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- “attempt to influence their staff to opt out of personal accounts (or their own schemes where they provide an alternative qualifying pension scheme) ... Most employers will co-operate fully with the new system, but it is likely that a minority will fail to fulfil their responsibilities”.
The TUC says that it needs strong sanctions,
- “to ensure that employer non-compliance is regarded as a very serious breach of employment regulations”.
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It says that the trade unions,
- “recognise that there was a debate in Government about which agency should be the compliance and enforcement body for personal accounts and other existing good-quality employer provided pensions”.
The TUC thinks that the right decision was made and that the role should be fulfilled by the Pensions Regulator. However, the briefing continues:
“We look for reassurance that TPR understands that this is a major change in its role. Up to now it has largely been dealing with stable large and medium sized employers responsible enough to establish a pension scheme, with the occasional issue caused by a relatively small number of employers. Its new role will mean that it has to deal with a hugely increased number of employers, many of them small and perhaps less organised, and some seeking to evade their responsibilities”.
The TUC says that it is therefore very important that the TPR is given a step upwards in its resource and in its ability and competences to access all the data that it needs from other government agencies, such as HMRC, and that it shares data in return. It is also important that it has effective enforcement powers.
My other example where there has been robust support for the Bill concerns the debate about the appropriateness of auto-enrolment. The TUC says that it recognises that there are some groups of people for whom saving would not be appropriate or others where there is a risk that they will not benefit from saving. This is not, however, a new issue and it is not specific to the introduction of personal accounts. It says that the language of mis-selling has been used by some opponents of the whole system, but genuine mis-selling has been conducted by companies which were fined for selling inferior products to members of good defined-benefit schemes. Although access to good information and guidance is essential in helping people to plan for their retirement and make decisions about saving, it is not possible to eliminate risk from the system unless either all means-tested benefits are replaced by universal benefits or all pension payments are disregarded in the means-testing. That could happen only if public spending on benefits were massively increased or big cuts were made in benefits. Sometimes these conditions are not spelt out.
The TUC also says that in addition, all calculations that try to assess winners and losers are based on the current means-testing regime, maintaining not only its current structure but also its current level of benefits for many years ahead. This is not something that history suggests is very likely. Critics also undervalue the benefit that savers may see in building up their own pot rather than relying on the uncertainty of future benefits; nor do they take into account the extra tax credits that many lower-paid pension savers will get, as their pension contributions will lower the income used to calculate their tax credits.
Finally, there is always a danger of mixing Second Reading speeches and Committee speeches. In Committee, people often say, “You’re making a Second Reading speech”, and today one might think that noble Lords have made Committee speeches. With this Bill, it is particularly difficult to make a Second Reading speech without making a Committee speech at the same time. However, in juxtaposing Second Reading and Committee speeches, we should not forget that there is tremendously
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5.23 pm
Baroness Thomas of Winchester: My Lords, this has been a debate of very high quality—not surprisingly, given the number of experts on all Benches around the House. My noble friend Lord Oakeshott pointed out that seven Peers of each sex have taken part in the debate. He reckons that such sex equality is always welcome when discussing a pensions Bill.
The Bill has been given a general welcome, for which the Government must be relieved, although it will not necessarily have an easy passage, as many amendments have been signalled. The Bill was published late last year when there were relatively few signs of economic slowdown, but that is changing and the economic climate is certainly getting chillier, as my noble friend Lord Oakeshott and the noble Lord, Lord Lea of Crondall, pointed out. Who knows what the state of the economy will be in 2012, but the Government must be aware that research done for the Bill among stakeholders may already be somewhat out of date.
The Bill was, of course, foreshadowed during last year’s proceedings on the first Pensions Bill, now Act, from the Pensions Commission, and there is broad consensus—although I am nervous about using that word—on the main principles of the Bill, if not on a lot of the detail, as this debate has reflected.
