no more than 0.3 per
cent. per
annum.”
Amendment
No. 52 sweeps up a lot of what was debated under the previous two
groups. The amendment would make it clear that all costs incurred by
the authority in establishing the pension scheme under clause 50 of the
Bill
“shall be recouped
through charges to members over a period of five years from
2012.”
I shall deal with
this matter first in some detail. Debate has raged for the past hour or
so about what “long term” means. The Minister is adamant
that the scheme is intended to be self-funding in the long term, but we
would be much more comfortable with the expression “medium
term”. I am the first to admit that one cannot be absolutely
clear-cut at this stage, but we need some idea, in very broad terms, of
the Minister’s
thinking.
In amendment
No. 52, I have plumped for a period of five years up to 2012. That
might be over-optimistic or about right. However, it is important that
rather than just having vague ministerial assurances that the scheme
shall be self-funding in the long term, we have some idea about the
time scale in which PADA and the board are meant to get themselves into
equilibrium in respect of their costs and
charging.
Even if we
cannot resolve the matter today, it has to be resolved fairly soon. I
have already mentioned the PADA consultation on the charging structure,
which says that it will reach a conclusion, following that
consultation, by July. As the Minister has already conceded, that would
make little sense if it did not also have a fairly clear idea by then
about the likely costs that it will have to recoup. It will be
interesting to see where we are going on the percentage charge, as well
as on the form of the charge. However, as I have already argued, it
could knock for six straight away the option of a one-off joining fee
for lucky first-time members joining in the first wave, as it were,
which may be
wholly unrealistic in terms of the recovery of the total costs over the
long term that the Minister keeps talking
about.
Although
I do not want to press amendment No. 52 to a Division, I am still
pressing the Minister hard, as we did with the last group of
amendments, about what the Government have in mind. I do not mean any
ill will to the Minister’s career prospects, but by the time
this is all hammered out, the Minister will certainly be long gone. He
will probably be doing something much more exciting; he might even be
in opposition—who knows? However, we must have a clear idea of
what current Ministers consider should be the period over which the
scheme washes its
face.
Amendment No. 43
draws attention to the level of charges, which is an
important point of principle. Without wishing to go back too much into
the mists of time, a fundamental principle of the Turner
report—the report of the Pensions Commission—was that
personal accounts should be a low-cost vehicle for people who are not
presently saving for their retirement. The dynamic in that principle is
that the low cost should be delivered by what Lord Turner calls an
advice-free model. There will be an opportunity later to discuss the
sort of advice available. As we have heard, Otto Thoresen and his group
are labouring long and hard to come up with an answer on so-called
generic advice. It remains a fundamental policy objective of both the
Pensions Commission and the Government that the charges are kept as low
as
possible.
Interestingly,
the latest briefing of the Association of British Insurers
says:
“The ABI
is pleased to see that the Conservatives propose to debate scheme
charges, via their amendments to Clause 62. We understand the amendment
is probing in its nature, and intended to stimulate debate around
scheme costs...The key principle guiding all decisions the
Government takes on Personal Accounts must be that all costs incurred
in establishing and running must be recouped from scheme members
through charges as they are in any other occupational pension
model”—
I made
that point in the previous debate. The ABI states further that Tim
Jones, the new chief executive of
PADA,
“is already on
record as having noted that a 0.3 per cent. Annual Management
Charge...is too ambitious, and AMC of 0.5 per cent. or higher is
likely to be more
realistic.”
It would be
interesting to hear the Minister’s thoughts on such matters and
to find out whether he is still hoping for a 0.3 per cent.
figure.
The ABI
touches on the consultation on the charging structure and
states:
“The
ABI has already publicly announced that a hybrid charging model,
probably constituting an AMC and another charging structure will be the
only way that scheme costs, especially set-up costs, can be adequately
managed...It is vital now, that the Government provides public
reassurances that all up front set up costs incurred ahead of 2012 are
paid for at commercial rates, by scheme members and not from public
funds. That includes the large additional resource that will need to be
allocated to The Pensions
Regulator.”
