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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(Afternoon)[Janet Anderson in the Chair]Pensions BillClause 62Principles
4
pm
Paul
Rowen (Rochdale) (LD): I beg to move amendment No. 160, in
clause 62, page 29, line 2, after
‘must’
insert—
‘(a) exercise an
overriding duty to act in the best interests of members and future
members of the scheme, and
(b)
’.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 161, in clause 62, page 29, line 5, after
‘participation’, insert ‘amongst appropriate
eligible
employees’.
No.
162, in
clause 62, page 29, line 5, leave
out ‘qualifying schemes’ and insert ‘a scheme
established under section
50’.
No. 106,
in
clause 62, page 29, line 6, at
end insert
‘among those
on low incomes and who are not currently saving enough for
retirement’.
No.
46, in
clause 62, page 29, line 18, at
end insert—
‘(g) the best
interests of prospective members in the period prior to 2012 are
served;
(h) the level of
savings shall be increased as well as the number of existing savers,
and that in general better retirement incomes are
achieved.’.
No.
108, in
clause 62, page 29, line 18, at
end insert—
‘(g) the
Authority acts in the best interests of prospective members in the
period prior to
2012’.
No.
109, in
clause 62, page 29, line 18, at
end insert—
‘(h) the
Authority achieves delivery of a simple system of personal
accounts’.
I should
like to continue our discussion on the Personal Accounts Delivery
Authority. Clause 61 concentrates on its functions and clause 62 deals
with the broad principles under which it should operate. The group of
amendments has two aims. Through some of the amendments, we seek to
clarify and set out important principles in the Bill. In others, we
seek to specify the area in which PADA should operate. It is clear from
our debate on clause 61 that we believe that some aspects of the Bill
set PADA’s remit too wide, so it is important to set down the
clear principles and
priorities.
Amendment
No. 160 would add to the principles under which PADA should operate. It
should have an
overriding duty to act in the best interests of members and future
members of the scheme. It has a clear job to do and a set time period
in which to do it. It should be clear right from the start that its
prime purpose is to act in the best interests of members and future
members. There is a great danger, given the different relationships
among the Pensions Regulator, the Secretary of State and occupational
pensions, that PADA could lose focus. Our amendment would prevent
that.
Amendment No.
161 also addresses the purpose of PADA and what it should seek to do.
Everyone accepts that it will not be appropriate for every eligible
person to sign up to a personal pensions scheme. It is vitally
important that only those for whom personal accounts are appropriate
are signed up. We do not want PADA to go out and try to sign up all and
sundry. We know that there is a huge pool of people who currently do
not have an occupational pension scheme, and they
might well be the target market. Once we have
established that, we have to start looking at who is appropriately
eligible to be signed
up.
It might be a case
of simply saying that anyone who earns within a certain range would be
appropriate, but this comes down to the debate that I am sure we will
have once the Thoresen report is published about what is the
appropriate generic advice and information that is provided,
and even, as the hon. Member for Eastbourne said this morning, whether
the guidance is appropriate. We need to be sure that there is a target
market, and we should aim it at the appropriate
employees.
Amendment
No. 162 would ensure that qualifying schemes—those that PADA
will have responsibility for setting up—would fit within clause
50. The use of broad language and talk about qualifying schemes is part
of the unfocused thinking that pervades certain aspects of the Bill. We
are talking about personal accounts and schemes for people who do not
have occupational pension schemes, and we need to define tightly what
those qualifying schemes should be. The best way to do that is to use
clause 50, which sets out clear parameters for the scheme, if it is to
come within the criteria. PADA has a very short life and an awful lot
to do, and we believe that some of its remit is too wide. It needs to
concentrate on its core objective, and if that is to set up PAs, the
Bill should say so.
Amendment No. 106 would insert
who the target market is into the set of principles by which PADA
operates. That is important. We want to send out clear messages that it
is not meant to compete with or replace occupational pension schemes,
and that it is for people on low incomes and those who are not saving
enough for retirement. This goes back to a discussion on an earlier
amendment.
The
Equality and Human Rights Commission gives clear figures in its
briefing on who should be in the target market. It
says that women are under-represented among employees earning more than
£33,000, and over-represented among employees earning less than
£5,000. Some 43 per cent. of female employees earn between
£5,000 and £15,000, and disabled employees are also
over-represented in that earning group. Those people are in the target
market that we want PADA to concentrate on. This is about ensuring that
PADA provides appropriate advice and guidance and that those people are
signed up. If there is too much of a blunderbuss approach, the
authority will lose some of its effectiveness. Taken with the
Minister’s earlier assurance that there will be a review of how
people on benefits or low incomes will be affected by various changes,
we believe that amending the principles to set out how the measures
should operate will send a clear message to people who might sign up to
the scheme, and to PADA and the wider market, that this is what PAs are
about.
With amendment
No. 108, we are saying that PADA should act in the best interests of
prospective members. We have talked about the importance of existing
members and people who might sign up in the period leading up to PADA
completing its
work.
Amendment No.
109 also concerns a principle, so we are not talking about an
operational matter. We are not prescribing how PADA should deliver its
functions, but saying what its principles are. The first
principle I stated was that it should protect the interests of
prospective employees and scheme members. The second is that it should
deliver a simple system of PAs. We want to ensure that we protect the
interests of those signing up, and we want PADA to ensure that its
products are for those who are most eligible and, predominantly, on low
incomes and in certain sectors. Furthermore, the system provided to
them must be simple to operate and
understand.
We believe
that our amendments would strengthen this clause by setting out some
very clear principles to which PADA should adhere during the time span.
I believe that they are neither unreasonable nor
unworkable, nor that we would be saddling PADA with something that it
could not deliver. We are trying to ensure that everybody is very clear
about what personal accounts are for, who they are for, and how they
will be
delivered.
This and
subsequent groups of amendments are very important, so we must give
them the attention that they deserve. I am grateful to the hon. Member
for Rochdale for setting out his stall, as it were, on his amendments
so carefully and clearly. We are totally as one with him on the need to
limit PADA’s scope. As I said earlier, it is not that we have
got it in for PADA. We simply take on board entirely the mantra of its
chief executive, Tim Jones, about keeping it simple. The less that PADA
has to worry about, the better, which is why we want to ensure that in
achieving its prime objective of delivering personal accounts to the
target market on time, in 2012, at the least possible cost and with the
greatest efficiency, it is bound very carefully on how it operates and
the principles that inform its
activities.
We agree
with some of the amendments in the group, but not with others. We do
not agree with amendment No. 160 because we think that it would put the
concept of a series of principles out of balance. The particular
principle proposed in the amendment should not be an overriding one. It
is important to establish a group of clear, easily-understood
principles, none of which are contradictory. Many of the principles
flow from Turner, the Government’s White Paper, and some of the
debates on amendments that I proposed to the Bill that became the
Pensions Act 2007. We need to get the principles absolutely
right.
We are quite taken with
amendments Nos. 161 and 106, which are both concerned about, and
focused on, the target group, which has to be the sensible approach of
the Bill. Mission creep, as it has been called, must be resisted at all
costs. The Bill is all about getting cheap, easy-to-understand pension
cover and savings to the several million people who are not saving
anything, or anything like
enough.
I think that I
can see where the hon. Member for Rochdale is coming from with
amendment No. 162, which would make clear which schemes fall under
clause 50. That is broadly the right approach. I wonder whether
amendment No. 108 is in conflict with some of the other principles or
objectives, but amendment No. 109 is right on the money. Again,
simplicity has to be the theme throughout this part of the Bill, so we
are very much in favour of that amendment.
I shall spend a little longer
on our amendment No. 46, which would insert two principles into the
list in clause 62, even though it is important that that list it is not
too long. The first principle is
that
“the best interests
of prospective members in the period prior to 2012 are
served”,
which ties in
with an amendment proposed by the hon. Member for Rochdale. The second
principle is also important. Given that it has not been touched on in
the debate so far, allow me to spend a couple of minutes explaining
what we mean by
“the
levels of saving shall be increased as well as the number of existing
savers, and that in general better retirement incomes are
achieved”.
The latter
part of the provision is almost a direct quote from one of the Pensions
Policy Institute’s excellent papers on the likely effects of
personal accounts, which also examined the so-called at-risk
groups.
4.15
pm
Although the
Minister for Pensions Reform was slightly evasive when I quizzed him
during our evidence sessions, I am sure that both he and the
Under-Secretary would agree with the proposition that if personal
accounts do not deliver more savings overall, as well as more savers,
they will have failed. If the Under-Secretary takes great umbrage at
that statement, he can always intervene. It is almost inevitable that
the system will produce more savers simply by dint of the process of
auto-enrolment. Whether that is 4 million or 5 million, or 7
million, 8 million or 9 million, is, to some extent, in the lap of the
gods, but there is no doubt that there will be more savers. Issues such
as the persistency of the savers are matters that whoever is in
government at the time will have to grapple
with.
It is worth
reminding the Committee that it could be possible, as is
demonstrated by one of the PPI’s pessimistic
scenarios, for the number of personal accounts to go from zero to a
substantial amount, yet for the overall amount of pension savings in
the country to fall. Even if they were to stay the same, but be
distributed among more people, that would be a failure for personal
accounts. We must guard against
that.
The second part
of the provision
states:
“in general
better retirement incomes are
achieved.”
That
goes back to the issue of levelling down. It is important that people
do not come out of defined benefit schemes in which, as we know, the
average
employer contribution is 16 per cent., into personal accounts in which
the employer contribution is much less: 3 per cent. It is vital that we
retain a Berlin wall between existing provision and personal accounts,
which is why personal accounts will not have been a success if they do
not deliver generally better retirement incomes than people had
heretofore.
In stark
terms, for the great majority of people, that means no retirement
income versus that delivered by personal accounts. That must be the
result of the project and it is why we tabled amendment No. 46. I shall
spend less time on proposed new paragraph (g) in the amendment because
such matters have been dealt with under another amendment tabled by the
hon. Member for Rochdale. I do not need to repeat his arguments, which
I support entirely.
It
is important that the criteria for the success and failure of personal
accounts are clear in the Bill and well understood by Paul Myners, Tim
Jones and all those who will be working hard to deliver on personal
accounts by operating PADA and functioning under the Bill. I shall be
interested to know whether the Minister disagrees with how I have
defined the success or failure of personal
accounts.
Mr.
John Greenway (Ryedale) (Con): I am delighted
to welcome you to the Chair this afternoon,
Mrs. Anderson. I am sorry that I was absent last week, but I
was not too well. However, I am much better
now.
I share the
concern of my hon. Friend the Member for Eastbourne about some of the
amendments tabled by the hon. Member for Rochdale, but I want to take a
slightly different approach from him to the matter of an overriding
duty to work in the best interests of members and how far the remit of
PADA actually runs. I have sympathy with the view that, if we are
asking through the scheme that there should not be a levelling down
from existing occupational schemes and that people already enrolled in
existing schemes should be encouraged to stay in them, surely
PADA’s remit needs to be slightly more widely drawn than that
suggested by my hon. Friend. However, the hon. Gentleman is on to
something by talking about an overriding duty to work in the best
interests of members.
PADA is an extraordinary beast.
