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We now have a scheme on which I hope there is wide agreement. However, there are some matters that I would like to raise. An issue that has been raised in the Commons and by a number of organisations is the interaction with the benefits system. Jobholders will have the right to opt out of the scheme. If it seems that individuals who do not pay their 4 per cent contribution reach retirement just as well off, via the benefits system, as those who have paid, there will be an incentive to opt out. It must be made very clear that saving pays. I understand that the Government are aware of this concern and currently have the issue under consideration.

Then there is the position of women, which has already been dealt with by the noble Baroness, Lady Hollis, in an interesting and moving speech. Most poor pensioners are women, usually because the state basic scheme is based on contributions and women often have an interrupted work pattern and so do not qualify for a full basic state pension. The Government took certain steps in the previous Bill to remedy that, but did not do so completely, so this House passed an amendment that allowed women to buy back pension rights for the years when they were not able to pay contributions. Unfortunately the Government did not put that into operation and have since declined to do so. The problem of large numbers of women in poverty in old age remains. It has been suggested by many of us that it will continue until the contributory entitlement requirement is changed to a requirement based on residence. The issue will continue to be raised.

Another concern, which I share, is that the new arrangements could result in a certain amount of levelling down. As the TUC has pointed out, the provision of a very good occupational pension scheme costs a great deal more than the minimum 3 per cent proposed for the personal accounts scheme. The Government should do everything possible to persuade those employers still providing final salary schemes to continue them. Where they have been discontinued in the private sector, it has been with direct opposition from the staff concerned, but where those staff have had the collective power and the will to oppose the disappearance of such schemes they have done so—sometimes with success. I applaud them for doing so; future employees will thank them. In the mean time, some employers may try levelling

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down their payments in a good system, in view of the much lower minimum provided for in the personal accounts scheme; they must be discouraged from doing so.

I am glad that the Government have chosen the term “jobholder” rather than “employee” to define those entitled to membership of the scheme. I assume that this would cover agency workers who would not, perhaps, be directly employed by the employer. It is important that such workers receive equality of treatment and I assume that that is the Government’s intention. It would appear that some self-employed people would be eligible, including carers, and I agree that every effort should be made to cover the whole workforce, no matter what kind of contractual arrangements they may have.

I understand that the PADA has already established a consumers’ panel. There is also to be a members’ panel, governed by trust law. How will that actually represent members or be established? What connection would it have with trustees? I take it that there would be member-elected trustees. It has already said that trustees will,

and that the PADA,

I would welcome hearing the Minister’s explanation of how these various functions and representatives will interact. Trustees are important in ensuring good governance of schemes.

Finally, we cannot leave this general subject of pensions without referring to the plight of many present-day pensioners who will not be much affected by the reforms we are discussing. Many of them are women, as I have already indicated. Recent research conducted by Help the Aged indicated that 21 per cent of today’s pensioners, or 2.2 million, are living below the poverty line. Means-tested benefits remain the Government’s key policy for taking pensioners out of poverty. Year after year, the money is failing to reach those who need it most. It is said that some pensioners are too proud to claim benefits, but Help the Aged says that the majority are put off by the assumption that they will not be entitled to anything or by the complexities of the claims process.

Help the Aged is calling for three steps that it believes will substantially reduce the numbers living in poverty: the immediate introduction of the earnings link for the basic state pension; the payment of a full basic state pension to all pensioners; and the automatic payment of all means-tested benefit. It urges the Government to utilise the data that they already hold to make direct payments, so that older people can get the money without having to make a claim. The introduction of the earnings link to basic pensions was promised in the last Pensions Bill, but it was not to be until 2012. Even then, there seems to be a get-out clause in the reference to the then-existing fiscal situation. There is no reason why it should not be introduced now. Even so, the basic state pension is a great deal less than it would have been had the earnings link never been dropped by previous Governments.



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If the Government’s case is still that that link would mean paying the increase to people who do not need it, the answer is that the Government can claim it back via the tax system. If they still contend that even that would mean some loss to the Treasury, it is a relatively small price to pay for restoring more money and dignity to around 2 million people. This issue was raised during the Commons debate and the Government have not really answered it, certainly not to the satisfaction of many current poorer pensioners.

