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Pensions: Personal Accounts

My Lords, I declare my interest as a pension fund investment manager for the past 30 years. I thank the Minister for an advance copy of the Statement and the White Paper, including the executive summary. I wonder what a ““non-executive summary”” is; perhaps we could just have summaries in future. Let us start with the consensus, so far as it goes. We support the principle of personal accounts; it would be churlish of us not to, as we floated the original idea three years ago. The Liberal Democrats called them ““National Savings pensions”” because we thought then, and still do, that the tried and trusted National Savings brand was probably the right way to do it. However, we are happy to support the principle as it is set out today. We particularly support the Government’s line on low charges and the importance of keeping to a 0.3 per cent charge. I take my hat off to them. There has been sustained pressure from the industry for higher charges, and they are right, as was the noble Lord, Lord Turner, to point out the significance of keeping charges as low as possible for long-term pension returns. We are happy to support, and to work together to design and build, the best vehicle for the national pension savings scheme that we can. That, however, is about as far as consensus goes. The problem is that a car is being designed that not only has no petrol in the engine but that has no engine at all. It is simply not possible to try to design a national pension savings scheme of this type and to get it going while the Government are still totally failing to face up to the challenge of a much higher basic state pension. The Government’s Pensions Bill simply proposes no foundation on which this can be built. The Liberal Democrats are telling the Government that they risk a massive pensions mis-selling scandal in years to come unless they face up to the need for a much better basic state pension that stops the system being riddled with means-testing right up to 2040 or 2050. The other critical aspect is that there must also be a massive expansion of integrated one-stop debt and pension advice centres. The problem with much of the White Paper’s analysis, and with many of the assertions that the vast majority of people are better off under the Government’s plans if they save—something that is not founded on fact—is that it completely ignores the relationship with debt. Forty-three per cent of people in this country do not pay off the debt balance on their credit card each month. That means that they are paying an interest rate on their debts that is well into the teens. How can it be right for many of them to be automatically enrolled into a pension savings scheme with returns of 6 or 8 per cent when they are paying very large amounts of debt at the same time? Not a single independent commentator or expert agrees with the Government’s assertions. I had a meeting last week with the chief executive of Legal & General, Britain’s leading life insurance company, which produced some very interesting statistics that I am happy to share with the Minister and the Government. Legal & General makes it quite clear that, according to its figures, it is better for many employees with debt to pay off that debt, even if that means losing the employer contribution and the tax relief. That sort of analysis will come back to haunt the Government. The noble Lord, Lord Skelmersdale, referred to the tables on page 33 of the executive summary. These tables, which the Government have picked out, are for a male median earner. I remind the Government that far too much of our pension system has been geared to the male median earner and for far too long. It is high time that female earners and carers were put at the top of our priorities. The fiddling around the fringes of our system and the miserable little changes that the Government are making to those categories in the Pensions Bill do not begin to add up. Only a universal state citizen’s pension at a much higher level can deal with these problems of persistent unfairness to women and persistent means-testing. Does the Minister not understand the interaction of debt and pension savings? Can he not see how automatic enrolment will often be very wrong for the lower paid, because they will lose a significant part of their savings through means-testing for many years to come? That combination of high interest rates on debt and low returns on pension savings will be a toxic cocktail for millions of people for many years to come.