It
is also worth touching on one or two pieces of oral and written
evidence that we have had before us. Which? said that
it
“believes a low-cost
scheme with a target Annual Management Charge...of 0.3 per cent.
per year is the most appropriate charging structure because it is
simple to understand, comparable with other forms of saving, fair for
low earners and will maximise participation in the
scheme.”
Mr. Haddrill of the ABI
said:
“Talking
to PADA recently, I think that it is coming to the view that this 0.3
mantra is the one that is going to be
delivered”—
that
might be a misprint. He
continued:
“We
always felt that it would be closer to 0.5 or 0.6. The numbers will
come out when the numbers come
out”.
Mr.
Haddrill has a philosophical approach to life. He
continued:
“but from our
experience of running these things that is where we think it will end
up.”——[Official Report, Pensions Public
Bill Committee, 15 January 2008; c. 37,
Q52.]
It will be fascinating to
hear the Minister’s thinking on that and what he is being told
by Mr. Jones, as he conducts his review of which we heard
something the other
day.
In its written
evidence, the CBI
said:
“keeping management
charges as low as possible is essential and unnecessary complexity will
drive up costs. Prohibiting inward transfers is an important measure to
contain costs, enabling PADA to achieve an annual management charge for
personal accounts scheme members that is close to the Turner Commission
target of 30 basis points (0.3 per cent.
AMC).”
11.45
am
Finally, when
giving evidence, the Minister for Pensions Reform
said:
“We have
been clear in saying that we believe we can get the costs of running
the scheme down to 0.3 per cent., although I made it clear in my
evidence to the Select Committee that it may well be 0.5 per cent., at
least initially. We think that we can keep the costs low and that the
costs of setting up the scheme could be met primarily from the private
sector.”——[Official Report, Pensions
Public Bill Committee, 17 January 2008; c. 113,
Q138.]
I am not quite sure what
he meant by that. Perhaps the Under-Secretary will enlighten us and
comment on the suggestion that the charge may be 0.5 per cent.
initially, but might come down later, presumably as matters balance
out. Does he think that it is sensible or logical to have a percentage
charge that will change over
time?
These are all
probing amendments, so I do not want to worry the Minister too much.
However, they all raise some important issues of
principle.
Paul
Rowen:
This debate follows our earlier
discussion about the operation of the scheme. Amendment No. 61 has more
merit than the other two amendments in the group and establishes the
important principle that costs are recovered. The words used in the
schedule—“may make charges”—are far too
weak. We ought to accept that we are going to incur costs and that
those will be
recovered.
When we
contrast the debate on amendments Nos. 61, 43 and 52 with that on
amendments Nos. 68, 69 and 65, there is some
incongruity. Amendment No. 43 specifies what the management fee will
be, whereas earlier we were saying that we wanted to see published, as
part of the annual report, proper analysis—actuarial
research—about take-up, persistency and contributions, with the
basic principle being to ensure that the costs are recovered.
Obviously, that needs modelling over time. I wonder why the
Conservatives have alighted on the five-year period to 2012. I hope
that PADA will publish the various assumptions and models in respect of
which it operates, once those are available. Without that modelling, it
would be inappropriate for us to set a time frame in which any start-up
costs should be met.
The principle behind amendments
Nos. 43 and 50 is right: management costs should be
as low as possible. PADA, through the consultation that it has
announced, will take advice and publish a report that will set out
initial assumptions about the management fee. If we can accept the
initial findings of the Turner commission on having as low a management
fee as possible, and if the Minister can assure us that that is the
principle on which the personal accounts will be operated, that is
fine. I accept that it is wrong to stipulate a time frame until the
models have been made. However, the principle should be that once PADA
has run the models and consulted over an agreed time frame, it should
have to say that it expects the scheme to have recuperated its costs
and then return any loans—it should not, hopefully, need any
grants—and say that it is operating properly. To try to be too
restrictive at this stage would be inappropriate, although I agree with
the principle that the hon. Member for Eastbourne is putting
forward.
Mr.
