The
Committee consisted of the following
Members:
Bacon,
Mr. Richard
(South Norfolk)
(Con)
Baron,
Mr. John
(Billericay)
(Con)
Brown,
Mr. Russell
(Dumfries and Galloway)
(Lab)
Clelland,
Mr. David
(Tyne Bridge)
(Lab)
Dhanda,
Mr. Parmjit
(Gloucester)
(Lab)
Dorrell,
Mr. Stephen
(Charnwood)
(Con)
Dorries,
Nadine
(Mid-Bedfordshire)
(Con)
Eagle,
Angela
(Minister for Pensions and the Ageing
Society)
Hodgson,
Mrs. Sharon
(Gateshead, East and Washington, West)
(Lab)
James,
Mrs. Siân C.
(Swansea, East)
(Lab)
Naysmith,
Dr. Doug
(Bristol, North-West)
(Lab/Co-op)
Owen,
Albert
(Ynys Môn)
(Lab)
Rowen,
Paul
(Rochdale) (LD)
Waterson,
Mr. Nigel
(Eastbourne)
(Con)
Watson,
Mr. Tom
(West Bromwich, East)
(Lab)
Webb,
Steve
(Northavon) (LD)
Glen
McKee, Committee Clerk
attended the Committee
Seventh
Delegated Legislation
Committee
Tuesday 9
February
2010
[John
Cummings in the
Chair]
Draft
Personal Accounts Delivery Authority Winding Up Order
2010
4.30
pm
The
Minister for Pensions and the Ageing Society (Angela
Eagle): I beg to
move,
That
the Committee has considered the draft Personal Accounts Delivery
Authority Winding Up Order
2010.
The
Chairman: With this it will be convenient to consider the
draft National Employment Savings Trust Order
2010.
Angela
Eagle: It is a pleasure to serve with you in the Chair,
Mr. Cummings. The two orders were laid on 12
January.
We
know that millions of working-age people are not saving enough to
generate an income in retirement that they would either want or expect.
In fact, nearly half of working-age employees are not making any
private pension savings at all. That is why the Government embarked on
their workplace pension reform programme. By building on the work of
the Turner commission, which helped create the consensus for change, we
have worked closely with the pensions industry, employers, and business
and consumer representatives, and across the political spectrum, as we
move to deliver such landmark reforms. Today is another step of
progress on that march to
reform.
Increased
access to workplace pension saving is critical if we are to tackle
under-saving. That is why we are extending access to workers in every
employment sector, by introducing a new duty on employers to enrol
their workers automatically into a workplace pension scheme, and to pay
a minimum contribution towards their pension saving. We are also due
shortly to debate the automatic enrolment regulations that frame the
employer duty as part of this overall package of secondary
legislation.
Many
employers, particularly those with a smaller work force, are not able
to provide a workplace pension for their workers at a reasonable cost.
Such a situation arises from a market failure that the reforms aim to
correct. When the time comes for employers to start automatically
enrolling their workers, they will need a scheme in which to do that.
That is why the Government is creating NESTthe national
employment savings trusta new low-cost and simple-to-use
pension scheme, formerly known as personal accounts. That will be one
of the options available to employers to enable them to meet their new
duty.
NEST
has been welcomed by the pensions industry, which recognises that the
existing market cannot meet the needs of all employers and all workers.
The NEST order, which is broadly equivalent to a trust
deed,
establishes the NEST scheme as if it were set up under trust. The order
is supported by the scheme rules. We consulted on the draft order and
the rules that go with it last year. Overall, the response from
consultees was positive. There was broad agreement that the order and
rules contain the right measures, and we responded to comments by
developing the drafts to increase clarity and
understanding.
The
order covers a number of areas that you would expect to see in the
trust deed of any pension scheme, including powers to allow the trustee
to make rules for the scheme, to make investments on members
behalf and to charge members to meet the costs of running the scheme.
It also includes provisions relating to the liabilities of the trustee,
the payment of benefits to members and pension sharing on
divorce.