There are many issues which will doubtless be raised in forthcoming sessions on this important Bill, but its main proposals are widely accepted and I hope that it can soon be put into operation.

4.24 pm

Lord Blackwell: My Lords, I am delighted to follow the noble Baroness, Lady Turner, who has a distinguished record in campaigning on these issues. I remind the House of my interests as the director of a life and pensions company and as a director of companies which provide workplace pension schemes.

The test for this legislation is not the impact it will have on interest groups but what it will do for future generations of pensioners. On those grounds, like others in the debate, I welcome the objectives set out in the report of the noble Lord, Lord Turner, and the legislation that has followed. The issues are in the details enacted in the Bill and I wish to raise a number of points in this debate to which I hope the Minister will be able to respond.

I wish to enlarge on some of the points that have been made about the impact of the Bill on existing workplace pension schemes. As everyone has said, it is important that these are not diluted. They have been an important part of savings in this country—and will be, it is to be hoped, in the future—and yet we have to accept the fact that most employers will not want to run two schemes side by side. Therefore, wherever possible, we must make it possible for them to meet the requirements of the personal accounts within their existing pension schemes rather than having the complications of running separate schemes and the interfaces between them.

The Bill has a number of deficiencies in this respect. First, on the qualifications for automatic enrolment—which, of course, is necessary in order for an existing scheme to fulfil the requirements of the personal accounts—the legislation as drafted has a narrow restriction on the occupational pension definition which qualifies for automatic enrolment. I know this is due in part to difficulties with the European Union distance marketing directive. The Minister alluded to the fact that amendments will be brought forward to deal with some of the issues, which I welcome, but it is important to recognise that not only do we need the legislation to allow existing stakeholder pensions, existing group personal pensions and existing group SIPPs to be eligible for automatic enrolment but also that we need to follow through and ensure that secondary legislation—for example, in regard to the SFA conduct of business rules and the legislation on unfair commercial practices—also aligns with the intent of the Bill.



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We need to look at how the Government intend to provide that these personal pension schemes meet the requirement of employees not having to choose a fund, through a mechanism for a simple default fund, while still allowing personal schemes to encompass the wider choice that many existing members want. We need a great deal more clarity in the Bill in that area.

The second area of difficulty relates to the complex rules envisaged in the Bill on whether an existing scheme provides benefits equivalent to those that a personal account will provide. The legislation is drawn up on the basis of having to meet 8 per cent of qualifying earnings as the reference test. But “qualifying earnings”, as defined, excludes the first £5,035 of earnings but includes overtime, bonuses and commissions. That is completely different from the basis on which earnings on most personal pension accounts and employer contributions currently work. Trying to do such comparisons will create huge complications, particularly for firms with significant numbers of employees close to that threshold and where their earnings are of such a nature that they vary from week to week or from month to month. It will create a huge complexity which, I fear, will lead many employers to decide that it is easier to scrap their schemes and opt for the personal account.

Another complexity about which I am not clear and on which I would welcome guidance is whether employers can carry out the comparison once every calendar year and then make up any differences, or whether they will have to make the comparison on a monthly or weekly basis as they pay cheques and make pension contributions. If it is intended that payments should be made on a weekly or monthly basis it would add enormously to the complexity and make it extremely difficult for this to be a workable proposition. I should like the Government to clarify that and, if necessary, amend the legislation to make clear that this can be done on a calendar-year basis.

The difficulty here is not just the complexity for the employers but the fact that if employers scrap these schemes, the employee may end up worse off as a result. For example, an employer may be contributing 7 per cent to 9 per cent on their own to an existing scheme. If they opt to scrap that and go over to a personal account where the overall contribution is 8 per cent of qualifying earnings, they can drop their own contribution to 3 per cent and require the individual to make up the difference by contributing 4 per cent. The amount of contribution from the employer can be significantly reduced if they decide to scrap a scheme and go to the personal accounts system.