It is a completely new and unique concept, yet it
will be giving information and guidance to people. As we discovered at
the evidence-taking session in the Boothroyd Room, there will be a lot
of media comment about whether a personal account is good or bad for a
lot of individual people on low incomes. Given the way in which that
publicity will be dealt with and how people will receive and react to
it, we cannot see this issue in isolation from what is happening in the
pensions market and in the financial services industry in
general.
One of the
overriding principles that the Financial Services Authority has
introduced into financial services regulation in the last couple of
years is the principle of treating customers fairly. That is in vogue
at the present time and all finance institutions are struggling to come
to terms with what it actually means—it is a nice easy
statement. Treating customers fairly applies to companies and finance
institutions, including many of the pension companies that are offering
group personal pension schemes. We know that there as an issue about
whether
those can be regarded as suitable for auto-enrolment and meeting the
European Union directive on distant selling, and the way in which that
will be cleared up. To add the principle of an overriding duty to work
in the best interests of scheme members, or something similar, would
help. It would help the authority and, in the long run, it would
provide some comfort to the many millions of people who are going to
join the personal account scheme in the years to come.
Today, and even in the next
three or four months as the Bill progresses through both Houses, we
cannot envisage where all of this will end up. If we were dealing with
a charity, there would be clear charity law with similar implications.
If we were dealing with an organisation such as an insurance company,
for the purposes of financial service regulation, there
would be something of this nature in the principles under which
it was regulated. It seems that my hon. Friend the Member for
Eastbourne and the hon. Member for Rochdale are both
on to something with these amendments regarding an overriding duty to
work in the best interests of the members of the scheme. This is the
only that opportunity we have, as the Bill progresses, to put this
measure, or something similar, in the Bill.
There is one other way in which
the Minister might consider dealing with the same point, which is to
say something similar in clause 63, which relates to the directions and
guidance that are given to PADA on how it carries out
its duties. This is an important principle that we should grasp. It
should be incorporated in the Bill at some point, if not today, as a
clear duty of the authority.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
Let me add my welcome to
you, Mrs. Anderson.
Clause 62—the
principles—is an important part of the Bill,
and these amendments have sparked an interesting debate. I agree with
the aspirations expressed by those who have spoken in support of them.
As many have said, they go to the heart of our ambitions for these
reforms: more people saving for retirement; more people contributing
more and for longer; and, ultimately, higher incomes in retirement.
That is all underpinned by the establishment of a simple low-cost
scheme focused on those currently without workplace
provision.
Although I
can sympathise with the aspirations behind the amendments, I suggest
that they are not the right way forward. I am not necessarily in
disagreement with the points on which hon. Members seek reassurance,
but I am not sure that the amendments are the means by which to get
there.
I will try to
explain why, while taking the amendments in groups. Amendments Nos. 46,
108 and 160 seek to ensure that the authority acts in the best
interests of future members of the personal account scheme. We must not
lose sight of the fact that the authority is designing and setting up
the scheme as an integral part of our ambitions for the reforms. While
the interests of prospective members of the scheme are important, we
must ensure that the authority has regard to other matters that are
important to the success of reforms—including the impact on
employers and on the broader pensions industry.
Therefore, I do not agree that
there should be one overriding principle, as has been suggested. It is
imperative that the authority gets the balance right among the needs of
the personal accounts scheme and its members, the overall impact on
employers, and the impact on the broader pension industry, including
members and prospective members of other qualifying pension schemes. It
is only by achieving that balance that we will successfully achieve all
the core objectives of the reforms. I agree that the interests of
future members are of central importance, but it is not necessary to
add a specific principle to achieve that, and that could run the risk
of unbalancing other important objectives in the way I have just
described. The current principles have been drafted to ensure that the
authority takes account of those matters that will be important to
prospective members of the scheme.
Paul
Rowen:
Does not the Minister think that having regard to
other schemes, and the relationship between other schemes, is the
responsibility of the Pensions Regulator, not PADA? PADA was created to
set up personal accounts. Regulating the whole market is the
responsibility of the Pensions Regulator, not
PADA.
Mr.
Plaskitt:
No, I would not agree. We must think about this
while PADA does its setting-up work. PADA is commissioned to design the
system that, in the end, the trustee operates and the regulator
regulates. In designing that system, PADA must have mind to the
principles and ensure that nothing is done at the design stage that
would conflict with the ultimate objectives. Therefore it is right and
proper that it has regard to those issues.
That is why we have principles
covering the need to encourage and facilitate participation, to
minimise costs, to take account of members’ preferences in
making decisions about investment choice, and to respect diversity. The
interests of future members are already at the forefront of the
authority’s thinking. It has established a consumer
representative committee to provide expert advice on a range of
consumer matters related to the personal accounts scheme, such as the
charge structure, the investment principles of the personal accounts
scheme and, ultimately, the scheme rules. The authority is also in the
process of setting up an extensive customer insight and research
programme to ensure there is thorough testing of relevant processes by
those who are likely to be scheme members.
Finally, may I remind members
of the Committee that once the scheme is operating, the trustees who
run it will be required to act in the best interests of members and
beneficiaries? Clearly, when designing the scheme, it is essential that
the authority keeps that in mind.
The hon. Member for Eastbourne
revisited the debate about trading down, and the issue of whether we
are looking for not only more savers, but more saving. That is
inextricably part of the levelling down argument. I would encourage him
to recall what Lord Turner said during the evidence-taking session. On
that issue, I can tell the hon. Gentleman that if all other aspects of
the design of the measure are as we hope, and that therefore up to 7
million people who have not saved before save, it is highly probably
that there will be more net saving and not simply more
savers.
4.30
pm
The measures
will limit the extent of levelling down through the provisions on nil
transfers in and out of the scheme and the income brackets to which
that applies. There will be an opportunity to revisit that in 2017 in
the light of experience. I call that the fifth-term
review, and perhaps the hon. Gentleman will
understand why. Let us consider Lord Turner’s evidence and the
private schemes that have a large body of members who work in highly
respected companies. There is no evidence to suggest that large schemes
such as those will engage in substantial levelling down. Their employer
contributions are probably way above the 3 per cent. level, so it will
not be in their recruitment or retention interests to engage in
levelling down, and our consultations in these early stages have given
us no reason whatever to believe that they would do so. Given that, and
looking at the potential scale and impact of the number of people
participating in the schemes, we will have a substantial amount of
levelling up—people will go from zero to having a significant
pension.
Of course
the objective is to see more people saving. That is
relatively easily achieved through auto-enrolment and the other
criteria, but one would expect to see more saving, given the
reassurances that we have given on previous clauses on levelling
down.
Mr.
Waterson:
Does the Minister agree that if we end up with
more savers, but not more saving, personal accounts would be a
failure?
Mr.
Plaskitt:
We are clearly setting out what we mean by the
success of the scheme in the measures that we are debating. The
principles and primary intention of those is perfectly obvious. In the
first instance, more people must save, because the whole purpose of the
measures is to close the gap in pension provision, which is what we
asked Lord Turner to look into. That is the central objective: we want
more people to save so that they have higher incomes in retirement and
so deal with the issues that we asked Lord Turner to address. In
addition, given the other dimensions of the reform that we are
introducing and the other safeguards, and bearing in mind the principle
in subsection (2)(c), we expect to see more people saving.
Whether that happens depends on the success at launch stage and how
many people come
in.
This is
reminiscent of this morning when the hon. Gentleman asked for similar
assurances. I cannot give them at this stage because the design is not
in place and recruitment has not begun. However, I expect there to be
more savings as well as more savers.
The hon. Members who spoke to
amendments Nos. 106, 161 and 162 explained that they would ensure the
personal accounts are properly aimed at, and are promoted to, the
target group. I have no problem with that ambition, but the Bill will
achieve it. We are clear that the personal account scheme should focus
on the target group of moderate to low earners who currently do not
have access to good-quality workplace pension provision. We believe
that the combined effect of our package of proposals will achieve that.
That package includes, as I said in respect of the earlier group of
amendments, the prohibition on transfers, the limit on contributions
into the personal accounts scheme and the simple qualifying
test.
The principles have a key role
to play. Clause 62(2)(a) to which the amendments relate requires the
authority to consider the encouragement and facilitation of
participation in all qualifying schemes. That means that the authority
will have to think very carefully before doing anything that
discourages the worker or employer from using a scheme other than a
personal accounts scheme. The point of that is that personal accounts
are intended to complement, not undermine, other good quality
provision. By narrowing the scope of that principle, the amendment
would have the opposite effect to that which is intended. The authority
would be required to have less regard to participation in other
qualifying schemes, making it less likely that it would remain focused
on its target
market.
In addition,
it is clear that the authority is already focused on its target market.
When the chief executive, Tim Jones, appeared before the Committee, he
spoke about the gap in the current pension provisions market. Hon.
Members might recall him saying
that
“the market
correctly recognises that it is a very difficult sector to address
because of the very large number of small employers and the costs of
approaching it”.
He put
the authority’s role beyond doubt,
saying:
“It is
our job to address that target
market.”——[Official Report, Pensions
Public Bill Committee, 15 January 2008; c. 17,
Q2121.]
It could not have been
put more clearly than
that.
The scheme will
be a success in meeting the needs of the target group, who will
typically have less experience of financial products, only if it is
kept simple. I again find myself agreeing with the sentiments expressed
in amendment No. 109, that the personal accounts system should be as
simple as possible. However, I draw the Committee’s attention to
what the impact assessment says on this issue on page 71. It explains
that one of the key drivers of these reforms is simplicity. It
says that the
“scheme
must simplify the decisions people are asked to make about their
retirement provision and provide an easy way to
save”.
Stakeholders
feel very strongly about the need for simplicity as a means of focusing
on the target group. That came across loud and clear throughout the
oral evidence sessions. Paul Myners underlined the point in those
sessions when he
said:
“Keeping
it simple is critical to the successful delivery of personal accounts.
Every further bell or whistle that is added to the scheme will have to
be paid out of people’s retirement
income.”——[Official Report, Pensions
Public Bill Committee, 15 January 2008; c. 8,
Q33.]
The phrase “keep it
simple” that I am using does not appear in the Bill, but I
believe that the principles in clause 62 communicate that message. They
require the authority to take account of a range of matters that will
guide it towards designing and building a scheme that is simple and is
focused on the target
group.
Finally, I
suggest that the final part of amendment No. 46 is entirely in line
with the intent of our reforms. As I said earlier, those are intended
to increase the level of savings and savers to achieve better
retirement incomes. To achieve that ambition, we need to harness and
build on what is good now, including the very many good quality pension
schemes that are available
today. Our reforms will have a positive impact on
private pensions saving in the UK with more individuals saving for more
pension contributions. I do not believe that that needs to be expressed
as a distinct principle in its own right because it is part of the
rationale that runs throughout the
Bill.
I hope that I
have reassured hon. Members during this important debate that the
ambitions behind the amendments are entirely fair, but that there is no
need to amplify, amend or extend the statement of principles that is in
the Bill. In the light of that, I hope that the hon. Member for
Rochdale will withdraw the
amendment.
Paul
Rowen:
I am grateful to the Minister for his explanation.
