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Against that background, we crafted Amendment No. 68 to ensure that Parliament is kept informed of the progress of personal accounts. It requires a report six months after the passing of this Bill and annually after that until the Secretary of State says that the scheme is fully operational. Subsection (2) sets out that the report should contain estimates of the amount spent and to be spent over the following 10 years. It must also state the date on which the scheme will be fully operational. Those are the basic building blocks; cost and timetable. The subsection also asks for the amounts that will not be recovered from members and which could well be subsidised, and for the charges to be made to members so that we can calibrate them against the Pensions Commission’s 0.3 per cent.
Most of the rest of the amendment is taken up with definitions of the terms that we have used, but I draw the House's attention to subsection (8), which is an exemption in order not to prejudice obtaining value for money. I am not convinced that it is appropriate, since it allows the Government an easy excuse for non-transparency, but when the Government conceded a similar clause in the Identity Cards Act 2006, that exclusion was built in. I would be happy to trust the NAO to act as policeman to ensure that the exemption is not abused. As I mentioned, there is a precedent for this clause in Section 37 of the Identity Cards Act. There we faced similar frustrations in not getting any detailed information during the passage of the Bill and we now get six-monthly reports on that scheme. My amendment modestly asks only for annual reports.
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I would have preferred the Government to have adopted an open and transparent approach throughout the development of personal accounts. All that has been on offer has been some personal briefings from PADA and DWP personnel, and those are not a substitute for transparency in general—not only for parliamentarians but for those outside who have a legitimate interest in the progress of the scheme. I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches certainly have some sympathy with this amendment. The noble Baroness is right to make our flesh creep at the prospect of another major computer project, given the Government’s—“erratic” is a kind way of putting it—experience so far.
I obviously look forward with interest to hearing what the Minister has to say in response. Our main concern, given the obvious risks involved, is how much a report six months after the day and then annually thereafter will actually help us. There is a danger of there being too much pulling up of the plant to see how it is growing. Having said that, we share many of the noble Baroness’s concerns.
Lord McKenzie of Luton: My Lords, we return to the financial operation of PADA and the trustee corporation. As the noble Baroness has made clear, Amendment No. 68 seeks to put an absolute duty on the Secretary of State to produce a report six months after this Act has been passed, setting out amounts incurred and estimates on a range of financial and operational issues. The report must be prepared annually thereafter.
I recognise that Parliament has a legitimate interest in the financial affairs of both PADA and the trustee corporation, and that interest extends to getting information on a timely basis. It reasonably extends to the decisions that will have to be taken on such issues as the charge structure and charge level.
As the noble Baroness will be aware, some of the items that are listed in the amendment will already be included in the annual report and accounts of both PADA and the trustee corporation. These reports will be available to Parliament and will present the full picture of costs, revenues and how members’ contributions are invested. The information included in these annual reports will be consistent with guidance from the Treasury in respect of NDPBs. I accept, however, that some of the information listed in the amendment will not be contained in the annual reports or the accounts, although some might be included, but at a high level, in business plans and corporate plans of PADA and the trustee corporation.
However, in aggregate—including information included in the DWP supply estimates—this does not cover all of the detailed forward-looking information that the amendment would require. Some of that information we do not know, while other information has been treated as commercially confidential at this stage. I do not apologise for that. We may disagree as to whether it is the right judgment, but the clear advice to us is that it could seriously prejudice the procurement exercise.
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I recognise that the noble Baroness’s amendment seeks to deal with the issue of commercial sensitivity in subsection (8) of the proposed new clause, but this is not simply an issue of value for public money. Members’ charges will ultimately pay for the personal accounts scheme, and members’ pension incomes will suffer if we do not respect commercial confidentiality.
However, there will be points in the future when decisions have been made, detail has been developed and the procurement process is sufficiently advanced. At these points, information that does not, or no longer, impacts on the commercial negotiations should be revealed. So I today make the commitment that the Government will, on a timely basis, make statements concerning the issues raised by the amendment. This information will supplement and explain that contained in the future annual reports and accounts of both PADA and the trustee corporation. We will seek to make available any information or analysis that we are able to at the same time as those accounts and reports are produced, although this would not preclude statements at an earlier time.