The Pensions Policy Institute has produced useful research, including a stock-take of key stakeholders’ views on the main principle of auto-enrolment, which revealed 22 out of 24 organisations in favour. The figure of 90 per cent take-up of auto-enrolment where it exists, compared to 56 per cent where it does not exist, is telling. However, the PPI’s figures also show that not everyone will benefit from a personal account, which has been reflected in all the speeches we have heard today—even those to whom the Bill is aimed; namely, low to median earners. We have heard, too, of the groups at the highest risk of personal accounts being unsuitable. They are probably single people likely to be renting in retirement and having no additional savings. They could fail to qualify for means-tested housing benefit if they have just enough savings in a personal account. The other “at risk” groups singled out by the PPI are in a different category, as they would not be auto-enrolled. They are middle-aged single people on low to median incomes without significant savings who are self-employed.
The whole question of the way in which personal accounts will interact with means-tested benefits is one of great uncertainty. We have only just received—yesterday—the department’s projections about this interaction, which I am sure will repay close study. As we all know, the benefits system is extraordinarily complicated, and in 2012, unless the system is simplified, there could be not only a great deal of confusion
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“Estimating the extent of entitlement to different combinations of income-related benefits and how these will evolve over time is a complex task”.
We welcome the Government’s commitment to review the interaction of personal accounts with means-tested benefits and urge them to take appropriate action to ameliorate the situation. One step, of course, towards simplifying the benefits system would be the restoration of the link with earnings being brought forward, as the noble Baronesses, Lady Greengross and Lady Turner, said. What better celebration of the centenary of the introduction of the state pension by a Liberal Government, led by Lloyd George, could we have than an announcement that the link with earnings was to be restored by 2010?
This brings me on to the matter of generic financial advice and information and why it is vital for a really good system to be in place by 2012. This has been borne in on me very much recently because I have been carrying out my own highly unscientific survey on attitudes about occupational pensions among people I meet. There is tremendous ignorance around the whole subject of pensions. Not only is there ignorance; there is a curious unwillingness to want to know, as though by finding out what pension provision we can expect, we are hastening old age and retirement, and even death. So many people are deliberately putting their hands over their ears. That is why auto-enrolment is so important. But there is also the other side of the employment coin, and the attitudes of small employers to auto-enrolment, even with its phasing in. It will, after all, place an extra burden on companies employing, say, 15 to 25 people, or even fewer.
Let us take the scenario of a small firm in the building trade employing 15 people, including a few migrant workers, in a small rural town. I was told that it is very rare for employees in the building trade to have any occupational pension provision. Will this firm encourage its employees to become self-employed? There are those who have criticised the 3 per cent employer contribution figure as inadequate—particularly the noble Baroness, Lady Dean—but to a small employer, and after all they are the life blood of rural employment throughout the country, any higher contribution, coupled with the extra paperwork involved, may be the straw that breaks the camel’s back, so a balance has to be struck.
Some people with no existing pension provision are relying on bricks and mortar, as the noble Baroness, Lady Greengross, has mentioned, with the thought at the back of their minds that they can downsize eventually, using the resulting savings in lieu of an occupational pension. And then there are the people who are up to their necks in debt and who are just concerned to get through the next week, let alone the next 30 or 40 years, as the noble Baroness, Lady Hollis, has said. For those people, even 4 per cent of their earnings going towards pension provision will be a burden that they are unable to carry.
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High quality generic advice—and ideally personalised advice—is just what all these people need, so I look forward to the Government's detailed plans about how this will be provided. I dread the thought that it may come about with a push-button telephone system: “Welcome to the Government's pensions advice service. Press 1 for information about auto-enrolment; press 2 for auto re-enrolment; press 3 for trivial commutation limits; then perhaps press 4 to make an appointment with a sympathetic psychiatrist”. There must be a really user-friendly free telephone system, using plain English, with enough lines available, especially just before the scheme is due to start in 2012.
As far as face-to-face advice is concerned, I have spoken before about the invaluable service provided by citizens advice bureaux up and down the country. I believe that the Government should fund enough advisers so that every CAB can have trained specialists to deal with the many people who will want to know whether it is right for them to enrol in a personal account, as well as giving advice on all the other benefits to which they are entitled.