However,
the scope, scale and role of NEST mean it also has a number of features
that set it apart from other occupational pension schemes. It might be
helpful if I take a little time to set out what the differences are.
First, NEST will have to accept all employers that wish to use it and,
once an employer is participating in NEST, it must also accept any
worker enrolled by that employer. In short, the NEST Corporation will
have a public service obligation. It will not be able to turn away any
employer or any worker, nor will it be able to set different charge
levels for providing the same service to different
members.
Steve
Webb (Northavon) (LD): Workers who currently have
workplace provision might be paying higher charges than in the NEST
scheme. They might be in a stakeholder scheme and paying, say, 1 per
cent., and NEST is offering 0.5 per cent., or whatever. NEST is obliged
to take the employer, as the Minister just said. Will workers paying 1
per cent. be lobbying employers to give up their current provision to
go into NEST, so that they can get 0.5 per cent. rather than 1 per
cent. charges. The idea of the scheme is that it does not replace or
undercut existing provision, but does the duty she has just described
not mean that that will tend to
happen?
Angela
Eagle: I do not want to anticipate, in anything other than
in the broadest terms, the behavioural impact of a reform of this size.
That will become clear over time. We have done as much research work as
we can to model behavioural changes. I like to think that, certainly
over time, the presence and existence of NEST will put welcome pressure
on cost bases for existing pension schemes. Likewise, the public
service obligation, which I have just been talking about, will mean
that NESTthe corporationhas to take all the business
that comes to it, regardless of whether it can make a profit from
charges. Making a profit on its business is not what it is there to do;
it is there to enrol automatically all employers and employees who come
to it. Once NEST is up and running and exists, the behavioural changes
will be complex, but we can tie ourselves in all kinds of knots
anticipating far in advance precisely what those changes would
be.
I
was pointing out that the public service obligation means that
employers and individual employees cannot be turned away from
membership of NEST, nor will NEST be able to set different charge
levels for providing the same service to different sorts of members.
That is vital in tackling the market failure in pension provision,
particularly among the medium and low earners, which we see in the
private sector. It is one of the driving ideas behind the proposals
that have been making their way through Parliament since the Turner
commission
reported.
Mr.
Nigel Waterson (Eastbourne) (Con): The only reason that
anyone might ever mention the public service obligation in such a
context is to justify large public subsidies for the early years of
what we now have to call NEST. Does the Minister yet have any idea of
what scale of subsidy the Personal Accounts Delivery Authority is
planning on applying for? If so, has she thought through the
possibility of getting all that through the European
rules?
Angela
Eagle: We are aware of the tensions with state aid rules
and the accompanying issues. It is slightly too early to anticipate
exact amounts, since the Personal Accounts Delivery Authority has not
finished its procurement process and, at this juncture, the costs are
not clear. As the procurement process proceeds, it will become clearer
to all what kinds of charges and charging structure are likely. I am
sorry that now, as things are going on in parallel, I cannot be as
clear as I would like to be. The answer to the question cannot be
formulated until the procurement process is
finished.
Workers
who move jobs frequently can find it hard to keep up their pension
savings. With NEST, they will be able to save in the scheme even when
they move jobs or move out of the labour market altogether. In effect,
membership of NEST is a membership for someones working life,
which means all members can continue to contribute to NEST until they
access their savings at retirement. NEST is not tied to any one
employer or group of employers, unlike other occupational schemes. All
employers, therefore, will be able to use NEST, and will need
information, as indeed will the
self-employed.
The
NEST Corporation will therefore be able to take steps to increase
awareness and understanding among employers and individuals who may
wish to use the scheme. Both employers and workers need to have a voice
in how NEST is run. Occupational pension schemes normally have
member-nominated trustees and trustees nominated by the employer.
However, such an approach would be unwieldy and unworkable for NEST, as
it will have millions of members and hundreds of thousands of
participating employers. To suit its unique circumstances, we have
decided that NEST will have two panels: one to represent NEST members
and the other to represent participating employers. The job of the
panels will be to ensure that the views of members and their employers
are taken into account in the operation of the scheme. The
members panel will ensure that members have a say in selecting
trustee members who will operate the scheme on their behalf, once the
scheme is up and
running.