Unlike the amendment put forward by the noble Baroness, these statements will complement rather than duplicate information provided through the normal reporting framework for an NDPB and a pension scheme. It should therefore provide an appropriate balance between ensuring financial and operational transparency in a way that protects taxpayers’ and members’ interests without adding significant burdens to the Personal Accounts Delivery Authority and the trustee corporation.
I urge noble Lords to bear in mind that as the procurement process is due to start early next year and be completed by summer 2010, a report at six months after Royal Assent would not take us much further given the necessity of commercial confidentiality. Similarly, reporting at rigid annual dates thereafter might preclude producing information about a decision or event in as timely a manner as the noble Baroness is seeking.
In Committee we debated fears about whether personal accounts will be delivered on time. We have no information or reason to assume that the Government’s position as set out then has changed. Frank Field has been prayed in aid in respect of suggestions that personal accounts will implode. I should like to know the basis on which that judgment is made, which is a million miles away from our understanding. Charging levels for personal accounts are important but, as we debated previously, until procurement is undertaken and the funding structure for personal accounts is concluded, we cannot be absolutely clear about the charging structure or the end result. However, on the work that has been done, we believe that personal accounts can be delivered on
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I acknowledge the noble Baroness’s legitimate interest—and that of the whole House—in this issue and her reasonable desire to allow parliamentary scrutiny of the scheme’s funding requirements as a way of ensuring the taxpayer is protected. Following a debate on the first Report day, I propose to look again at the financial provisions within Clause 80 and Schedule 1 to ensure they clearly reflect the Government’s intention that the scheme is delivered at no overall cost to the taxpayer. I hope that I have said enough to persuade the noble Baroness not to press her amendment. I reiterate that I desire to help her achieve her objectives within the framework of commercial confidentiality and protecting the interests not only of the taxpayer but of future personal account members.
Baroness Noakes: My Lords, I am intrigued by what the noble Lord said about the possible inclusion of additional material in the documents produced by PADA, the trustee corporation and possibly even the department. Are the Government prepared to put that in the Bill at Third Reading?
Lord McKenzie of Luton: My Lords, we do not think that necessary. I am sorry that I cannot give a firm commitment on the record. If the noble Baroness thinks there are ways in which we can strengthen that commitment and put it on the record, I shall be happy to consider them. We have to accept that we are all dealing in good faith on this, but we need flexibility if we are to achieve what she seeks. To put something very rigid in place may not fit that purpose. There will be plenty of information in the accounts, but we recognise that that will be historic information that will be looked at in retrospect. We are trying to help the noble Baroness with a forward look at the information that she seeks, in a way that is consistent with commercial confidentiality. I hope that by putting it on the record today, the noble Baroness, her colleagues and the rest of the House will be prepared to accept that assurance.
I can give chapter and verse, if necessary, on the ability of the Secretary of State to cause that to happen and to cause those data to flow from PADA or the trustee corporation, which is enshrined in various bits of the legislation. We jousted a little on that on the previous day on Report.
3.30 pm
Baroness Noakes: My Lords, I am disappointed with the Minister’s overall stance. While seeming to open up to more transparency, he is in fact inviting us
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Lord McKenzie of Luton: My Lords, PADA’s annual report and accounts were filed late last week. I accept that it is only a short period and it does not tell you very much. If we had a flexible approach, we would not have to wait for specific events or timelines in terms of the production of accounts and reports, or for the annual reporting event that the noble Baroness suggested. We could seek to make statements at appropriate intervals when the relevant information became available.
Lord Oakeshott of Seagrove Bay: My Lords, what did the Minister mean when he talked about giving further reports or information in a timely fashion, which I think is what he said?