This brings me to the question of the amendment which was overwhelmingly won in this House during the passage of the last Pensions Bill, but overturned in the other place, allowing mostly women to buy back missing years of pension contributions in what has become known as the “Baroness Hollis amendment”. I would like to raise a parallel point to this because the noble Baroness, Lady Hollis, gave such a virtuoso performance that I do not think her arguments need repeating. My honourable friend in another place, Professor Steve Webb, MP, has been doing some private enterprise on the matter of women being able to buy back contributions—on this occasion in relation to those whom the Government are allowing to do this, owing to the inadequacy of government computer systems between 1996 and 2002.
Extraordinarily, the Government seem not to be contacting these women to tell them that they are eligible, even though they hold all the national insurance records needed. Neither do these women need to find a few thousand pounds up front to pay for their missing years. The Government are allowing them to offset the amount they owe against the money they will receive in the form of cash and a better pension. My honourable friend has even had offers of marriage, so delighted were these women to be contacted by him. He has called on the Government, as I do now, to contact these people officially to tell them about their entitlement, and to extend this system of offsetting to the group of mainly women they did write to in 2004-05 about gaps in their national insurance records, but who have not yet responded. Time is running out for this group, and the Government have all the records they need to contact these people again before it is too late. This time, they should suggest offsetting and they will almost certainly get a good response.
This has been a stimulating debate and a good many issues in the Bill have been discussed: auto-enrolment in group pension plans, the impact of the Bill on existing pension provision, annual contribution limits and transfers, and, most importantly, the way the
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5.35 pm
Baroness Noakes: My Lords, I agree with the noble Baroness, Lady Thomas, that we have had a high-quality debate this afternoon. That is our custom when this elite band of noble Lords who have an interest in pensions matters gathers together for yet another Pensions Bill. My noble friend Lord Skelmersdale rightly reminded us that it has been on this Government’s watch that defined benefit provision has been decimated, and the Bill does nothing about that. Instead, it deals with the different, but important, issue of those with no or inadequate pensions savings and paves the way for the new system of personal accounts. My noble friend’s tour d’horizon included our concerns about aspects of the Bill that reinforce incentives for employers to level down. I know that when faced with the prospect of rewriting existing schemes and payroll programs to comply with the hurdles set out in the Bill, finance directors will be all too ready to lead their businesses towards the easy life of the Government’s personal accounts scheme with its relatively low employer contribution of 3 per cent. We will press the Minister very hard on removing those aspects of the Bill that positively encourage levelling down.
Running through the Bill is a lack of clarity about the important issues that will arise as automatic enrolment and the personal accounts system are rolled out. There is a broad consensus behind the ideas that underpin the scheme put forward in the Bill, but I say to the noble Lord, Lord Lea of Crondall, that it may not be robust in the face of the details because, as ever, the devil is in the detail. My noble friend Lord Skelmersdale has already indicated our position on that.
During the passage of the Bill, we shall try to get as much detail as possible from the Government, preferably put on the face of the Bill, but there is a balance to be achieved between the concerns of employers and the aspirations of other interest groups. While there is a broad consensus on the underlying concepts, there is no consensus on the details of implementation, and we should not pretend otherwise because we will be fooling ourselves. As is common with pensions legislation, much detail is left to later rafts of regulations. If we give the Government the huge powers that the Bill creates—and that is a big “if”—we shall want to see the powers counterbalanced by further parliamentary involvement. In this context, I welcome what the Minister said about accepting the recommendations of the Delegated Powers Committee.
Let me outline some of the lack of clarity in the Bill that concerns us. We do not know what the Bill will cost. We know little about the costs of PADA and even less about the costs of the new personal accounts pension scheme and the compliance regime. We do not know how the costs will be recovered and what costs the Government intend to subsidise. The Minister will be aware of the strong opposition from the pensions industry to the unlevel playing field that soft loans or grants for personal accounts would entail. We do not know whether the personal accounts scheme will be
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Similarly, we are in the dark about the commencement of earnings uprating of state pensions in line with last year’s Pensions Act, the earliest date for which is 2012. We will need to look at how the Bill can be strengthened on this, but I fear that we shall disappoint the noble Lord, Lord Oakeshott, on whether that should be accelerated to 2010. We do not know how the Government intend to avoid future mis-selling problems due, inter alia, to the impact of means-testing, which has grown massively in scale and complexity in the past 10 years. Most noble Lords have raised this issue today. My noble friend Lord Blackwell asked the Minister some pertinent questions on this area, and I hope he will be equipped by his officials to answer those questions when he winds up.
