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Pensions Bill

I heard the Secretary of State’s earlier remarks, but I am not sure that the hon. Gentleman is exactly right in what he says. My point is that telling people at the start of their working lives that they will get back £1 for every £1 that they put in is very different from telling them the same thing in the last year of their working lives. They are two very different propositions, and that is why we have regulations that require investment providers to use assumed rates of return when they present a proposition to the public. My suggestion to the Minister is that the Government need to be equally disciplined. Our second concern is an overriding one, and has to do with the risk of levelling down among employers who currently offer good-quality occupational pension schemes. The personal accounts system will allow an employer either to offer personal accounts with a 3 per cent. contribution, or to auto-enrol all employees in that employer’s own pension scheme, provided that it has an employer contribution of at least 3 per cent. The overwhelming majority of occupational pension schemes have employer contributions in excess—and sometimes substantially so—of 3 per cent. The evidence is that many employers faced with the prospect of much higher uptake of membership of pension schemes as a result of auto-enrolment, and thus much higher costs, will compensate by reducing their compensation level over time. If they do not do that for all employees, they will certainly do it for new joiners. The achievement of more savers but less saving would represent the ultimate failure of the personal accounts dream. We believe that the Government must insert into the delivery authority’s remit a statutory obligation to seek to minimise the levelling down that I have described. They must set out, for the authority and for Parliament, the explicit criteria against which the scheme’s successful implementation will be judged. How much levelling down is an acceptable trade-off for how many extra savers and how great an increase in total saving? Thirdly, personal accounts were presented as a targeted intervention to deal with the market’s failure to provide pensions for people on lower incomes. The Turner commission specifically recommended a £3,000 annual contribution cap to prevent unfair, state-subsidised competition for the savings of higher earners. Like most of us, Turner thought that those people could be left to make their own arrangements. The Secretary of State has asserted that cherry-picking Turner is not an option, but the Government have ignored his advice. They have said that they will set a cap at a minimum of £5,000 a year—a level that would embrace more than 95 per cent. of all current members of occupational pensions schemes. In other words, the Government have moved by stealth from introducing a targeted intervention aimed at a specific and under-served group of savers to making a grab for almost the whole of Britain’s occupational pension savings sector. That would be a disaster for the pensions industry, for occupational pension scheme members, and for the political consensus in respect of a targeted intervention. It would also make it almost impossible to measure the scheme’s success in attracting its target audience of low-income savers, and I hope that that is not the Government’s intention. The Government must revert to the original intention behind personal accounts, which was that they would be a targeted intervention to support people on average or below-average incomes, and that means that they must take Turner’s advice on the level of the contribution cap. We support the principle of targeted intervention to promote workplace saving through auto-enrolment and compulsory employer contributions, but such a scheme will work only if it is based on political consensus. In trying to turn it into something other than the one Lord Turner recommended, and which the original White Paper proposed to introduce, the Government are pushing the boundaries of that consensus too far. The details of personal accounts will be set out in a future Bill, but I hope I have made it clear that if the consensus underpinning this Bill is to extend to the Bill introducing the personal accounts scheme, the Government must address the questions I have raised. In particular, they must revert to targeting the scheme on its intended audience. The need for pension reform is clear and the need for political consensus to underpin sustainable reform is even clearer. We are willing to play our part in building a robust consensus based on a solid proposition and underpinned by open and transparent analysis of the challenges that have to be addressed. As my remarks about personal accounts have confirmed, we believe that, taking the package as a whole, we have some way to go in building such a consensus. The Bill makes a good start, by delivering reforms to the state pension system that will form the foundation on which the broader reform package is constructed. In Committee, we shall ask the Government to answer the points about the implementation of state pension reform that I have raised this afternoon. We shall ask them to acknowledge our concerns about personal accounts by giving clear guidance to the delivery authority about the required outcomes, and to address the threat to the climate of confidence in personal accounts posed by the ongoing public relations disaster that is their record on occupational pension scheme failures. We welcome the Bill and I sincerely hope that by the time the Bill to implement personal accounts comes before the House, the Government will have acted to address the serious issues that hang over the future of that project, and thus rebuilt the political consensus without which it cannot succeed.