The third area of complication with workplace schemes is the point about targeting, which the Minister mentioned. I was glad to hear him reinforce the idea that targeting is important to limit the scope of where personal accounts compete with existing provision. I was also glad to hear him repeat the commitment that there should be an annual cap of £3,600, but I note that that is not in the Bill. There is a question about whether that number should be in the Bill, as some other numbers are. In addition to that cap, Clause 61, as I read it, also lays open that

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there may be additional payments into the scheme on top of that annual cap, which may or may not be capped by order. That obviously leaves open the option that they may not be capped. I understand the point made by the noble Baroness, Lady Hollis, that we would want to ensure that there was provision for people who had missed payments to make those up. If that is the intent of the clause, that could be made much clearer in the Bill. If it leaves open the possibility of unlimited payments being made into personal accounts, it opens up a huge area of uncertainty about what their role is relative to existing providers.

There is the issue of costs. We want a level playing field between this provider and existing providers. If the costs are truly lower then that benefit should be passed on to consumers, but the Bill contains provision for financial subsidies from the Government to the Pensions Authority. It should be clear that those subsidies, if provided at all, should be limited to the start-up costs. There is the question of whether they ought to be paid back over time, but there should be no question that there could be ongoing subsidies that would lead to a distorted competitive position where in effect we were subsidising one provider against another.

There is the issue of the fines that can be imposed on employers who do not adequately meet the tests of whether their provision is better than personal accounts. As I read it, these fines can be imposed without any necessary preconditions having been met. I should have thought there was a case—although I may have misunderstood this—that there should at least have been a compliance notice given to the employer that it had ignored before there was any question of fines. So there are a number of areas where we need to be clear about exactly what the terms of competition are and how we can ensure we are not damaging existing workplace schemes by taking advantage of them to meet these objectives.

My second major area of concern is the interaction with benefit schemes and personal debts and the advice requirements around that. There must be, as others have said, a significant risk that for many people who either are low-paid or have large debts, or both, personal accounts will represent a poor—or indeed negative—return relative to other uses they can make of their income. Another complication is raised in the interaction with the savings gateway that was introduced in the Budget, which we need to work though as well. It is not yet clear in the guidance notes.

I should be grateful if, at some point early in the debate, the Minister was able to give us some data on the income levels below which the Government currently believe there is an issue of people falling into the benefit trap if they have not saved enough to get themselves above the means-tested benefit, and on how many people, in rough terms, the Government estimate will be in the position where, particularly taking account of debt, they may be taking out a product that is not the best one for them to enrol in, as a result of auto-enrolment. We need some estimate of those numbers in order to gauge what we should do about that.



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Following that, we have to take a view on how important it is for people to be made aware of that, and whether the generic advice that the Government are proposing can be adequate to deal with individuals’ detailed questions when they may be ill-equipped to come to their own conclusions. If we want to avoid these becoming big issues, some of the solutions are, as others have said, expensive. One is to raise the basic state pension so that, over time, and as rapidly as possible, means-testing disappears. That clearly has merit. A second option is to concede that money from these pension schemes will not be off-set against means-tested benefits, so that people know that a pound saved will be a pound that they will benefit from in retirement. Both of those options are clearly expensive.

There is a third possibility, which the Government might like to consider alongside those, and which the House might consider. This particularly concerns avoiding advice complexities. We do not want to get into a situation where the cost of advice outweighs potential savings and benefits to the individual or one where the advice burden falls unequally between the pensions authority and private pension providers. It is important that advice can be given, on equal terms, to anyone, whether they are auto-enrolling in a personal pension or auto-enrolling in a personal account. One of the ways to simplify the advice system would be to set out the principle that means-tested benefits in retirement are not entitlements, but discretionary social support for those in need. It would be possible for the Government, in a sense, to take a moral view, and say that means-tested benefits should be disregarded and that individuals should be encouraged to make provision for themselves, with advice given on the basis that that is what they intended to do. Means-tested benefits would then be there as a support mechanism for those who failed to do that, but not as an entitlement that people take into account in deciding whether they should make their own provision. That would be a significant shift in attitude, but it may be worth considering.