The Government have set up a review—at long last—and have invited the various lobby groups inside that tent, which seems to have bought them off pro tem, but there is no certainty that the review will produce anything other than words. We cannot allow the Bill to go forward unless it reflects that auto-enrolment should not proceed if the pay-to-save issue is not resolved. An obvious link to that is advice for employees on opting-out, on which a number of noble Lords have spoken. We should be clear that the Thoresen Review of Generic Financial Advice and its pilot schemes do not deal with the decisions that this Bill will introduce; Mr Thoresen himself does not claim that. I am not clear whether the giving of generic advice in any form will ever deal satisfactorily with the issues raised, or whether the noble Baroness’s traffic lights via the Pensions Advisory Service would be acceptable. We are in something of an evidence-free zone here. If the Government are not worried about that then we certainly are, and want to look further at it.
Perhaps the biggest unknown is the economic environment that will surround personal accounts when they are eventually introduced, as the noble Baroness, Lady Thomas, has pointed out. Will employers be under extreme cost pressures as the result of high inflation and low or even, possibly, negative growth? That will of course increase the pressures for levelling down. Will employees be able to afford to pay 4 per cent of their wages into a pension scheme, or will they just opt out? I think I can tell the Minister with some confidence that if personal accounts were introduced this year on top of the 10p tax debacle, the opt-out rate would be high. Lower-paid workers simply could not afford it on top of rising tax burdens and rising inflation.
When mentioning lower-paid workers I should flag an issue that I have discussed with the Minister’s officials. The personal accounts scheme has been sold on the basis of 8 per cent going into those accounts—that is, 3 per cent from employers, 4 per cent from employees and 1 per cent from the taxman. In fact it is not that simple as, while the scheme appears to have a nice symmetry at the point where the basic rate of tax kicks
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Returning to the economic environment, that is much less benign than when the noble Lord, Lord Turner, issued his Pensions Commission’s report, or when the Government issued their White Papers. The Minister is, doubtless, thinking that it will not be his problem in 2012: we certainly hope that the electorate will have passed their final verdict on the current Government by then. We will be subjecting this Bill to the most rigorous scrutiny to ensure that the best does not drive out the good. We must avoid gold-plating. It may be hard enough to get the personal accounts system to take off and to be well received in an economic environment that is not as fortunate as it has been in the past; we must not make that job harder when implementation dates arrive. The Government have recently increased their estimates of the year-one and ongoing costs to employers, especially those to micro-employers to whom these costs are a big concern, but they still look low. We will look critically at the many complexities in the Bill and ask whether they will really help the scheme succeed, or just add cost—especially for small businesses.
The Bill paves the way for personal accounts to be introduced via a special pension scheme. We have concerns about the trustee corporation that will run that scheme, which will be a government quango—credible only if it is independent of the Government. We will need to probe whether the balance between independence and government interference is the right one. For us, the involvement of Parliament is more important than work opportunities for civil servants. There are other detailed aspects of the trustee corporation and the pension scheme that we will need to probe in Committee.
We will also be looking at the changes being made to the Personal Accounts Delivery Authority. We welcome the addition of principles to which PADA must work and we shall work to improve them. We will also look at why similar principles are not also appropriate to the trustee corporation.
A specific issue which we intend to pursue in Committee is that, as my noble friend Lord Skelmersdale reminded us, on this Government’s watch our pensions’ landscape has been transformed and defined benefit schemes outside the public sector are now open to relatively few employees. As has been pointed out, the figure is now around 900,000 as compared with 5 million in the mid-1990s. If defined benefit provision is to stabilise, the rules need to be more flexible.
The Minister will be aware of the proposals put forward by the Association of Consulting Actuaries to tackle the rigidity of the current indexation requirements. The conditional indexation approach used in the Netherlands does not provide all the flexibility that would make employers—and in particular their finance directors—feel warm about defined benefit provision, but if conditional indexation helped just
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