Greenway:
Given the long experience that you and I have
had of serving on Standing and Public Bill Committees, Sir Nicholas, we
know that as we discuss amendments, there is sometimes a sense that we
should have worded them slightly differently. I have that sense with
regard to amendment No. 43. I am sure that the Minister will give us a
robust argument on what it would achieve, which would be a straitjacket
of no more than 0.3 per cent. initially. I say to my hon. Friend the
Member for Eastbourne that that is no more clearly defined than
“long term”, but that is a joke between us. The wording
that I might have alighted on would have been a target of 0.3 per cent.
We are trying to elicit confirmation from the Minister that that
is the target.
That said, I have grave doubts.
I share the ABI’s view about whether that 0.3 per cent. is
deliverable—the figure is much more likely to be around 0.5 per
cent. We must also bear in mind that the stakeholder pension initiative
failed because the Government insisted on the straitjacket of 1.1 per
cent. of charges. That involved, potentially, the giving of advice,
whereas with this arrangement there will be not advice, but
information.
My hon.
Friend referred to the Thoresen report, and I suspect that we are
likely to see from the report, in about four or five weeks’
time, the introduction of a new word: “guidance”. That is
not advice. That means that people will not have to be remunerated for
giving an explanation to people who automatically enrol, which is the
fundamental difference. That is why it is certainly possible—it
should be achievable—for the management charges of this scheme
to be significantly less than for stakeholder pensions. We need a
clearer understanding of the Government’s expectation on record,
and I am sure that the Minister will want to take the opportunity to
enlighten the Committee further on that point.
While amendment No. 61 is a
probing amendment, we need a clear statement from the Government that
they expect PADA to make charges for the services that it provides. The
wording of the Bill does not provide that commitment. However, there
might be something that PADA wishes to do in the future for which it
does not wish to make a charge, but for which, if we had the wording
proposed in the amendment, it would have to make a charge.
One of the delights of being in
Committee is that arguments flow back and forth. We seek the real
substance of the Government’s intention. It is absolutely vital
that PADA is obliged to make charges, but I can foresee circumstances
in which something that they might wish to do would not necessarily
involve making a charge. This is an important aspect of the Bill. I
will not comment on the other amendment in the group, but I hope that
the Minister will take this opportunity to try to give us further
enlightenment on these two important
matters.
Mr.
Plaskitt:
I agree with the concluding comment made by the
hon. Member for Ryedale: this is an important aspect of the Bill. I am
grateful for the probing that members of the Committee are giving us
because that is quite right and proper.
I say first to the hon. Member
for Eastbourne, “Look behind you.” His colleague, the
hon. Member for Ryedale, is right to say that we must be very careful
about putting rigidities into the Bill, as the amendments would do. It
is not right to put in rigidities at this stage when flexibility is
necessary to maximise the chance of success.
When speaking
in support of his amendment, the hon. Member for Eastbourne slightly
gave the game away. He said, I think, that he did not know what the
specific numbers would be, how long it would take to achieve a
particular phase, or what the charging levels would be. He said that
had “plumped for” a number to put into the legislation.
That indicates that it would be an artificial constraint. If the only
reasoning behind the numbers in the amendment is that they were
“plumped for”, the proposal is no more secure than our
suggestion on flexibility about which the hon. Gentleman is
concerned.
The hon.
Gentleman sees the difficulty of trying to have anything other than
flexible arrangements in the Bill. I entirely understand why he wishes
to probe the issue, but he has discovered that trying to go beyond such
flexibility produces another set of problems. I suggest that if he
pursued the road of trying to cement the charge at a particular level,
that could add to the difficulties, such as regarding the need for
other sources of funding to support the scheme, which he previously
expressed concern about. He is arguing against his previous
position.
If the hon.
Gentleman wants reassurances about short-term public support for such a
scheme, we need to give the authority flexibility on charging. If the
funding from charging is constrained, that could increase the call on
other sources of funding such as public support. From listening to the
debate, one can understand the importance of the flexibility that the
Government seek, which is why the Bill has been drafted in its present
form.