We
want NEST to focus on those employers and workers that the current
market does not serve effectively. To achieve that, NEST will operate
with an annual limit on contributions and a ban on transfers into the
scheme. Such restrictions will ensure that NEST complements existing
pension provisiona point that the hon. Member for Northavon
emphasised in his earlier questionand the whole arrangement,
with the contribution cap and the ban on transfers, will be subject to
review in 2017.
To ensure that
NEST meets the right balance between the competing policy ambitions of
being self-financing over the longer term and delivering low charges
for members, the order gives the Secretary of State the power to set
upper and lower limits on charges. The order also specifies that the
NEST Corporation must provide information to the Secretary of State.
Such information will enable the Government to assess whether the
reform programme is meeting our objectives, for example, by assessing
the contribution NEST has made to increasing pension savings among its
target
membership.
The
features set out in the order are fundamental to our policy intentions
for NEST. Therefore, the NEST Corporation will not be able to change
those featuresthe order can be changed only by Parliament. We
estimate that NEST will have between 3 million and 6 million members,
and hundreds of thousands of participating employers. Introducing a new
pension scheme on that scale will be an enormous challenge, and we need
to make sure that its systems deliver successfully from 2012
onwards.
To
meet that challenge, NEST will be launched with a limited number of
volunteer employers in the spring of 2011, providing an opportunity to
test the scheme before automatic enrolment starts and so that any
initial teething problems can be resolved in a controlled environment.
The NEST Corporation will be established on 5 July. That is necessary
as the trustees will need to finalise some specific details of the
design and operation of the scheme before it comes into being, such as
the statement of investment principles. We recently appointed Lawrence
Churchill as chair designate, and are running an exercise to recruit
other trustee members. We expect them to be recruited by Easter,
enabling them to take up their appointments formally in
July.
Once
the NEST Corporation is in place, the right course of action is to hand
over the remaining implementation and operation of the scheme to the
new corporation, and to wind up PADA. The draft Personal Accounts
Delivery Authority Winding Up Order therefore makes provision to
dissolve PADA on 5 July 2010 and to transfer its property, rights and
liabilities to the NEST Corporation. That will enable a smooth handover
between the two organisations and provide continuity to minimise
delivery
risks.
In
due course, automatic enrolment will create a presumption to save, so
that planning for retirement becomes the norm. NEST will ensure that
those who are not well served by current market options have an
opportunity to save towards a decent income in retirement. These are
ambitious landmark reforms that will help deal with the demographic
challenge of an ageing society. I commend the orders to the
Committee.
4.42
pm
Mr.
Waterson: It is a great pleasure to be serving under your
chairmanship again, Mr.
Cummings.
As
the Minister helpfully set out in her introduction, the two orders are
about transition, between the Personal Accounts Delivery Authority and
NESTas we have to get used to calling itthe body that
will operate what were known as personal accounts in the real world.
The Minister referred to the march to reforma
march that is turning out to be very long indeedand to the
Turner report, which is of course the beginning of all
wisdom.
Before Turner
there was no life in pensions, and Turner is the fount of all such
measures, but the Turner report envisaged that the system would be up
and running in 2010. Although the impact assessment, in answering the
question about when the policy will be implemented, rather plaintively
says 2012, at the current rate of progress it is difficult to see what
exactly will happen in 2012. For many people, particularly those at the
heart of Turners target audience, nothing final will happen
until something like 2017perhaps even later than
that.
We
have to see the orders against that background and that of two
announcements in recent months: the time scale for auto-enrolment is to
be doubled from 18 months to three years, with the phasing in of full
employer contributions taking until 2016; followed byI said
announcement, but that would be overegging the puddingthe small
print in the pre-Budget report saying that full employer contributions
would not come in until October 2017. That might be dressed up as
happening for all sorts of other reasonscontrolled environment
and all thatbut it saves the Treasury £2.4 billion. To
put it another way, that is £2.4 billion taken out of the
pension pots of people who can ill afford to lose that
money.