I believe that it is important, when dealing with principles, that we
have discussions like this. Some of the issues that we raised were not
clear in the principles in the clause, but I am happy to accept his
assurance that they will be there in practice once PADA is in
operation. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave, withdrawn.
Mr.
Waterson:
I beg to move amendment No. 38, in
clause 62, page 29, line 2, leave
out ‘have regard to’ and insert ‘at all times
comply
with’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 48, in clause 62, page 29, line 21, at end
add—
‘(4) The Secretary of
State shall collect and publish appropriate data annually, and will
consult with industry, to measure the extent to which the Authority has
achieved these principles in carrying out its
functions.
(5) The Secretary of
State shall by regulation identify the data and targets to be used for
this
purpose.’.
Mr.
Waterson:
We are still unpacking the clause and, sadly, we
will be doing so for some time yet. Going back to the first part of the
clause; instead of a slightly diluted obligation on the authority that
it must have regard for the principles set out in subsection (2), we
are trying to tighten that up significantly, by saying that it must
comply with the principles at all times. There has been a debate about
what those principles should or should not be, but we think that there
is no earthly point in putting them in the Bill unless the authority is
under an obligation to comply with them. That is the purpose of the
amendment.
I have
already made the point once or twice that we want to send the PADA off
into the world with a clear set of orders. It is going on a voyage, and
those voyage orders must cover exactly what it has to do, with no
diversions or lack of focus on what it is supposed to be up to. I think
that Paul Myners and Tim Jones will appreciate that clarity in their
mission.
As
long as we have established a set of principles—no doubt we will
return to the debate about what they should be at another stage of the
Bill’s progress—I do not believe that there is any
internal conflict between them. As I have said before, I think that
they flow from Turner, the White Paper and debates on previous
legislation. I do not think that there is any inherent conflict between
the different principles or those that the Opposition
parties would have liked to put in the Bill. However, there is no point
in them being there, unless it is clear that the authority must comply
with them. If it does not, it can be called to account by this House as
to why not.
Amendment
No. 48 is a slightly different matter. After the sub-clause about the
authority’s obligation to engage in discussion with public
authorities, it imposes two further obligations. One is on the
Secretary of State, to collect and publish data annually, and to
consult with the industry, to measure the extent to which the authority
has achieved those principles in carrying out its functions. The second
is that the data and targets involved should be set out in regulation
for that purpose. Again, that is not trying to make life unduly
difficult for PADA, or for Ministers, but trying to ensure that putting
the principles in the Bill is not merely a load of pious aspirations. I
hope that in the offices of the chairman and chief executive the
principles will be up on the wall somewhere in a prominent position; I
shall certainly look for them when we visit their lodgings in due
course.
On amendment
No. 38, I hope that PADA will realise that the principles are a firm
obligation on it to comply with. I hope that the officials will recite
them every morning, and ask themselves to what extent they have
complied with them. I also hope that they will be aware of the
obligation, if we can put it in the Bill, that the data will be looked
at regularly and that their performance will be judged against both the
principles and the data; there will be
targets.
We talk
blithely about x million people who may or may not auto-enrol. We talk
about how many of those will persist beyond the first two or three pay
packets. We talk about the levelling down of existing provisions. We
talk about all those things in a vacuum. However, it is essential that
these things are monitored very carefully indeed, and that that data is
made available so that we can all judge the extent to which PADA has
been meeting its targets and operating according to the principles set
out in the Bill.
4.45
pm
I assure the
Committee that if this bunch of Ministers are not prepared to sit on
PADA’s shoulders to require that data and to demand a
performance-based approach, Conservative Ministers will do
so.
It would be nice
if amity broke out and the Minister could see the point of accepting
the amendments, otherwise he will have to explain to the Committee why
he wants a group of principles to be set out in the Bill without a
mechanism for ensuring that they must be complied with and for
measuring whether they have done so. Those are my primary arguments for
the amendment and I hope that the Minister will see the sense of
them.
Paul
Rowen:
The Minister explained why the principles set out
in clause 2 are important and what they will deliver. If they are as
important as he says I do not see why there should be any problem in
insisting that they are complied with. I agree that if there is a set
of principles and PADA is given a set of functions, there must be a
performance management structure to measure how far it succeeds in
delivering what has been
set. Publishing targets and recording performance, as proposed in
amendment No. 48, is an important part of the process.
Given the enormity of the task
that PADA faces, the fact that it is going into uncharted territory
means that toughening at this point is to be encouraged. We can have
arguments or discussions about the principles, but once they have been
set in the Bill they should—not may—be complied with and
performance should be measured. The amendments would allow us to do
that and I hope that the Minister will accept them. At the end of the
day, it is a sure way of making certain that PADA delivers the task it
has been
set.
Mr.
Plaskitt:
Putting the principles in the Bill shows our
commitment to them and provides assurance that the delivery of the
reforms will remain focused on these aims, but the principles
are not objectives. The intention is not that each of these principles
should be achieved in its own right, rather that they must together
underpin the authority's day-to-day work and be considered as a whole.
Indeed, the very nature of the principles means that they will, at
times, require a resolution of possibly competing priorities.
No single
principle will necessarily determine the choices the authority makes.
It may need to make judgments across the set of principles to reach
decisions that provide the best solution to a particular challenge. For
instance, when designing the collection mechanism for the personal
accounts scheme, the authority will need to find a solution that takes
account of a number of factors, in particular how this system might
affect employers, whether it will facilitate participation, and how it
might affect membership costs. There will not necessarily be one answer
that ticks all those boxes, nor one principle that is the sole guide,
but the authority will have to consider all of them together, in
balance, in reaching a conclusion about how to solve a
problem.
Similarly,
in making decisions on investment fund choices, the authority will need
to balance certain principles. It will need to take account of members'
preferences for fund choices and also consider the effect on membership
costs so that the provision of investment choices does not get in the
way of our aim for a low cost scheme.
We have deliberately chosen to
use the phrase “have regard to” because it recognises the
balances to be struck between the principles and the need to
judge in the round. It also recognises that there will be
important and complicated judgments to make. Asking the authority to
comply with all the principles at the same time, as amendment No. 38
would do, is simply not practical. It does not allow for the need to
consider and strike a balance between
them.
On amendment No.
48, I would like to make it clear that, while the
principles are not intended to be measurable objectives, there are a
number of ways in which the authority will show how it is considering
them. Internally, the board of the authority will regularly review how,
during the course of its business, it is taking account of the
principles. Through its annual report, the authority will provide
detail on the delivery and performance of its business. This will
include information on how the principles have been considered during
the year. Furthermore, the decisions and recommendations that the
authority will make, in light of the principles, will be
reflected in the scheme design. That will be subject to the oversight of
the Secretary of State, and Parliament, through scrutiny of the detail
of the scheme order, which will be set out in secondary
legislation.
I have
explained that the principles are designed to reflect the
Government’s ambitions for these reforms. I would also like to
assure the Committee that, as with all such reforms, we will be
evaluating their impact. We are currently developing plans for
an evaluation strategy that will monitor and assess the extent to which
our aims have been met. The results will allow us to understand
progress towards our aims, including the role that the authority and
other key stakeholders are playing in this process.
The Department has an extensive
ongoing research and data collection programme which will inform the
evidence base for that evaluation. And we are actively engaging with
external stakeholders to help improve this evidence base: identifying
the key questions that need answering, the key evidence gaps and how
best these can be filled. The authority will have an
important role to play in contributing to this process. We plan to put
in place arrangements that will allow us to monitor the impact of the
reforms from 2012 onwards so that we can identify whether there are any
areas for improvement. We would expect to undertake a full evaluation
after the reforms have bedded in, and thereafter on a continuous basis.
We will, of course, publish the key findings of that
evaluation.
Furthermore, we have made a
public commitment to review a number of policies set out in this Bill
in 2017, and we will need to ensure we have the
relevant information and analysis to do that. That report will be
published and laid before Parliament. I hope that this has clarified
how seriously the Government take our assessment of the achievement of
our reforms. I want to assure the Committee that while it is not
appropriate to measure the authority’s achievement of the
principles, we will put a comprehensive range of measures in place to
evaluate the broader policy ambitions that sit behind them.
The hon. Member for Eastbourne
asked what was the point of having the principles if there is not an
achievement mechanism behind them. It is quite a step in itself to put
in the Bill, and therefore into legislation, a set of principles. If
the Bill secures parliamentary approval, that will become law. Of
course we would expect PADA to have due regard to that as we would not
expect it to try to operate outside the law. The principles enshrined
in legislation have an important status. They may not
be the subject of a daily boardroom chanting exercise, but they will
most certainly be enshrined in law. It will be possible for all of us
to assess how the authority is doing in respect of those principles. I
hope that with those reassurances the hon. Gentleman will withdraw the
amendment.
Mr.
Waterson:
I am not sure how reassured I am. The Minister
seems to be saying either that some of these principles are
contradictory, or that they have varying importance in relation to each
other at different times. Apart from setting out law—which I
will return to in a minute—we are supposed to give PADA a clear
steer as to how, and under what
conditions, to operate. What happens if it complies with one or two of
the principles and not with the others in making a particular
decision?
When the
Minister says that we are making law, he is right—that is the
point. That is why it must be clear so that no one can be under any
illusions as to their obligations. Precisely because it is in the
legislation, someone could challenge a decision or a direction of
travel taken by PADA and that is why we must make it crystal clear.
With all due respect, what the Minister has been advancing is an
argument for not having the principles in the legislation.
I remember great arguments
during the passage of the previous Pensions Bill. We tabled an
amendment that set out a series of principles that would guide PADA. It
was not totally dissimilar to this list—in fact, it was
lifted almost word for word from the Government’s White Paper.
At the time the Minister, now the Secretary of State, argued against it
on the basis that we did not want that sort of thing in the
legislation. Clearly the Government have relented, or perhaps they took
the view that if they did not table it, we would and the argument would
begin all over again.
I am open to the
argument that we should not put such matters in the legislation because
that is not where principles should be placed, What I am not open to,
is the argument that we should put them in the legislation but make it
clear that it is a bit pick and mix, and that they could become of more
or less importance at any given time depending on what PADA wants to
do. That is not appropriate.
Mr.
Plaskitt:
May I take the hon. Gentleman back to the
exchange that he has just referred to about the evidence given during
the previous Bill by my right hon. Friend who is now the Secretary of
State? My right hon. Friend did not say, as has been suggested, that we
did not want them. Rather, the now Secretary of State said that at that
stage it was inappropriate to put the proposed objectives in the Bill
because they were still being consulted on. It was not because he did
not want them.
Mr.
Waterson:
I stand corrected. However, they did not end up
in the Pensions Act 2007, but here we are trying to put them in this
legislation. If we are going to do it, we should go the whole
hog.
I was grateful
for the Minister’s assurances that this information and data
would be collected and published in due course. I have one small query:
he said that it would start to be looked at after the legislation had
bedded in. I wonder if he could perhaps give us a more technical view
about when that first amount of data and analysis is likely to emerge.
My suspicion is that it would be soon after 2012, if that is the start
date, before certain trends began to emerge. The sooner that the
Government—whoever they are—can get on top of those
trends, the better to avoid the nightmare scenario where we have more
savers and less, certainly not more,
savings.
