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Pensions: Personal Accounts

My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend the Secretary of State for Work and Pensions in another place. The Statement is as follows: ““With permission, Mr Speaker, I should like to make a Statement on the Government’s proposals to make it easier for more people to save for their retirement. ““Despite the welcome fact that people are living longer, millions of employees are either not saving at all or not saving enough for their retirement. As the Pensions Commission noted in its second report, we must take steps now to tackle this problem of under-saving or face serious problems in the future. ““We have already acted to make sure that the state pension provides a solid platform on which people can save. The Pensions Bill published last month will create a simpler and more generous state pension. The restoration of the link to earnings will result in a basic state pension that, by 2050, will be worth twice as much in real terms as it is today. ““More generous qualifying conditions will, for the first time, properly treat social contributions on an equal footing with cash contributions—delivering fairer outcomes, especially for women and carers. ““These and other changes will reduce the extent of means-testing in the future, making sure pension credit continues to be targeted at the people who would otherwise have been poor in retirement or who only have small savings. But we must build on this foundation by giving more people greater incentives and opportunities to save for their retirement. ““Overall participation in occupational schemes has been falling since the late 1960s, and disproportionately high charges are making the personal pensions market uneconomical for those on moderate to low incomes, who often stop contributing to private schemes after a short period of time. We will therefore be bringing forward legislation to create new low-cost personal accounts as the catalyst for a new savings culture in our country. ““This White Paper sets out proposals to give every employee in Britain earning more than £5,000 the statutory right to receive a contribution from their employer towards an occupational pension. Provided that they take responsibility by contributing to their pension from their own wages, employees will be entitled to an employer contribution of 3 per cent of their salary in a band between approximately £5,000 and £33,500. We will fix the level of employer contributions in primary legislation. ““From 2012, employers will automatically enrol their employees into personal accounts or into their own existing occupational pension scheme, as long at it meets the specified minimum standards. This simple but radical step will affect around 10 million employees in Britain and will be vital in overcoming the barriers that prevent many people making the decision to save. There will be a compliance regime to protect the right of employees to be automatically enrolled and receive an employer contribution. We will consult on the detail of this approach, but expect it to build on the light touch model for the national minimum wage. ““We intend to establish personal accounts along the lines proposed by the Pensions Commission. The Pensions Bill provides for the creation of a Personal Accounts Delivery Authority, an independent body with financial sector expertise that will in the first instance advise the Government on the design of the operational structure of the accounts and prepare to get the necessary contractual arrangements with the private sector in place. It will then be responsible for commissioning the infrastructure to deliver the scheme from the private sector. The authority will eventually be replaced by a new personal accounts board, which will be responsible for the live running of the accounts. Its decisions will be independent of the Government. ““Evidence suggests that moderate-to-low earners prefer not to make a choice of pension scheme administrator. Our approach will offer greater simplicity for savers and maximise participation levels. There will be a choice of funds for those who want it, which we expect to include the options of social, environmental and ethical investments and branded products. For those who do not want a choice, there will be a default fund. ““Low charges are critical to ensuring that people build up the maximum pension fund from their savings. The Government estimate that the long-term costs for personal accounts will be in line with those set out by the Pensions Commission of around 0.3 per cent of funds under management or even lower. Together with reduced marketing costs, this approach is expected to be 20 to 25 per cent cheaper than a system based on direct competition between firms for individuals. ““These reforms are designed to fill a gap in the existing market. We want them to complement the existing market, not compete with it, so alongside the creation of the new personal accounts we will take action to support existing pension provision. There will be no transfers into or out of personal accounts from or to existing pension schemes, and an annual limit will restrict the level of contributions that individuals can put into their accounts. This will be £10,000 in the first year to allow individuals currently without access to a good-quality occupational pension to save in other, non-pension, products before 2012 and then move to personal accounts. We propose a limit of £5,000 for subsequent years, but will consult on this. ““There will be a simple and self-certifying exemption test for employers who operate schemes of broadly equal value to personal accounts. In addition, we are consulting on whether companies that offer higher-value schemes should be allowed to have a reasonable waiting period before employees join the schemes. We are also interested to learn more about the NAPF’s proposal of a good pensions scheme quality mark to help employees to identify companies that offer such pensions. ““The Government are committed to minimising the burden of personal accounts on employers. Mandatory employer contributions will be phased in over at least three years. The reforms have to be simple to run for a small employer. The central clearing house will mean that employers need have only one point of contact for transferring contributions. The Government will make minimising the administrative burden on employers a key task for the delivery authority and subsequent personal accounts board. ““The vast majority of people can expect to benefit in retirement from saving in personal accounts or an equivalent scheme. Of course, all forms of saving have some uncertainty, but thanks to our reforms those who work or care throughout their working lives can expect to be better off from having saved. Indeed, now someone need only work or care for 24 years to avoid pound-for-pound withdrawal. Under existing rules, even the tiny minority of pensioners who receive the guarantee credit only could still see a return from their saving by taking a lump sum. ““Simple, low-cost, flexible and portable as people move jobs, personal accounts may generate an additional £4 billion to £5 billion of net new saving each year, equivalent to about half a per cent of GDP. They will help millions of people to take greater responsibility for building their retirement savings and embed a new pensions savings culture at the heart of a comprehensive and balanced pensions settlement. ““These reforms set a sustainable and sensible course. They are in the long-term interests not only of this generation, but of generations to come, and I commend the White Paper to the House””. My Lords, that concludes the Statement.