There are a number of difficulties with the Bill. There are a number of traps and a lot of detail that need to be worked through as the Bill is debated. It is incumbent on us to take the time and care to make sure that we get it right before the Bill leaves the House.

4.38 pm

Baroness Dean of Thornton-le-Fylde: My Lords, I join other noble Lords in welcoming this important Bill. I am pleased that the Government have accepted the Pensions Commission’s proposal in regard to the national pension savings scheme. I rather suspect that the areas of this Bill where we may disagree with the Government could be those where they have chosen to disregard recommendations from the Pensions Commission. We will see.

Three key areas have attracted a lot of attention. First, there are personal accounts. We have to be careful that we are not in danger of thinking that one size fits all and that this will work well for everyone. I am not sure that it will. Secondly, there is the compulsory employer contribution, which I very much welcome. Thirdly, there is the automatic enrolment in pension

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schemes. This Bill will be good for many people, but there will be those who are left behind and left out of the improvements in retirement that this Bill will bring for many. With increasing longevity, pensions are of growing importance to many more people in our community. When the state pension was introduced, it was worth approximately 25 per cent of the average wage. I remember being part of the Carnegie inquiry into the third age in the early 1990s. The pension was then worth about 17 per cent of the average wage. Today, it is worth about 13 per cent. How much longer do we have to go on before we see the state pension being worth very little? This Bill will help stop that happening and will certainly help many people.

As I read the Bill, I wondered how much progress we had made. The Bill provides for a 3 per cent compulsory contribution from the employer, 1 per cent through a tax provision from the Government and 4 per cent from the employee. I have always been brought up to believe that the employer pays as a minimum the same as the employee. A reasonable employer pays one and a half times and a good employer twice what an employee pays. The Bill represents a very clear statement of just how much we have gone backwards in pension provision in the UK from what we have had within most occupational pension schemes during the past two decades.

I referred to numbers being left out. I join my noble friend Lady Hollis in concentrating particularly on low-income people, the majority of whom are women. The baseline of £5,035 before one is covered by the personal accounts will be extremely detrimental to women, large numbers of whom have more than one job. All of those jobs are low paid, yet the Bill provides no opportunity to bring them together.

When we discussed this matter during the passage of the previous Pensions Bill in 2007, the Minister said that,

He did not refer to having multiple jobs. Subsequently, on 17 December, the Minister said that the Government had looked at the matter and that nothing was going to change. The inability of the Bill to provide women with that option to buy extra years—“lost years” would be a better description—linked with the baseline of £5,035, which will preclude many women from being able to contribute to a pension because their earnings cannot be brought together, will prevent substantial numbers being able to provide for a pension in their retirement. As the Bill is so important, we have to get it right here and now. I regret if my opinion differs from that of my own Government, but pensions are so important that you cannot just put them right next year by passing a statutory instrument or further legislation. We have the opportunity to get this right now and we should do so.

We have to be careful that the low paid do not fall into a trap because of the possible impact of personal accounts on some benefits. Pension credit, for example, has a £5 disregard, but it has been at that level for

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some years. Is this not an opportunity to deal with that issue now? The possible impact on housing and council tax benefit means that people could believe that, by saving in personal accounts, they could be better off, but when they retire, they will be poorer in net terms. That is where advice is important. We have to make sure that the Act is fit for purpose without causing too many unintended consequences.

Older women in particular may have a problem with the transitional arrangements. The Bill is good for young people and people in their 30s and 40s, but a whole group of people—women in particular—will never feel the benefits of the Bill. A number of us on this side of the House—and I hope that noble Lords on the other side of the House will join us—will propose amendments intended to mitigate some of the exclusions in the Bill for that group of women, both by enabling them to buy extra years and by looking at the lower paid who have more than one job. My noble friend Lady Hollis referred to someone on £12,000 per year being in a much better position than someone who does two jobs each paying £6,000 per year. That cannot be right and we have to deal with that.

I welcome very much the extension of the powers of the pensions regulator, particularly in appointing trustees to pension schemes that are in trouble. All too often, those issues are dealt with when it is almost too late to do something substantial about the scheme. If we could do something earlier, it would certainly help.


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