Mr.
Plaskitt:
I suspect that the information is likely to
begin to become available once we receive the annual report. The first
point at which the information starts to emerge would be post
2012.
Mr.
Waterson:
I reserve the right to come back on the issue
later in the passage of the Bill, but for now I beg to ask leave to
withdraw the amendment.
Amendment, by leave,
withdrawn.
Mr.
Waterson:
I beg to move amendment No. 66, in
clause 62, page 29, line 5, after
‘in’, insert
‘existing’.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 39, in clause 62, page 29, line 5, leave out
‘qualifying’ and insert ‘occupational and personal
pension’.
No.
40, in
clause 62, page 29, line 6, at
end insert
‘, and the
Authority shall at no time seek to provide financial products beyond
the scope of personal
accounts;’.
No.
67, in
clause 62, page 29, line 9, after
‘on’, insert
‘existing’.
No.
42, in
clause 62, page 29, line 9, leave
out ‘qualifying’ and insert ‘occupational and
personal.’.
Mr.
Waterson:
These amendments, for want of a better
expression, could have the theme “existing provision, protection
of”. I will talk through what they seek to achieve, and then
talk more generally about the existing provision in the usual way,
trying to obviate the need for a stand part
debate.
5
pm
Amendment No.
66 would insert the work “existing” and tries to tighten
up the wording so that we do everything we can to ensure that personal
accounts do not have an impact on good quality, existing schemes.
It is useful to take amendments Nos. 39 and 42
together as they would both do much the same thing, again with the idea
of tightening up the wording significantly for that same aim.
Amendment No. 40 perhaps needs
a little further explanation. My own theory, for what it is worth, is
that although it is right to focus the personal accounts for the system
of PADA in the current phase leading up to 2012 on the basics of this
scheme and try to keep it as simple and cost-free as possible, there
will be a temptation—I put it no higher than that—for the
people running PADA, once the scheme is up and running, the computers
are whirring quietly and efficiently, everything is going fine, money
is being collected, investment is being made, everyone is happy and
there are more savers and savings, to start thinking, “Well, we
could be doing more than just offering a vanilla project and should
branch out into pistachio and whatever flavours might be
available.”
Therefore, I think that it is
important to have a point in the Bill that states, “this is as
far as you go, and no further” and that the role of PADA is and
ever shall be simply to promote personal accounts in the
stripped-down, low-cost, post-Turner version that we
are debating at the moment, and that is the point of amendment No. 40.
Indeed, if the Minister were unhappy about accepting that amendment,
that would set alarm bells ringing on this side of the Committee and
perhaps further afield.
Amendment No. 67 basically
relates to the same theme of protecting existing provision, which came
up quite a bit in the oral evidence that the Committee
heard. It was even raised in the evidence of the pension commissioners
themselves. One of the commissioners, Jeannie Drake, said:
“Although it is
necessary, as set out in the Bill, that one of the principles is that
the reforms should not undermine good occupational pension provision,
which was always the intention of the Pension Commission’s
recommendations, you cannot eliminate all elements of potential
levelling down in part.”—[Official Report, Pensions
Public Bill Committee, 17 January 2008; c. 103,
Q126.]
That
was the last part of her comments, but it is certainly useful to have
her confirmation that it was uppermost in the minds of the
commissioners, when they were deliberated on their report, that that
should be countered in due course in the
legislation.
The
National Association of Pension Funds, in its written evidence,
stated:
“We
believe that PADA should have clear statutory objectives from the start
that should be intrinsically linked to the main functions and ensure
that the scheme design and implementation does not have an adverse
impact on existing workplace pensions. The Bill should be amended to
include an objective to minimise, rather than have regard to, any
adverse effects that Personal Accounts may have on existing good
quality pension
provision.”
That is
certainly something that we on this side of the
Committee would endorse. Joanne Segars of the NAPF,
during an oral evidence session, when asked by the Minister for
Pensions Reform how best to target those currently without pension
provision,
replied:
“One
of the ways in which we can make sure that personal accounts are
adequately targeted is by ensuring that the Bill is crystal clear on
this point. One of the things that we would like to see is an amendment
to the Bill that, where we are talking about the Personal Accounts
Delivery Authority’s principles, makes it absolutely clear that
PADA is focusing personal accounts on those who currently have no
pension provision.”—[Official Report, Pensions Public
Bill Committee, 15 January 2008; c. 23,
Q29.]
The amendments are all
designed to tighten the Bill’s wording to make the aims and
objectives of PADA abundantly clear—if they were not clear
already. They would put no finer point on matters than to say that it
was hands-off existing provision, and that PADA was
not in the business of competing with existing
provision and that its role would be straightforward and focus on the
target group, and provide basic low-cost personal accounts that are
envisaged in Turner, the White Paper and the
Bill.
Mr.
Plaskitt:
We have always been clear that the rationale for
personal accounts is that they will be targeted specifically at those
eligible employees with low to moderate incomes who do not have access
to a good, low-cost, workplace pension scheme. Our
intention is that personal accounts will fill the gap that we have
identified in the pensions market. The authority will design a scheme
that is simple, low-cost and focused on the target group that I have
described.
The
personal accounts scheme is not being introduced to replace or
undermine good quality pension provision. Instead, it will introduce an
additional pension product into the market that we envisage sitting
alongside other schemes in an already successful private market. That
is the core ambition of our reforms, and it is the reason why the
principles are so drafted under clause 62. Subsection (2)(a) requires
the authority to have regard to encouraging and facilitating
participation across all
qualifying schemes. Subsection (2)(c) requires them to have regard to
any adverse effect on the other qualifying pension schemes and members,
or future members, of those
schemes.
Amendments
Nos. 39, 42, 66 and 67 would broaden the scope of the principles to
cover pension provision beyond that we have defined as qualifying under
clauses 14 to 24 to cover existing occupational and personal pension
schemes. That would require the authority, in designing personal
accounts, to have regard to all existing schemes not only those that
satisfy the qualifying test. It would include schemes that did not meet
the minimum standards that we consider important in providing for a
reasonable income in retirement. That cannot be right, which is why it
is appropriate to use the term “qualifying schemes” in
the
principles.
The
Bill defines the minimum standards for a qualifying scheme. The
reference to qualifying schemes in the principles therefore makes it
plain to the authority that we want to preserve good quality existing
workplace pension provision, much of which, of course, offers greater
member benefits than the minimum standard prescribed by the reforms.
The authority is alive to, and strongly supportive of, that. In
carrying out its functions, the authority will need to engage with the
industry—those that are providing existing, good quality
provision. Indeed, it is already talking to key stakeholders in the
industry. Not only does that help to ensure that the authority
understands the concerns that other pension providers might have about
the scheme, but it helps it to learn from their expertise in its design
and
operation.
To
reinforce our commitment to such provision, clause 62(3) places a duty
on the authority to take steps during the implementation phase to
engage in discussion with stakeholders about its functions. The
authority is currently developing its consultation programmes, which
will allow the industry as well as consumers and employers to
contribute to its thinking as it designs the personal accounts scheme.
I believe that, as drafted, the principles give us sufficient
reassurance that the authority will make reasoned judgments in
delivering the personal accounts scheme and, in particular, with regard
to the effect on qualifying
schemes.
I share the
wish of the hon. Member for Eastbourne that the private pensions
industry, which is working perfectly well for millions of individuals,
is allowed to flourish, and that is why we have shaped our reforms in
the way that we have.
Finally, on
amendment No. 40, which can now be referred to as the anti-pistachio
amendment, the provisions in clause 61(2) task the authority with
assisting and advising the Secretary of State in establishing the
personal accounts scheme and allow the authority to assist in
supporting the delivery of the compliance regime of the new employer
duties. This sets the legal remit for the authority. It will have no
legal authority to undertake any wider activity, including providing
financial products beyond the scope of the personal accounts
scheme.
My Department
will be holding the authority to that task through our stewardship of
its business plans and resources, and Parliament will see the emerging
results of its work from the annual report and accounts. There is no
intention—or legal authority—for the authority to stray
beyond the provision of a trust-based scheme
and the associated compliance regime, so it is a
vanilla provision. I hope, therefore, that the hon. Gentleman will
agree to withdraw his amendment.
Mr.
Waterson:
Those who represent sea-side towns are used to
all of these flavours. Next time the Minister is in Eastbourne, perhaps
for a conference, I will invite him into Fusciardi’s, the
long-standing and traditional ice-cream parlour on Eastbourne
seafront.
Mr.
Waterson:
I am very happy to buy him a pistachio
ice-cream, if that is his tipple, but he will find many other flavours
on offer. Well, I think that that is enough of that.
I hear what the Minister says,
it all seems to make jolly good sense to me and I beg
to ask leave to withdraw the
amendment.
Amendment,
by leave, withdrawn.
Mr.
Waterson:
I beg to move amendment No. 44, in
clause 62, page 29, line 14, after
‘the’, insert ‘needs
and’.
No. 45, in
clause 62, page 29, line 16, at
end insert
‘, provided
this can be done at no disproportionate cost to the scheme
overall.’.
Mr.
Waterson:
There is no ice-cream theme at all
running through these amendments, but we are attached
to them none the less.
It seemed to
us, emboldened by the support of organisations such as the Equality and
Human Rights Commission, that these amendments made considerable sense
for the way in which the clause is intended to read. The first
amendment, to clause 62(2)(e), would mean that instead of the clause
stating only that
“the
preferences of members and future members should, so far as
practicable, be taken into
account”
it
would include the words “and need”. With all the respect
in the world to members and future members, their idea of what they
prefer may not coincide with what they really need, particularly in
pensions, where those two often diverge because people may simply not
know what is best for them.
The other amendment, at the end
of the clause, would add the
words:
“provided this can
be done at no disproportionate cost to the scheme
overall.”
This is an
important issue, it is one of those issues where two perfectly
legitimate aspirations are in danger of colliding. We can envisage a
situation where the enthusiasts among members—the 4, 5, 6, 7, 8
or 9 million new members—might be all for any number of exotic
options, in terms of investment
funds.
Mr.
Waterson:
I hear my hon. Friend saying quite right. I
cannot remember the figure, but I think that in Sweden something like
200 or 300 options, at least, are available. I do not want to go back
to the ice-cream analogy, but that seems excessive. There is a tension
here between choice—consumer preference—and cost. I am
delighted to say that the EHRC supports both of the
amendments.
Miss
Julie Kirkbride (Bromsgrove) (Con): I certainly agree with
the thrust of my hon. Friend’s argument so far, but the question
that strikes me is how will the preferences of members and future
members be recognised by PADA? How can they initiate a preference? Is
it simply the management of PADA that will decide what the preferences
might be? I wonder whether my hon. Friend has any ideas about how the
Government will require the management of PADA to implement such a
clause. How will those preferences come to
bear?
5.15
pm
Mr.
Waterson:
My hon. Friend makes an excellent point. Clearly
the needs are a matter of judgment for PADA, which hopefully will be
stuffed full of the best expertise that money can
buy. However, how will members and future members express their
preferences? Perhaps the Minister will help us with this point. Can
they just write or e-mail in and say, “I would like an emerging
economies-based, eastern Caribbean sugar-based, or gold mine-based
fund?” How much weight should be attached to such preferences?