Lord McKenzie of Luton: My Lords, it is self-evident. It was in part to deal with the point made by the noble Baroness; that accounts for the period up to 31 March do not arrive on 1 April each year. We know that there can be a delay, and sometimes that delay is longer than we would hope. By recognising that the information requested should not wait for specific trigger points that could be at some time in the future, I was trying to see whether we could help her along the way. I cannot define it any more closely than that. That was the purpose of using the expression.
Baroness Noakes: My Lords, the Minister continues to disappoint me. The issue is very clear. We have considerable concerns about this project, particularly about when it will be delivered and the cost. We do not accept that personal accounts are acceptable at any cost, and considerable doubts have been raised about what those costs might be.
The amendment was seeking to get into the public domain information equivalent to that produced in the context of commercial confidentiality concerns for identity cards. The Government are not seeking to be as transparent and open as they should be. Nevertheless, I do not think that it is appropriate to divide the House on this amendment. We have heard what the Minister has said. If the Minister and his Government do not deliver on that promise, we will all be clear where the blame will lie if and when the project does what many fear it will do, in the words of Mr Frank Field, implode. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 69:
69: After Clause 98, insert the following new Clause—
“Conditional indexed arrangements
(1) Schedule (Provision for conditionally indexed arrangements etc), which—
(a) amends section 84 of and Schedule 3 to the Pension Schemes Act 1993 (c. 48) (basis of revaluation),
(b) amends section 51 of the Pensions Act 1995 (c. 26) (annual increase in rate of pension),
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(c) amends section 67 of the Pensions Act 1995 (restriction on powers to alter schemes),
(d) amends Schedule 7 to the Pensions Act 2004 (c. 35) (pension compensation provisions), and
(e) makes provision for consequential amendments for the operation of conditional indexation in relation to a scheme that satisfies prescribed conditions,
(2) The amendments made by Schedule (Provisionally for conditionally indexed arrangements etc) do not apply in relation to any scheme or arrangement in existence prior to the coming into force of this section.
(3) In this section, “conditional indexation” relates to benefits provided by a conditionally indexed scheme.
(4) For the purposes of this section and any regulations made under it, a “conditionally indexed scheme” is an occupational pension scheme within the meaning of section 1 of the Pension Schemes Act 1993 which—
(a) was established after the coming into force of this section,
(b) is not a money purchase scheme as defined by section 181(1) of the Pension Schemes Act 1993,
(c) provides that the future indexation of pensions both in deferment and in payment (at least the minimum rate required under section 84 of and Schedule 3 to the Pension Schemes Act 1993 or section 51 of the Pensions Act 1995, as relevant, as if those sections applied to conditionally indexed schemes) is funded for in accordance with Part 3 of the Pensions Act 2004, but is not a liability of that scheme such as to create an accrued right or entitlement for or in respect of a member unless and until it is awarded by the trustees or managers in accordance with such terms and conditions as may be prescribed,
(d) complies with methods and assumptions prescribed for the setting of normal pension age, and
(e) complies with such other requirements as may be prescribed.”
The noble Baroness said: My Lords, in moving the amendment, I shall speak also to Amendment No. 70. These amendments insert a new clause after Clause 98 and a new schedule after Schedule 2. They would allow conditionally indexed pension arrangements to be introduced into the UK. I will not weary the House with an extensive explanation of conditional indexation, because we covered that in some detail in Committee. These amendments are identical to those that I moved in Committee and I understand from the Minister’s officials that, if not perfect, they are fit for purpose. I shall go straight to the issue.
Defined benefit provision in the private sector is in terminal decline. The Association of Consulting Actuaries estimates that only some 900,000 private sector employees remain in schemes that are open to new members. A recent survey by Aon shows that one-third of private sector schemes which were open to new members a year ago have now closed. The Association of Consulting Actuaries’ survey of SMEs shows a situation that is even worse—91 per cent have closed to new entrants and 48 per cent have closed to future benefit accrual.