As we have
established, low charges are at the heart of the personal accounts
scheme. As I have said, we want the scheme to be self-financing in the
long term. The trustee corporation will meet all the costs of setting
up and running the scheme through charges paid by members. However, the
Bill enables the trustee corporation to fulfil that aim by allowing it
to charge members for any costs that it incurs in relation to the
exercise of its functions.
Amendment No. 61 would introduce
the word “must” rather than “may” in
relation to when the trustee corporation can levy charges. There are
difficulties with that, as the hon. Member for Ryedale indicated. A
permissive power is all that is required, and all that would be safe in
the circumstances. The trustee corporation is intended to be
independent from Government when acting as sole trustee of the personal
accounts scheme. It is therefore right for it to retain some
discretion, as long as it operates within the parameters that we have
set down—mainly to be
self-financing.
The
precise level and structure of the scheme’s charges are still to
be decided. As we have indicated, the structure is being consulted on,
and the levels are to be determined later. That will depend on the
costs of setting up and running the scheme, its detailed design, and
the outcome of the commercial procurement process. We are aware that
there is a consultation among stakeholders on the charging
structure.
The hon.
Member for Eastbourne pursued the point about when the charging
structure decisions will be made. A final decision can be made only
when the Personal Accounts Delivery Authority has completed its work on
designing the scheme and all the commercial procurement processes. The
authority will want to reflect on the responses to the charging
structure
consultation.
12
noon
I expect that
the charging structure will be set out in due course in the scheme
order, which will, of course, be subject to further consultation and
parliamentary scrutiny. The authority will want to reflect on the views
that it receives in response to the consultation and on the
recommendations that it provides to Ministers on the charging
structure. It is vital that the delivery authority is given time and
flexibility to complete its work and to develop a funding strategy that
best balances members’ interests with delivering a scheme that
is commercially viable, without compromising the Government’s
intention for the scheme to be self-financing in the long
term.
However,
amendments Nos. 43 and 52 would restrict the delivery
authority’s ability to find an optimal funding strategy by
placing an upper limit on the membership charges that apply under the
scheme and requiring that the scheme be self-financing within five
years. This argument exposes one of the difficult trade-offs that the
delivery authority must seek to balance in providing advice. Although
we would want to move to self-financing as quickly as possible, we must
ensure that members’ interests are not
compromised.
A
requirement for the scheme to be self-financing in five years would be
likely to lead to unreasonably high charges for the first cohort of
members. I do not think that the hon. Member for Eastbourne would wish
that to happen. It would certainly eat into their savings and might
result in high levels of opt-out at the very time when we want to see
the scheme established and the maximum number of people staying in it.
Equally, capping scheme charges at 0.3 per cent., as the hon. Gentleman
proposes, would affect the revenues of the scheme in the way that I
described and would be contrary to reassurances that he was seeking
earlier in respect of public funding
support.
Mr.
Waterson:
I might have misheard the Minister, but I should
just reassure him that I was not suggesting starting with a higher
charge and then reducing it. The Minister for Pensions Reform made that
suggestion in evidence to the
Committee.
Mr.
Plaskitt:
The point that I am getting at is that the
amendment is designed to cement a figure in the Bill and therefore
impose a charge, which could significantly increase the scheme’s
dependence on other forms of charging, including public support, which
previously he said he wanted to ensure would not be unduly high because
he wanted the scheme to become self-financing as quickly as possible.
Flexibility in charging is essential to support that
objective.
I cannot
say what the charging structure and levels will be, for the reasons
that have already been given. PADA is consulting on the structure. It
will have to reach decisions about the structure before charging levels
can be considered. Charging levels follow that because PADA has to do
its work on the whole financial structure of the scheme, so it is not
possible at this stage to predict what the charging levels will be or,
indeed, whether they will be static. Lord Turner argued in his report
that if, once the scheme was up and running, it worked in the way
predicted and all other criteria were met, he was confident that a 0.3
per cent. charge was realistic. That is certainly the view that I would
take, given the argument in the
report.
There is a
balance to be struck between the initial level of charges and the time
that it takes for the scheme to become wholly self-financing. Given
that, we need to allow the delivery authority both the time and
flexibility to do its work before closing down options. The hon.