There might be just a tiny minority of members with an obsession with
Bolivian gold or tin mines who try to get a whole fund based on that.
However, it is only fair to address their needs because otherwise it
puts a kind of brake on their
enthusiasm.
I digress
slightly, but one of the saddest cases that ever came to my advice
surgery was a constituent who had been very badly injured in a car
accident. He had been paid compensation through the legal process and
had invested every penny in channel tunnel shares, which was a bizarre
decision, given that they became worth a fraction of what he paid for
them. Obviously, he had not had any advice—not even generic
advice.
I was just
talking about the support from EHRC. It
says:
“The
design of a good quality default fund that meets the needs of the
majority of the target market is
critical.”
We
all know in our heart of hearts that the vast majority of funds, and
the vast majority of members, will end up in the default fund because,
rather like auto-enrolment, it does not involve any conscious
decision.
The EHRC
goes on to
say:
“We think
there is a difference between consumers needs and preferences in that
an individual may ‘prefer’ to choose a risk averse fund
for their saving...but perhaps as a young person with 40 plus
years of pension saving ahead of them may ‘need’ to be in
a higher risk fund at the beginning of their saving period in order to
get the best returns at the end. The structure of the default scheme
must reflect these individual
needs.”
That is an
important point because an element of risk is important. We seem to be
turning into a risk-averse society, but high risks often bring high
returns. It goes on to
say:
“It is
also important to have a degree of consumer
choice”—
I would
agree with that. It
says:
“These
choices may be based on an individuals’ religion or belief, or
their ethical beliefs. A Sharia compliant fund should be part of the
basic choice of
funds.”
The Minister
might wish to give a personal view on that point, but I think that
there almost certainly
should be a sharia-based compliant fund. Whether that will work out as a
good investment in the long term is another
matter.
The statement
then refers to research carried out by Which?,
which
“suggests that
consumers could be confused if a large number of funds are available
through personal accounts. We believe that managed choice with a
limited number of funds, graded by risk is the best option for
consumers. If consumers request other options then we believe in order
to keep costs down for everyone, they should be expected to pay a fee,
as should those who wish to frequently change
funds.”
That raises an
interesting issue that I will not dwell on now, but
although I have not read the PADA consultation on the structure of
charging from end to end, I do not think that it touches on that
possibility. If people want to go to exotic funds, or to change funds
on a regular basis, perhaps they should pay an additional
fee.
Andrew
Selous (South-West Bedfordshire) (Con): I wonder if my
hon. Friend spotted the briefing from the TUC, which drew attention to
the fact
that:
“The UK
Pension Protection Fund and ... the French Fonds de Reserve pour
les Retraites and the New Zealand Superannuation Fund are also
signatories”
of
the United Nations principles of responsible investment. Those are big
national schemes. Does my hon. Friend think that it might be useful to
ask the Minister whether that is something that PADA will be
following?
Mr.
Waterson:
I am grateful to my hon. Friend for that point.
He speaks with some knowledge on these matters. Yes, I would be
interested to hear the Minister’s comments. We will have a
debate fairly soon on the UN principles of
investment.
Alternatively,
there might be people who are desperate to invest in things such as
arms manufacturers because they might get a higher return. What I am
trying to get at is that choice could be the enemy of simplicity and
keeping costs down. I would not like to see scores of different funds,
bearing in mind the extra costs involved in people changing funds and
having different funds available. The vast majority of people will end
up in the default fund in any
event.
Miss
Kirkbride:
Again, I am grateful to my hon. Friend
for allowing me to press him—and, through him, the
Minister—on the implications of the various funds. Depending on
how many there are, what will be the reporting requirements on growth?
Will we know how much these funds have grown by each year? Will we then
be able to assess which have done better and which have done worse?
What will be the impact on the owners of the funds? They might wish to
swap funds if they could see that their default fund was not performing
as well as the new emergent economies fund. Could this eventually lead
to some kind of public action when there was disappointment that the
default fund, which the majority of people were in, had not performed
as well as another fund, which was in the public domain and that some
people might feel they were wrongly advised not to
join?
Mr.
Waterson:
My hon. Friend touches on an important and
sensitive issue. The more choice there is, the more people may be
tempted to go into higher risk
funds to get a higher return. However, as the adverts always say, shares
can go down as well as up. She will be well aware that one of the
debates that is running in parallel to the Bill is about advice. No one
is queuing up to give people advice about these
investments—certainly not the Government, Governments in
waiting, or employers. We thus have to wrestle with this slippery
concept of generic advice, whatever that may
mean.
It is perfectly
possible that people will emerge 10 or 20 years after the setting up of
personal accounts saying, “I have not got a very good return. I
went into Bolivian tin mines and I have no money left,” or,
“I went into the safe old default fund and I might as well have
put the money under the mattress.” Those are extremes, but it is
a measure of that sort of risk that people are going out of their way
to avoid giving advice on
this.
What it probably
boils down to at the end of the day is a reasonably limited choice.
After all, there is nothing to stop people investing for their
retirement in ways other than personal accounts and opting out and
getting specific advice—or not, as the case may be. They could
throw the dice, if that is what they want, get into more traditional
pension schemes, or have a self-invested personal pension. Those
options are not going to go away as a result of personal accounts. It
comes down to a relatively small number of credible, well managed funds
giving an element of choice, particularly relating to religious and
ethical beliefs, and a very well managed default fund, which I predict
will probably end up with at least 90 per cent. of all the invested
funds.
Perhaps
I could also draw on the advice of the Investment Management
Association. It supports amendment No. 45 and
says:
“One of
the underlying principles behind personal accounts is that they should
be simple and costed appropriately for members. While it is desirable
that members’ preferences on investment choice are taken into
account, where those preferences involve a higher cost than the most
popular/mainstream investment choice it is right that these should not
raise the cost of membership for all members and that additional costs
should be borne by those taking advantage of the costlier
option(s).”
Again, that
echoes what the CEHR was
saying.
The Minister
might not feel able to say at this stage, but the question of whether
extra charges could be imposed for people with exotic and changeable
preferences—at least in their investment life—could feed
into consultation on the structure of charging. An element of churning
should be discouraged, if at all possible. That is what is behind the
amendments. They are designed to be helpful and to try to protect the
position of members of personal accounts so that not only their
preferences, but their needs, are taken into account, and so that any
excess costs generated by numerous choices and changes of funds are not
borne by the entire membership, the vast majority of whom will end up,
in any event, in the default
fund.
Paul
Rowen:
With regard to subsection (2)(e), which deals with
investment in funds, it is important that we discuss some of the
principles on which that will be done. The next amendment that we will
consider takes
that further, but these two amendments are key. I certainly have no
problem with what the hon. Member for Eastbourne is seeking to do
because I think that it is fundamental that any investment meets
investors’ needs. That presumably means that there will be
sufficient growth in the funds to justify the
investment.
I believe
that it is right and proper that PADA and its
successor, the trustees, report on how the funds
invested on their members’ behalf are progressing. Equally, it
is useful and preferable to take into account different preferences,
and I agree with the hon. Gentleman that those will come down to a few
based on ethical or religious grounds. If the personal accounts are to
have the broad approach that we want, the investment portfolio needs to
have that option within it so that a member can see that it does not
conflict with their religious beliefs or particular ethical concerns.
Those are two important principles that the amendment has allowed us to
express so that they are clear in the
Bill.
The third
principle is that any investment should not necessarily come at
disproportionate cost. If I may continue with the ice cream analogy, a
friend of mine was encouraged to invest in vanilla growing in Uganda a
few years ago. The price that Uganda could obtain was relatively high
at the time, so he judged it to be a successful investment. Of course,
as soon as he and others pumped their funds into it, the price
collapsed and he lost his investment. It is very
important to consider that there is an opportunity cost to investment.
Such a cost cannot be disproportionate, or the fund will not
achieve what it is set out to do: to provide an income in
retirement that many people would not otherwise
have.
Mr.
Plaskitt:
This has been an interesting and helpful debate.
As with other trust-based occupational pension schemes,
investment-related decisions for personal accounts will be the
responsibility of the trustee corporation, which will have a duty to
act in members’ best interests—that is established in
law, of course. Investment choices will not be a matter for
Government.
Prior to
the appointment of the scheme’s trustees, the delivery authority
will undertake initial work on the scheme’s investment approach
and develop a draft statement of investment principles for the
trustees’ consideration. The principles that will underpin that
and all the authority’s work are set out in clause 62. I am sure
that members of the Committee will agree with the sentiments behind the
amendments and I hope that they will be reassured to know what the
principles are designed to
achieve.
5.30
pm
Personal
accounts will be a success only if they focus on and meet the needs of
their target market. That applies not only to investment choice but to
all aspects of the scheme's design. It is one reason why we set out the
authority's guiding principles in the way we have done; they will run
through all that the authority does and reflect the Government's
ambition for pension
reform.
In
developing the personal accounts investment approach, the full range of
guiding principles will apply, which will mean the authority having
regard to members' preferences and to the other principles, including
encouraging
participation in qualifying schemes, minimising member charges, and
respecting the potential diversity of members and future members. The
hon. Member for Bromsgrove asked how the preferences are established
and I can tell her that PADA will soon begin the consultation process
with the public to establish more information on that
subject.
Miss
Kirkbride:
I am grateful to the Minister for
letting me know how the preferences will be
established. There may also an argument for having only one fund and
saying that those members who do not like the principles on which the
fund is being invested can be transferred to another scheme offering
the investments that they want. That would be simple, it would not add
to the cost and there would be great clarity about the way
forward.
Mr.
Plaskitt:
I do not agree with the hon. Lady, who usually
speaks in favour of more choice, but in this case seems not to want
any. Although it is not for the Government to anticipate the investment
preferences of individuals coming into these schemes, we know at this
stage as a matter of general understanding rather than anything
specific that some groups will want certain criteria in their
investments. If we were to say that those criteria cannot be met
because there is only one fund, it would result in a lot of extra
people opting out and possibly having nowhere else to go to achieve the
investment for their pension that we want them to have.
To maximise the
opportunities of people staying in this scheme and deriving its
benefits, it needs to be able to meet at least a minimum range of
choices and discretionary options that individuals may have in respect
of minimum requirements for their pension fund but we do not expect a
large number. The hon. Lady may recall Tim Jones, saying in evidence to
the Committee on 15 January that he envisaged a number of funds,
perhaps going into double figures. He quoted quite small double figures
and certainly ruled out the notion of 50, 100 or anything like that.
That is his expectation and we can probably go with
that.
A consideration
of members' needs will therefore already be embedded in the authority's
work to prepare the scheme’s investment strategy. For example,
research has shown that the way in which investment choice is
structured can make a significant difference to
participation in pension savings. While some investors like to have
fund choice, too much choice could lead to confusion and higher rates
of opting-out amongst others. That is exactly the type of issue the
delivery authority will need to consider when developing the scheme's
investment approach and thinking about how best to encourage and
facilitate
participation.
These
principles reflect our intention that the personal accounts scheme
should be a low-cost scheme, which is necessary to maximise the returns
on members' savings; it is particularly important if the scheme is to
meet the needs of those for whom it is being created. Therefore, the
cost of the proposed approach to investments will be fundamental to the
authority's deliberations.