Recent stock market falls will bring pension deficits to the fore again and, unless something is done, boardrooms will increasingly take decisions which will place more and more pension accrual on a defined contribution basis. The director-general of the CBI has said that we need to “set employers free” to design
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The Government’s rather belated consultation on flexibility ended nearly two months ago and we have heard nothing about that review. We have a Pensions Bill before us and we may not have another for some time. It seems that the Government will let this opportunity pass and, therefore, we have to doubt the degree of commitment within the Government to finding flexible ways in which the complete eradication of defined benefit provision in the private sector can be avoided.
The Association of Consulting Actuaries has developed one form of flexibility, conditional indexation, which is contained in the amendments. This gives only a modest degree of flexibility to employers who cannot afford to meet the onerous indexation provisions set out in our pensions legislation. I remind the House that we are the only country which insists on the indexation of pensions before and after retirement. Conditional indexation does not abolish that, but merely allows it to be modified in certain circumstances prescribed in regulations. The funding of the scheme would continue to be overseen by the regulator, who we know has a vast armoury of powers to deploy to keep schemes well funded.
We do not believe that these amendments would stand in the way of the Government bringing forward further flexibility arrangements. Indeed, we hope that the Government will genuinely set employers free to design pension arrangements which they are comfortable operating. Flexibility is the only route to avoiding the whole private sector population being forced to migrate to defined benefit provision. That will, of course, leave the public sector with its gold-plated pensions, but the noble Lord, Lord Kirkwood, will speak to that issue when he moves his Amendment No. 74.
The Minister claimed in Committee that the Netherlands scheme, on which these amendments are based, is not well understood by members. It is more difficult to communicate the details of conditional indexation than plain-manila defined benefit provision, but I do not see why employers on that ground alone should be denied the opportunity to develop conditional indexation schemes. The plain fact is that employees do not have a high understanding of pension issues generally, and let no one pretend that DC pension arrangements, which are the prevailing private sector provision, are easy for employees to grasp.
The only other ground that the Minister offered in resisting these amendments was that we should await the outcome of the Government’s own deliberations on flexibility. The review is clearly in the long grass and I have heard nothing to suggest that the Government share the employers’ views that flexibility is urgently needed. We should grasp any possibility that may preserve defined benefit provision, albeit in a modified form. A small bit of flexibility today is worth many times more than the vague possibility of flexibility tomorrow. I beg to move.
Baroness Turner of Camden: My Lords, I have had some doubts about the conditional indexation model in relation to final salary schemes. As noble Lords will remember from previous debates, I have always been
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There is a fine balance to be struck between encouraging employers to retain DB provision where they would otherwise switch to defined contribution schemes and not incentivising employers to switch to risk sharing where they would otherwise retain their final salary scheme. I understand that the Government are committed to considering regulatory change, as necessary, and I should be happy for that to proceed. However, I am not at all convinced that the effect of adopting the scheme recommended in the amendment would be the retention of final salary schemes where employers were not under any pressure, either financially or in any other way, to switch to DC schemes.
Lord Oakeshott of Seagrove Bay: My Lords, the noble Baroness, Lady Turner, is probably living in a bit of a dream world if she believes that there are now many private sector schemes which are not under pressure, particularly given what has been happening to stock markets in recent weeks. Hundreds of billions of pounds have been wiped off the assets of pension funds in general, and even some of the strongest and best funded private sector pension schemes are clearly now in a much more difficult position.
I pay tribute to the work of the Association of Consulting Actuaries, which has had meetings with us and other noble Lords, and has done a great deal of work on these amendments. I think it is right to raise this issue and the fact that we need a middle way between conventional DB schemes, which are now under so much pressure, and defined contribution schemes.
However, I am not sure that I agree with the noble Baroness’s argument that, even if we are not certain that this is the right approach, we should table some amendments now and the Government can come back on them later. It seems to me that it is probably a little soon to set these out, and other serious organisations with a great deal of experience in pensions—I think particularly of the EEF—are sceptical about this way of doing things. I shall listen with great interest to what the Minister says but it is important that this matter is not kicked into the long grass. It is important that we explore the issue seriously and that the Government bring forward their proposals on conditional indexation soon. If the amendment is not accepted—and I believe that the Government do not want to accept it—I want to know what are they going to do and when.
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