Gentleman is seeking to close down options before that work starts, but
that might impede the success of the
scheme.
Mr.
Greenway:
There are real tensions, even within the group
of amendments. On the one hand, we want to ensure that all the costs
are absorbed and charged for in the scheme. Equally, we want maximum
take-up, which must mean a charge that is as low as possible. I think
that the Minister is saying that, at this juncture, we are not in a
position to say whether 0.3 per cent. is achievable, or whether the
figure will be higher. Whatever the charge figure is, it will have a
real impact on take-up and the general climate in which people will
expected to stick with the scheme, and to auto-enrol and not opt out.
There has to be a good deal for them. Does it remain the
Government’s intention to set a target figure? For all the
reasons that have been outlined, we cannot decide whether it will be
0.3 or 0.5 per cent. It is very important that the Minister makes it
clear that the Government have a target. If PADA has so much
flexibility, how does one deliver that
figure?
Mr.
Plaskitt:
No, I am not going to set a target—that
would not be the right thing to do. Having read the Turner report, the
hon. Member for Ryedale will understand why Lord Turner thinks that 0.3
per cent. is achievable. He is right to say that the charging level of
the structure is critical to the success of the scheme at launch point.
We need to have it launched in a context
in which information on the charges shows quite clearly that they are a
lot lower than alternative commercial schemes.
The hon. Member for Ryedale
also knows that charge levels have a big impact on the kind of money
that these schemes can release at the end when people come to
decumulate. Across a lifetime, the scheme has a big impact. There will
no doubt be a lot of debate and discussion about that at the point of
launch. Therefore, it is essential that any comparison that is made
clearly demonstrates that the charge structure is favourable compared
with the alternatives. It would not be sensible to go beyond that.
Turner’s argument in support of 0.3 per cent. is well known.
Provided that all the launch processes are correct and all other
aspects are sorted out, one would hope that such a charge level would
be achievable. With those reassurances, I hope that the hon. Member for
Eastbourne will agree to withdraw the
amendment.
Mr.
Waterson:
The Minister accuses us of trying to insert
rigidities into the Bill and says that we are giving the game away. I
think that I did give the game away because I made it very plain that
these were probing amendments that I did not intend to press to a
Division. I am very sorry if the Minister has been on tenterhooks ever
since then.
As
probing amendments, though, these amendments have been a dismal
failure. They have failed to probe through the mists surrounding
ministerial policy. The Minister said that we plumped for five years.
Yes, we plumped for five years because the Minister did not plump for
any years. Is he talking about 10, 20 or 50 years, or even six
months? Surely, without prejudice—as we lawyers say—he
could come up with some kind of time scale. It matters to PADA so that
it knows what it is aiming for, and it matters to the industry and to
the Committee.
The
Minister talks about flexibility, and flexibility is a wonderful thing.
At times, though, I think that this personal accounts lark is a bit
like trying to put up a tent in a high wind. Unless we nail down one
corner, we will never make any progress. So much flexibility has
emerged during Committee that one wonders what kind of beast we will
end up with.
Then
there is the question of Lord Turner. Lord Turner and his fellow
commissioners not only argued for 0.3 per cent., but set out a cogent,
detailed case for it as a fundamental part of delivering this
advice-free model of personal accounts, and as part of their overall
package. We should not treat Lord Turner’s pronouncements as
holy writ. Not everything in the Turner report is as true now as it
might have been at one time, but 0.3 per cent. is a fundamental pillar
of the Turner proposals. If we really propose to leave the door open to
a significantly higher annual charge than the one envisaged by Turner,
a case must be made. Perhaps the Minister does not like being probed
and does not want to come up with the answers, but sooner or later he
will have to make a case.
People are still working on the
figure of 0.3 per cent., or 30 basis points. The Minister is terribly
keen not to come down on one side or the other—he missed his
vocation and should have become a Liberal Democrat. However, “on
the one hand” and “on the other hand”
will not do in this instance. Is he talking about 60
basis points, as foreshadowed by Stephen Haddrill, or something even
higher? As we move further away from the Turner figure, the
justification becomes more difficult.