The hon. Member for Eastbourne
and the hon. Lady asked about scheme hopping, which would be an issue
if members were jumping from one fund to another on a regular basis.
However, that is not likely, given that
this is a default option for people who do not want
complication in their pension investment but just the reassurance that
there is a long-term, low-cost investment that will give them a better
income in retirement. People understand that pension investment is long
term investment and are not likely to be jumping regularly between
funds. More sophisticated investors operating on discretionary margins
would tend to do that more than core
investors.
The
hon. Member for Eastbourne asked whether PADA is considering in its
consultation the charging implications if people jumped funds. It is
examining such matters and he will find reference to them on page 218
of the consultation document. I hope that my assurances are sufficient
to encourage Opposition Members to withdraw their
amendment.
Mr.
Waterson:
I agree with the Minister. The debate has been
interesting and useful. We should not be getting ahead of ourselves
because ultimately more clever investment managers than us will be
sorting out the matter. However, it has been helpful to have had some
of the issues out in the open air and to have had a look at them. On
that basis, I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
‘(g) the UN
Principles for Responsible Investment should be adhered
to’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 159, in clause 62, page 29, line 18, at end
insert—
‘(g) international
best practice on responsible ownership and environmental, social and
corporate governance issues should be
considered.’.
Paul
Rowen:
The amendments would add a new paragraph (g) to
subsection (2). The hon. Member for Carmarthen, West and South
Pembrokeshire and I are seeking to achieve similar outcomes. I shall
begin by explaining what the amendment would do and then say what it
would not do, because there is some confusion within the Department for
Work and Pensions about that. I shall explain its positive advantages
and how it will meet the Government’s wider agenda and the
benefits for long-term investment for those members for whom we want
personal accounts to be
successful.
We want to
put into an investment strategy through the UN principles some
cognisance of environment, social and governance principles when
investments are being made. We do not want to dictate the total
strategy. The Department for Work and Pensions has said that it is not
for the Government to set the investment strategy. On 11 June 2007,
when discussing the then Pensions Bill, Lord McKenzie of Luton said
that
“it is not
appropriate to commit the authority to follow a specific
objective”.—[Official Report, House of Lords, 11
June 2007; Vol. 692, c.
1532.]
I do not believe that the
inclusion of the amendment would tie PADA and the trustees to a
particular range of investment paths or to a particular strategy. The
UN
principles are voluntary and aspirational. They are regarded as a tool
kit by which fund managers can measure the investment that is made. I
hope that the Minister will not repeat what has been said by his
Department. The amendment does not seek to dictate what should be
invested, where and
when.
Taking on board
our earlier discussion, it is clearly important that the needs of
members are paramount. My example of investment in
vanilla in Uganda is appropriate. It may be good for the farmers in
Uganda to invest in growing vanilla, but if there was no economic
return from that particular investment, it clearly does not do any good
to the personal accounts of members. The UN principles do not prescribe
that we always have to go down a particular route. They are
aspirational.
With
regard to the benefits of the Government’s wider agenda, it is
clearly important that the Government’s key goals and aims are
somehow demonstrated through this sort of investment and others in
every piece of legislation we introduce.
The
Government have got a clear strategy on tackling climate change. One
might ask what that has to do with investment. Clearly, when talking
about environmental investment there are positive ways in which
investment in certain schemes, through an ethical funding mechanism
that the UN principles suggest, can be successful. Information that was
provided in relation to pensions suggests that Insight Investment,
working with UK house builders, improved the sustainability of the
houses they were building against WWF criteria from 47 per cent. to 68
per cent. in one year. That is an example of where the
Government’s objective on meeting the challenge of climate
change runs alongside the Fund’s investment of securing a
return. Given that most pension investments are medium to long-term
investments, as the Minister said earlier, I put it to him that we
clearly need to set a direction on ensuring that some of our wider
social and governance objectives are achieved.
Another example of where
investment can perhaps support Government policy is the treatment of
AIDS in Africa. GlaxoSmithKline has now reduced the cost of the
antiretroviral drugs that it has made available in
South Africa, but that would not have happened
without the Government and investors in GlaxoSmithKline saying that
there was a wider, long-term benefit to be achieved, both in getting a
return for the company through the sale of the drugs and in meeting
some of the Government’s wider objectives, which in this case is
ensuring that the treatment of AIDS is dealt with as a matter of
priority.
Miss
Kirkbride:
I am interested in the argument that the hon.
Gentleman is advancing, but while I see the benefits of some of the
examples he has given, I wonder, in the light of his own party’s
policy on nuclear energy, for example, whether the guidelines that he
is trying to impose on the Minister mean that a company that was
investing in nuclear energy would not be the kind of company that would
have power to invest in
it.
Paul
Rowen:
The words that the hon. Lady used
illustrate some of the misunderstanding about
adhering to UN principles. We are not saying on every occasion,
“You must do X because it is ethical”, or whatever. We
are saying that it is a set of principles and a toolkit that sets out a
broad sense of direction, and it comes back to the point that was made
earlier and which I think is fundamental to any decision: a company has
got to meet the needs of its members and secure an adequate
return.
I happen to
believe that investment in nuclear power will prove to be hugely
expensive and will not secure the Government’s broader
objectives or deliver what might be delivered in the case of
electricity. I believe that it will end up being hugely subsidised by
the Government because the private investment will not be
successful enough to secure the return needed to generate
invested.
However,
that is a different argument to the one that I am trying to advance,
which is that there should be a set of principles on
environmental, social and governance issues on the face of the Bill.
That does not mean stating what always must be done, as Lord Mackenzie
and the statement from the Department for Work and Pensions attempted
to say. Rather, they would be a set of principles, and in the long term
they would achieve that. If the PPF fund and BT, which has a large
pension fund and many commitments, can sign up to the principle, along
with—as the hon. Member for Eastbourne said—the main
French and New Zealand pension schemes, why cannot we make a similar
statement of principle by introducing this scheme to broaden pension
savings for the vast majority of people?
It is only a principle, it is
not a strategy or diktat about what can be invested in and what cannot,
but it sets a clear direction and allows the Government to ensure that
their actions are in tune with their broader objectives. I hope that
the Minister will support the amendments—they are not
mischievous, they do not seek to detract from anything else that is
achieved in the Bill, but they set a clear direction for the future
that chimes with everything else the Government want to
achieve.
Nick
Ainger (Carmarthen, West and South Pembrokeshire) (Lab):
I will speak to amendment No. 159 tabled
in my name, which, as the hon. Member for Rochdale has
indicated, is in line with his amendment. The aim of my amendment is to
require the authority to be a responsible investor and to take
environmental, social and corporate governance issues into account in
its investment decisions.
It is sad
that we still need to argue and make the case for ethical investment in
terms of its performance, compared to, not mainstream investment
perhaps, but other investment. All the evidence shows that mainstream
investment occasionally, and sadly all too often, makes serious
mistakes. I do not know how many pension funds had invested in Enron or
WorldCom or Tyco, but clearly, massive losses were incurred because of
serious irregularities in the corporate governance of those companies,
in the financial irregularities that led to their collapse and, in
certain circumstances, the imprisonment of those company
leaders.
That could
perhaps have been prevented by those pension funds taking a keen
interest in the corporate governance of those
companies. I note that the Investment Management Association published
a guide to ethical
and socially responsible investment funds. With
regard to the performance of ethical funds, its advice to consumers
states
“you don’t
have to sacrifice investment performance when investing
ethically”.
Last
year, an ethical fund managed by Co-operative Investments was the
best-performing fund in the UK all-company sector. Investing ethically
and taking environmental, social and corporate governance issues into
account, does not mean that there will be a bad return—far from
it. First, it gives protection in terms of corporate governance issues.
The example of vanilla-growing in Uganda may have been environmentally
and socially very good, but perhaps the problem was a lack of corporate
governance. Quality performance does not have to be sacrificed when
making ethical investments. All the companies that have been invested
in and that have high-quality leadership, actively consider
environmental and social issues and protect and enhance shareholder
values. That is what we all want to happen particularly, as I mentioned
earlier, with the default fund.
The earlier debate about how
many other funds there are was interesting, but let us be honest: the
vast majority of the investment that will be made by the contributors
to the personal accounts will go into a default fund. They are not
going to say, “I want my money to be invested in this particular
area.” There will be a substantial amount of
funds going into that default fund, so the authority and the trustees
are going to become a significant investor in the economy. Their
decisions will send a clear message to British companies, and other
companies outside this country, about what is expected of them; setting
an example, as the hon. Member for Rochdale said, in relation to
climate change or human rights, and generally sustainable development.
It is likely that other UK asset owners and other pension fund managers
will follow suit and we will get a mainstreaming of ethical investment
happening. That would be welcomed by both sides of the Committee,
particularly the Government because of their commitment to sustainable
development and investment in the long term, not just in the UK, but in
Africa and the developing world.
I would hope that, as the hon.
Member for Rochdale has said, we are not being prescriptive here; we
are saying that the authority must have regard to ethical investment
principles. That way, we will get investor protection and good
performance for this
fund.
Mr.
Plaskitt:
We have had an interesting debate on this
important subject. I am grateful to the hon. Member for Rochdale and my
hon. Friend the Member for Carmarthen, West and South Pembrokeshire for
contributing constructively in the way that they have. I reassure them
straight away that, to use the phrase of the hon. Member for Rochdale,
I certainly do not regard the amendments as in any way
mischievous—these are important issues.
Investment-related
decisions in trust-based occupational pension schemes are the legal
responsibility of the trustees, who must act and are bound by law to
act in the best interests of their members. However, prior to the
appointment of the personal accounts scheme trustees, the delivery
authority will undertake consultation and research in developing the
scheme’s investment approach and draft an initial statement of
investment principles for the trustees’ consideration.
Amendment
No. 110 would require the authority to adhere to the UN principles for
responsible investment in making its investment recommendations to the
scheme’s trustees. Amendment No. 159 is similar, but would
extend in general terms to international best practice. In practice,
the amendments would have little effect as they relate to the
authority, which does not have responsibility for investment-related
decisions and therefore can only make recommendations to personal
accounts trustees. If we were minded to place that kind of requirement
on the scheme, this would not be the place to achieve it.
I appreciate that there is an
increasing interest in the importance of responsible or ethical or
sustainable investment—it has various adjectives—but I do
not think that the Government should intervene in decisions on how
people’s pension savings should be invested. That is a matter
for their choice and a matter for the expert, independent trustees to
decide. It is a decision for which they should be responsible and
accountable. There is movement in the direction that the hon. Gentlemen
wish; I understand that there are currently 21 UK investment managers
signed up to the UN principles, but it is up to the managers at the
trust level to take on board those principles, not for PADA.
Legislation
already requires trustees to state the extent to which, if any, social,
environmental and ethical considerations have been taken into account,
when preparing and reviewing their statement of investment principles.
That requirement will also apply to the personal accounts scheme, but
it is not right to go any further than that. We are already setting the
personal accounts scheme a significant challenge: to provide effective
and low-cost pension saving to millions of people who do not have that
opportunity at the moment. We should not restrict its hand any further
in how it goes about doing
that.
However, I can
assure the Committee that the authority and the trustees of the
personal accounts scheme will consider the best interests and
preferences of members and future members, and take account of
appropriate best practice when carrying out their investment duties.
Hon. Members speaking in support of the amendments may be reassured to
know that both Ministers from the Department and staff from the
delivery authority have had meetings and discussions with the UK Social
Investment Forum on exactly the matters indicated by hon. Members.
Therefore, with what I hope that they would regard as reassurances, on
what is an important
issue—
Andrew
Selous:
I am grateful to the Minister for giving way just
before his conclusion. From what we have heard in the evidence sessions
and again today, there seems to be a commitment to a sharia fund. The
Minister may correct me if I am wrong on
that.
I and other
members of the Committee would be reassured if at least one of the
funds on offer complied with the UN principles and general
environmental, social and corporate governance principles. If the
Minister is able to give some comfort on that, it would be
useful.
Mr.
Plaskitt:
With respect, that is not for me to decide. As I
said in response to an earlier debate, PADA is about to begin a
considerable consultation process
with potential scheme members and the public, on their preferences. It
must do so, in honour of one of the principles that we have just
debated. A strong desire may emerge from that process to have a fund
similar to that which the hon. Gentleman described, but the Government
cannot be prescriptive about
that.
We may hope and
expect that certain types of fund will emerge, but it is not for me or
for only us in this room to say that. We have to have regard to what
the members who will go into the schemes may want. Yes, we have an
indicated an expectation that there will be a sharia-based account, for
the obvious reason that we can clearly identify one group of people,
many of whom may be coming into the scheme, with very specific
religious requirements for their investments. Therefore, one could
easily anticipate
that.
Demand for a
specifically ethical or sustainably-based fund may also emerge, but I
cannot anticipate, recommend or call for that. We can only speculate
about what type of funds there may be. Again, we need to bear in mind
the general expectation of keeping the costs, the system and the
choices simple. We do not expect there to be too many funds for people
to choose
from.
Andrew
Selous:
We all understand the point about the sharia funds
and the religious obligation and feelings of those potential investors.
However, we live in a diverse society. Many clergymen and ministers,
for example, may also feel strongly that the dictates of their
Christian faith would cause them serious problems with being
auto-enrolled into a scheme not compliant with the UN principles, or
not having the option to do that.
The Minister is flagging up
that there is likely to be a sharia scheme, but he cannot go any
further in committing on any other scheme. I am a little uneasy,
because that seems to acknowledge the genuine and legitimate needs of
one section of constituents, but perhaps to ignore the needs of a
considerable amount of
others.
Mr.
Plaskitt:
I do not think that that is the case. I take
what the hon. Gentleman is saying, but to try to reassure him and my
hon. Friend the Member for Carmarthen, West and South Pembrokeshire,
let me draw their attention to one of the principles in clause
62(2)(f). We have had hardly any debate about it, but it is an
important additional principle. It calls on the authority to have
regard, among the principles it is considering, to diversity among
members and future members of such a scheme, and for that diversity to
be respected. It does not specify who or which categories should
constitute that diversity . It is a catch-all call to respect
diversity, given that that is enshrined in the principle. I think that
that captures the point that he is making and places an obligation on
PADA to think about those aspects when it is designing the
scheme.
I completely
understand the reasons why Members who have spoken in support of these
amendments want to see that happen. We will all have personal views on
our individual investment preferences and our own ethical judgments
about what is acceptable and what is
not, but the Government will not do this. As I have tried to argue, PADA
is not the right vehicle to be assigned to this undertaking, either the
UN one or a more general one. That in the end comes down to the
trustees managing the schemes. I hope that the hon. Gentleman will
accept those reassurances and agree to withdraw his
amendment.
6
pm
Paul
Rowen:
There were three points in the Minister’s
remarks. The first relates to subsection (2)(f) and diversity, and that
is very much a diversion. It is certainly not what the two amendments
were about. We understand that there may be a sharia fund and various
other funds that deal with particular religious issues that respect the
diversity of the UK. However, I do not accept that some of the points
that we were making are necessarily covered by that
provision.
Secondly,
the Minister said that he did not believe that PADA was the appropriate
body to be covered by an amendment that says that when policies are
drawn up, notice should be taken of the UN principles. I have to
disagree with him. Between now and 2012, PADA will be the authority
that will draw up the whole basis on which personal accounts are to be
administered. In 2012, or slightly later, the trustees will
take over. However, right at the beginning, surely it should be
possible to express a commitment to a set of UN principles. I have
laboured the point all along that this is not about prescribing
investment strategies or where things should be put. We are laying down
a set of principles.
I come from Rochdale and the
co-op principles on which the modern co-operative movement was set up
were written by people from Rochdale. They are very clear. A number of
statements set out what the co-op in Toad lane wanted to achieve when
it was set up in 1848. I believe that, in setting up PADA, a clear set
of principles about how we are going to invest should be laid down
right at the beginning. I cannot see why the Minister is reluctant to
do that. This is an important issue. We have argued that it is possible
to invest with principles and make money. If the Pension Protection
Fund can sign up to that, and if New Zealand and France can also sign
up to that, I cannot see why we cannot.
We are Parliament and we are
setting a direction. We can tell the trustees and PADA what we want to
achieve. This is all about doing certain things. It is about ensuring
that people save more and that they have a better pension when they
retire, but it also should be about saying that while we are about
doing our business and investing this money, we will look to certain
principles that we believe are right and proper. I keep saying that
they are only principles, not diktats, but they are very clear. As the
Minister has not given us any assurance that something along these
lines will be introduced later, it is important that we have a vote on
the amendment.
Nick
Ainger:
May I urge my hon. Friend the Minister to look at
the amendments? There is genuine feeling about them, particularly
bearing in mind the experience of similar funds throughout the world
that do not
appear to have a problem with signing up to the principles. Perhaps we
could reconsider the matter and return to it on
Report.
Colleagues on
both sides of the House feel strongly about including the principles. I
do not think that they will have a detrimental effect. They will have a
positive effect, particularly on the default fund. As the hon.
Gentleman rightly points out, paragraph (f) refers to diversity.
Perhaps those who want a far riskier option could request that a
separate fund be set up for them, but for the vast majority of people
who want sustainable development and a decent pension that has been
responsibly invested in for the long term, I am sure that we can find a
way of including the principles in the Bill. I ask the Minister to
reconsider the amendment and perhaps to come back to it on
Report.
Alan
Keen (Feltham and Heston) (Lab/Co-op): I will not waste
time repeating my hon. Friend’s words, but I agree with
everything that he said. As a Labour and Co-operative Member of
Parliament, I hope that the Minister will carefully consider the
amendment.
Mr.
Waterson:
I was not intending to take part in this debate.
First, I pay tribute to the hon. Members who tabled the amendments.
They discussed them in a measured way, and the diversion into the
history of the co-op movement was fascinating as well. I do not know
whether either amendment will be pressed to a Division, but I do not
think that my party is minded to support them. However, we support the
underlying principle. There will almost inevitably be a sharia-based
fund—I do not think that it would be possible not to have one,
and I am not saying that there should not be one; I think that there
should be one—and I agree with my hon. Friend the Member for
South-West Bedfordshire that there has to be something equivalent for
people with broadly Christian or other ethical
views.
Ministers, and
certainly PADA, should take away from this debate the
Committee’s strong feeling that such an option should be
included in some shape or form. I am not sure that either of the
amendments is quite right, partly for the reasons that the Minister set
out. We will not support either of them in a Division, but we support
the principle and would like to hear more about it, perhaps at a later
stage of the Bill’s
passage.
Mr.
Plaskitt:
I urge caution on hon. Members who might
be inclined to press the amendment to a Division, although I understand
entirely the motives for raising the issue and I do not have much in
the way of personal disagreement with anything that they have
said.
Let me first say
that I will convey what has been said to PADA—rightly
so—so that it can take it on board. PADA is thinking about the
investment principles and working on them, and it is right that it
should hear what this Committee has said on the subject. However, it
will also want to think about the potential implications of putting
into legislation what the hon. Member for Rochdale seeks, and I would
certainly urge it to do so.
Although all of us in this room
can perhaps almost instinctively sign up to the
notion of such an investment, we should be careful about speaking for
everyone and potentially proscribing funds that might emerge or form
part of the whole suite on offer. We might have a set of ethical views,
but it will be important for others to be in the scheme and to have
these funds. They may not share our views, and they are entitled not
to. We must not do anything that could proscribe them from investing in
something that they want to invest in, just because we do not feel
comfortable about
it.
I urge the
Committee not to cross the important line between thinking about the
principles that relate to the architecture of the scheme and ensuring
that it delivers its fundamental objectives of including people and
giving them a decent income in retirement, and moving into an argument
about the values for such a scheme. I want to be cautious about that,
although I am fully in sympathy with the UN objectives. Although I
might wish to adhere to them myself, I would rather transfer the debate
to PADA and ask it to reflect on the principles as well as on the
implications of what could be done. That would be the right place to
give further thought to such matters.
Mr.
David S. Borrow (South Ribble) (Lab): Bearing in mind what
has been said, does my hon. Friend think that, by the time that we
discuss the Bill on Report, PADA will have reached
such a point in its deliberations that he will be able to inform the
House in a way that would be helpful to all hon. Members and give them
the reassurance that the majority of members of the Committee clearly
need?
Mr.
Plaskitt:
My hon. Friend is helpful. I cannot give him an
absolute reassurance now because I have not had the opportunity to
discuss with PADA the stage that it has reached. However, I hope that
it will be of assistance if I give him an undertaking that we shall
collect a view on the subject in time for when the Bill is discussed on
Report, which hopefully will inform further deliberation. It is
reasonable for me to obtain such information for
him.
Given what I have
just said, my other reassurances and the fact that I respect greatly
the arguments advanced by members of the Committee, as well as having
personal sympathy with them and regard for the wider issues at stake, I
ask the hon. Member for Rochdale not to press the amendment to a
Division. We can then pursue such matters with PADA, which is the
appropriate body to reflect on what has been
said.
Paul
Rowen:
I am grateful to the hon. Member for South Ribble
for his intervention. The Minister’s statement was reassuring. I
am happy that details of our debate will be passed to PADA and that, by
the time that we discuss the Bill on Report, we shall have information
on its particular line. I must say that if we do not receive such
reassurances on Report, I will table a further amendment, because we
feel strongly about the issue, which I am sure the Minister appreciates
from our debate. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave, withdrawn.
‘(g) clear and
robust information and generic advice should be available to members
and future members of the
scheme’.
The
amendment moves our discussion on a stage further to the heart of last
week’s debate, to which I have no doubt we shall return. The
Minister knows that, regardless of what the Thoresen report may
conclude—presumably by the time that we debate the Bill on
Report—the Liberal Democrats have made clear all along their
serious concerns about ensuring that the appropriate people sign up for
personal accounts and that they receive the right
advice.