If the Minister is saying,
“Well, this is not a matter for Ministers; we are just going to
leave all this to the Personal Accounts Delivery Authority,” who
knows what we will end up with? It must be a low-cost, simple vehicle,
which is why advice is not being put into the package. If we start
fiddling with this part of the package, as I have said in our other
debates, we might have to reopen the question of advice and whether
that can be factored in after all. Otto Thoresen might not be able to
square the circle in relation to so-called generic
advice.
I have made it clear that I am
not going to press the amendment to a Division, but I am very
disappointed by the Minister’s apparent inability to allow
himself to be probed by so-called probing
amendments.
Mr.
Plaskitt:
I am more than happy to be probed. That is why I
am here. The hon. Gentleman is right to probe me on this issue—I
have no worry about that. I simply return to the argument that I made
earlier: he is trying to tie the issue down before it is right to do
so. To use his analogy, there will be pegs in the ground, but there is
a question of timing. The hon. Gentleman is trying to put the pegs in
now, which is far too early.
In 2010, when the scheme is
launched, many things will have happened. Some of the pegs will be in
the ground and the situation will be clearer. Scheme orders will be in
place, for example, and PADA will have reached conclusions about the
funding structure. Much more will be known, and by 2010 a lot more will
be obvious, but the hon. Gentleman seeks to pre-empt all that work with
his probing amendments by trying to insert specific numbers now,
although it is right at this point to be flexible in the interest of
ultimate success.
I
think that as time moves on some of the certainty that the hon.
Gentleman seeks will emerge, but that will happen at the appropriate
time and in the appropriate circumstances, rather than artificially,
now, before it is
right.
Mr.
Waterson:
I do not want to pursue the boy scout analogy
too far with pegs in the ground and “dib, dib” and all
that. I just want to say—and then I shall finish—that I
am not trying to pre-empt anything. If anything, I am trying to
“post-empt” something. Turner’s figure was 0.3 per
cent. All I am trying to say is that the onus is firmly on anyone,
including the Minister, who wants a sharp move away from that to 0.5 or
0.6 per cent. or whatever it might be. That is the problem, but I am
clearly flogging a dead horse, or a dead tent, so I beg to ask leave to
withdraw the
amendment.
Amendment,
by leave
withdrawn.
Mr.
Waterson:
I beg to move amendment No. 62, in
schedule 1, page 55, line 33, leave
out ‘must’ to end of line 34 and insert
‘publish and lay before Parliament
a copy of the statement and report sent under sub-paragraph (5)(b) on
the first working day following receipt.’.
I hesitate now to call any
amendment probing, as I might be wasting my breath. The amendment would
simply ensure that the report that will be prepared and will go through
various stages should be laid promptly before Parliament. That seems
eminently reasonable to me, and I cannot think that any but the most
churlish Minister could refuse to accept
that.
12.15
pm
Mr.
Plaskitt:
That was hardly a ringing speech in support of
the amendment. I suspect that the hon. Gentleman knows that there is
not much chance of it being accepted.
I hope that we can dispatch the
amendment briefly. The simple point is that trying to ensure
publication the next day is not practicable. Proof reading has to be
done, printing has to be checked, and delivery and distribution have to
be sorted out. I am sure that the hon. Gentleman hopes that great care
will be taken to ensure that published material is accurate in the
interests of correctly informing Parliament and the public. To impose
an artificial next-day requirement would make it difficult to achieve
that. One would run the risk of errors creeping into published
information, and I do not think that he would want that.
Requirements
are already in place for non-departmental public bodies on submitting
their accounts, and the Government Resources and Accounts Act 2000
imposes outer limits on the timeliness of things being published. Those
safeguards are adequate to ensure that things are done promptly, but
accurately, in the interests of good public information.
With that assurance, I hope
that the hon. Gentleman will withdraw the
amendment.
Mr.
Waterson:
Having heard the Minister’s honeyed and
reassuring tones, I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Amendment made: No. 141,
in schedule 1, page 56, line 42, leave out
from beginning to end of line 6 on page 57.—[Mr.
Plaskitt.]
Schedule
1, as amended, agreed
to.
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