The amendment
would ensure that there was another particular principle in the
delivery authority’s targets: to make sure that clear and robust
information and generic advice are made available to all future members
of the scheme. The Minister knows from our earlier discussions that we
are concerned about such matters. I am aware of the differences between
such advice and information, but nevertheless I believe that, for the
target group that we are discussing, we will have clear advice
and—given what the hon. Member for Eastbourne said
earlier—probably guidance. We do not want to see people signed
up for the scheme when they should be paying off their debts and would
be better off doing so. I accept that it is not for PADA to provide
that type of advice, as bodies such as Citizens Advice already give
such information. Nevertheless, the availability of clear and robust
information and generic advice should be a clear principle for PADA,
and I hope that the Minister will accept this amendment as a clear
principle.
Mr.
Waterson:
I just want to pin down what the hon. Gentleman
means by “clear and robust”. Is he crossing the line into
advocating specific advice? It seems to me that the only distinction
worth debating is that between generic and specific advice. All the
weight of opinion is that no one is going to be in the business of
giving anything but generic advice. That was the view of the Thoresen
review, and that is what we will hear about in March—I think
that that was the latest indication. I wish the Thoresen review well
with that.
However,
as I understand it, nobody but nobody is volunteering to give specific
advice, by which I mean giving a particular individual, on the basis of
their own circumstances, advice on whether or not they should be
auto-enrolled. Is the hon. Gentleman suggesting that such advice should
be
given?
Paul
Rowen:
Certainly not. I do not want to see the type of
individual advice that adds to costs and that does not necessarily
deliver. By “clear and robust”, I mean advice that is
simple, that is easy to understand by the target audience, that is not
over-complicated, and that will stand the test of time. Obviously,
circumstances will change, but in terms of robustness, the advice must
point in certain directions. What are the advantages of signing up to
this particular pension scheme? What will someone achieve by doing
so?
Therefore, when I
am talking about “clear” advice, the advice must say,
“If you do this, you will get that,” always accepting the
caveats about pension schemes.
However, the advice must not mislead, or be over-generous about what the
benefits of a scheme might be. Also, it must not be too underwhelming.
It must be very clear for people in these circumstances, who may be on
the margins and for whom it is debateable whether they should go into
the scheme or not. It must be clear about what the advantages are for
the target
group.
Mr.
Waterson:
By “it”, does the hon. Gentleman
mean a leaflet, a website, or something else? I am interested in how he
thinks that he can ensure that the target group will read this
information and take it on
board.
Also, Ministers
used to say, “Put in a pound and you get two pounds
back.” I think that we have broken them from that habit because
that was fundamentally misleading, and we would not want anyone to sue
Ministers or the Government, would we? However, does the hon. Gentleman
have some idea about giving people an idea of what their return is
likely to be? If so, how would he manage that, given all the evidence
that we have about at-risk groups in the target
group?
Paul
Rowen:
The hon. Gentleman raises two issues, the first of
which is where people get the advice. There will need to be a mix of
sources from which advice can be obtained. Some people will need to
talk to someone, but they might only be a tiny minority—I am
thinking about people with special needs, for example. There are
particular circumstances in which although the advice might be generic
to a particular group, that type of advice will not just be available
in a leaflet. There are other people who would be quite happy looking
at a website. With many pension schemes, people are now able to put in
figures and see what the returns are suggested for various
options.
The clear
point is not, “You put in one pound and get two,” but
that there is a range of possibilities based on how the market may
perform. If that sort of advice is given, people will be able to make
their own decisions. The problem in the past was that the advice was
too black and white. The advice must be robust, by which I mean that it
must stand up to the test of time. It must be clear and not
over-complicated. It must be understood, although I accept that that is
a difficult issue. It must be generic to different groups because there
are different types of people with different
needs.
Perhaps I am
pre-empting what Thoresen will say, but, nevertheless, our reason for
raising this matter now is that my party has all along made clear its
concerns about having appropriate advice and ensuring that only the
appropriate groups are signed up for personal accounts so that they are
not used as a vehicle for mopping up people for whom there might be a
better option. That is a difficult circle to square, and no doubt we
will see what Thoresen has to say, but the purpose of the amendment is
to flag up some of our concerns about how this whole issue will be
dealt with. We believe that it will be fundamental to the success of
the scheme and its successful
implementation.
Mr.
Plaskitt:
As we have already discussed, we place
the highest importance on the information strategy that will be put in
place to support this reform.
Clause 8 recognises that individuals will need
access to relevant and accurate information about the effect of the new
employers’ duties in relation to them. The clause requires
regulations to set out what that information should
include.
The amendment
would create an additional principle for PADA: to ensure that clear and
robust information and generic financial advice is made available to
members and future members of the scheme. I listened carefully to what
the hon. Member for Rochdale thought that he meant by robust. There was
a lot of content, but it was not altogether clear. I think that he can
see that when we dig into the word, it brings a lot of complexities
with it.
The amendment
is unnecessary because the existing principles are designed with the
intention of keeping the interests of future members
at the centre of the scheme. It is inconceivable that the authority
could do that without providing good and clear information. In
addition, the personal accounts scheme, as with other qualifying
schemes, will be required to provide a wealth of information on its
features, costs and benefits. All occupational schemes are required to
provide information to prospective and active members in line with the
occupational pension disclosure regulations. Failure to comply with
that legislation could incur a penalty charge from the Pensions
Regulator.
It is
worth reiterating the information that must be provided because this
list goes almost all the way, if not the whole way, towards providing
what the hon. Gentleman is looking for. The
information must provide: the conditions of eligibility; relevant
joining processes; how contributions, tax relief and benefits are
calculated; arrangements for making any additional contributions;
survivor benefits under the scheme; transfer rights within the scheme,
when they exist; the period of notice to terminate membership; what
benefits are payable under the scheme; an annual illustration of
benefits at retirement; and procedures in the event of any
dispute.
The
authority is well aware of the importance of providing information
relating to personal accounts. Indeed, at the evidence-taking sessions
we heard Paul Myners, the chair of the authority, say that it
“will be working
hard to develop highly effective
communication”
and that
its consumer and employer representative committee
“will be specifically charged with
giving us advice on issues relating to communication and the provision
of information.”——[Official Report,
Pensions Public Bill Committee, 15 January 2008; c. 10,
Q6.]
The amendment
does not refer just to information. As we have heard, it refers
specifically to generic financial advice being made available to
members. It might be helpful if I clarify the distinction between the
terms as it goes to the heart of what the hon. Gentleman has been
saying. Information is not tailored to a specific individual and could
be provided in a variety of forms. Generic financial advice is not
regulated and does not recommend specific products, but it is, or can
be, tailored to individual circumstances. If we accepted the amendment,
the authority would need to consider the provision of generic advice to
members of the personal accounts scheme. The reforms have been designed
so that the decision to remain in a pension is simple, because of the
employer contribution. We recognise that some people, but by no
means all, may want generic advice when
auto-enrolling.
A number of existing bodies, such as the Pensions
Advisory Service and the citizens advice bureaux, already provide a
professional, well trusted and respected generic advice service. The
Thoresen review and the Government’s forthcoming action plan on
financial capability will assess the need to add to those services that
are already
available.
There may
be a peak in demand around 2012, which is the launch point for this
type of service for those automatically enrolled into personal accounts
under qualifying schemes. I can reassure the hon. Gentleman
that we will work with stakeholders, expert
organisations and the authority on how best to ensure that that
potential peak demand is met. I therefore hope that he will withdraw
the
amendment.
Paul
Rowen:
I am grateful for the Minister’s reply,
which hinted that the scheme is very much work still in progress. I
accept what he says about the work that is ongoing to ensure that
information is made available. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Mr.
Waterson:
I beg to move amendment No. 47, in
clause 62, page 29, line 20, after
‘others’, insert ‘including Opposition
parties’.
This
is a neat little amendment that need not detain us for
long—
Like so many
of our amendments, this is a blindingly straightforward statement of
the obvious. Regardless of the syntax, clause 62(3) is eminently
sensible and no doubt it will cast as wide a net as possible. However,
I want to be clear that among those public authorities will be
Opposition parties, especially this Opposition party. If one believes
the opinion polls—I never do—we might have to implement
all this in the run-up to 2012. The Minister made a crack earlier about
the fifth-term review, a prospect that is beyond imagining. In any
event, whoever is in power, it seems sensible that this should be a
long-term project. It has massive implications for millions of our
citizens, irrespective of who they vote for, or whether they bother
voting at all. Therefore, it is very important that matters proceed on
a consensual, cross-party basis. Normal relations have been resumed
with Paul Myners and Tim Jones, and I am looking forward to regular and
constructive meetings with them, which parallel those with Ministers,
just to hear how they are getting on, and especially to hear about
Mr. Jones’s famous review, although we do not want to
go there again.
It is
important to get the principle across, although I do
not care whether it is in the Bill as long as the Minister says,
“But of course.” If he approaches the amendment with his
customary humility, he will realise that the term “Opposition
parties” may one day include
him.
6.30
pm
Mr.
Plaskitt:
The amendment comes at an appropriate time,
because it gives us a little light relief from what has been a serious
debate for a considerable number of
hours. I am interested to hear the hon. Member for Eastbourne say that
he does not care whether the amendment is made to the Bill, because
that is what his amendment calls for, but I shall address his point. To
move an amendment and then say that one does not care whether it is
included in the Bill, which is what the amendment was called for, is in
today’s analogy known as a wafer-thin argument.
During the development of the
policy, from the Pension Commission through to the White Papers, we
have invited and welcomed to the debate the
involvement and contribution of all stakeholders. We have had seminars,
consultations and discussions, and as the hon. Gentleman rightly said,
it all included Opposition Members. The situation’s long-term
nature, and the broad agreement across political lines and other
opinions, are critical to the success of pensions policy, and as we
move towards the implementation of the reforms, developing and
designing the infrastructure and the detailed legislation that will
support it, we expect the Department, the regulator and the authority
to continue with their open and transparent outlook, and to work
collaboratively with stakeholders to deliver the best solutions, as
they have done hitherto. There is no reason why they should depart from
that at all.
Clause
62 demonstrates our commitment to that issue. It requires the authority
to continue with that open approach as it carries out its work in
designing and implementing the personal account scheme, and works with
the regulator on compliance. Even without that statutory requirement,
the authority already demonstrates its desire to be inclusive and
involve stakeholders in the consideration of options. Paul Myners made
it clear during the evidence sessions that the authority will be an
open and transparent organisation that is available to anybody who
wants to make representations to it. It has already established a
consumer representative committee, whose members include Age Concern,
the TUC, the Financial Services Authority, the consumer panel, the
advisory services and Citizens Advice, among others. The group has a
remit to provide advice to the authority on a range of consumer
matters relating to the design and specification of the personal
accounts scheme.
In
all such consultation, I am sure that the authority will seek the views
of Opposition Members; indeed, I understand that they have already had
meetings with the authority, which I welcome. It has an essential part
in securing an agreement about decisions that will affect employees in
this country for many decades to come. I do not think that it is
necessary therefore to state explicitly in the Bill the requirement for
that engagement, and neither does the hon. Gentleman. Given that, I
hope he will agree to withdraw the
amendment.
Mr.
Waterson:
I am grateful for that flash of consensus, and
for the Minister’s mature and far-sighted approach to the
amendment. On that basis, I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Clause 62 ordered to stand
part of the Bill.
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