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Pensions Bill

It is a great pleasure to be able to speak in the House at all. In recent months, I have spent so much time in the Council of Europe Parliamentary Assembly that one of my new year's resolutions was to try and speak in the House more often. Tonight was the first available opportunity to do so, but this is an issue of which I have some knowledge as a result of my long association with the insurance industry and my chairmanship of the all-party insurance and financial services group since 1992—a long period, throughout which issues relating to pension reform have been high on the agenda, and have often been raised by the industry and pension groups. I wish to begin by telling the Minister that there is genuine good will among pension providers towards the initiative, and they want it to succeed. In the spirit of the contribution by my hon. Friend the Member for Epsom and Ewell (Chris Grayling), however, may I tell him that good will is not enough? We have to face the fact that the issue of pension reform has dogged successive Governments for 25 years, and it is critical that we learn the lessons of past mistakes. It is not yet clear whether all the lessons of past failures have been fully taken on board in the Bill. When the previous Secretary of State, the right hon. Member for Barrow and Furness (Mr. Hutton), announced just over a year ago, in December 2006, the Government's intention to proceed with the Turner proposals for personal accounts, I asked him two questions. First, who would be responsible for information, advice and explanatory literature under the regime? Secondly, what would be the impact on existing schemes of the new floor of 3 per cent. of contributions? It is absolutely clear from today's debate that the answers to both questions remain unclear, so I want to concentrate on them in my brief remarks. The issue of information and advice is crucial. People need to make properly informed judgments about how much to invest in their pensions, whether to invest at all, or whether, difficult though the Secretary of State has reminded us it will be, to opt out of auto-enrolment altogether. Much has been said in this debate about the impact of means-tested benefits, and that is undoubtedly important. However, there will be a deterrent if people think that saving is not worth the sacrifice. We must address the issue, and I hope that the Minister will have something more positive to say in his winding-up speech. We should be in no doubt that it is difficult to judge in advance whether low-paid employees should stay in the schemes, because there are so many unknown and imponderable factors. What will the contributions during a working life be worth come retirement age? How much income will those contributions then generate? What will annuity and interest rates be like? What will be the impact of inflation at that time? What type of annuity should people buy? Will employment experience and record over a long period enable an individual to build up a worthwhile investment record through their fund? Those questions are critically important, but the answers are extremely difficult to predict in this debate today. Not only the Government but Parliament and the country are in a Catch-22 situation on the issue of means-tested benefits. It is clear to me—and I think this was what the Secretary of State was trying to hint at in his robust exchange with my hon. Friend the Member for Epsom and Ewell—that unless people make provision for their retirement in much greater numbers, pressure to provide help through means-tested targeted benefits will remain. It will be there for all Governments. However, affordability will eventually be the issue. How much longer can we afford our expectations, given that there will be two employees per pensioner to fund everything on pay-as-you-go? Clearly, we will not be able to. In a sense, we should not be debating whether the existing structure of means-tested benefits will continue indefinitely but whether the principle and philosophy should be that people must realise that they should save for their own provision because there will be limits on what the state can provide in the future. That has nothing to do with whether one political side or the other wants to be more generous or has a greater feel for low-income pensioners' problems; it is the reality that we are beginning to face. When I first came to the House more than 20 years ago, I thought that that was the only issue. However, today we face what in principle is a good idea and scheme, but one that, if we are not careful, will be wrecked or undermined because of the expectation that the state will always provide in the end. The right hon. Member for Birkenhead (Mr. Field) was exactly right, and I shall come to his point in a moment. We have to address the issue before this Bill leaves the House. Unless people who invest in the personal accounts and choose not to opt out believe that they will be better off as a result, the provision will fail—for exactly the reasons given by the right hon. Member for Birkenhead. It is not rocket science. The Help the Aged briefing note makes clear a number of ways in which the issue could be resolved. I urge the Minister to take them on board. Past initiatives came unstuck when retrospective judgments rightly concluded that people took wrong actions. When those had been subject to advice, compensation had to be paid, at huge cost to the financial services industry. That means all of us—all of us contributed to that compensation in one way or other, if only through the reduction in the value of the residual funds of life insurance companies and pension funds. All that has induced a climate in which providers seek to avoid giving advice. Advice also adds to cost, which undermines return and value. The Government themselves were criticised by the parliamentary ombudsman for the misleading nature of Government leaflets on occupational pensions. The Secretary of State made a comment about sending messages, and that is precisely the point. The Conservative Government in office in the Parliament before I was elected, when I was working in the financial services and insurance industry, actively encouraged people to get out of occupational pensions and into personal pensions. Even the state said that portable pensions were the things to have. However, that turned out to be completely wrong and we are in danger of doing the same thing again. Ideally, advice should be available, but it is unlikely that it can be given on an individual basis in the current regulatory framework. The all-party group on insurance and financial services keenly awaits the outcome of the Thoresen review on generic financial advice. I am not as pessimistic as some of my hon. Friends, including my hon. Friend the Member for Epsom and Ewell; I think that Thoresen may provide a solution. We need to foster greater understanding of what people do with their pension investments, insurance products and so on. They should be absolutely clear, but for that the detail must be right. My hon. Friend made a point that concerns me. There is an opportunity for people, without advice, to put lump sums into personal accounts instead of, with advice, putting lump sums into other investments that may not be pension investments at all. That concerns me. I shall deal briefly with my next point, because my time is going. The Secretary of State said that most employers were unlikely to reduce existing contribution levels. I would like to share his optimism but, as the right hon. Member for Birkenhead clearly said, the future is less certain and if employers are under financial pressure, they may reduce them. However, my greater concern—and the point that I made in my intervention on the Secretary of State—is the continuing demise of defined-benefit provision. There may be reason to believe that the haemorrhage has been stemmed for the moment. However, the signs are crystal clear: remarkably few young workers in the private sector—our children—will enjoy a final salary or defined-benefit pension. That is an appalling shame, because such pensions were the bedrock of employment for the generation that preceded ours and our generation. What is the result? Comparisons with the public sector are already putting pressure on the retention of defined-benefit schemes, our parliamentary pensions included. In defined-benefit schemes, the employer takes all the risk; in defined-contribution schemes, the employee takes all the risk. There must be a middle way. The Association of Consulting Actuaries proposal may not be perfect, but I say to the Minister that the Bill is an opportunity for further reform. Conditional indexation works in Holland; I am about to get married to a lady from Holland, and I recommend all things Dutch to the Minister. Time does not allow me to address the many other issues. I agree with all that has been said about the group personal pension problem, which must be resolved. However, there is a lesson there as well. I believe that that problem is an unintended consequence of European Union rules on distance selling. Nobody thought that the rules would have that effect when they were approved in Statutory Instrument Committees. Similarly, we need to be clear that there will not be unintended consequences from the existing provision for the new personal accounts, the Personal Account Delivery Authority structure and the regulatory framework. If good intentions and an aspiration for consensus and progress were sufficient, we would not be in this position. We have one last chance to get this right, and if we fail this time, we fail a whole generation and beyond of future pensioners. As many colleagues who know me are aware, I am an optimist—a glass-half-full person, not a glass-half-empty person—but the half-empty glass needs to be filled in Committee; otherwise, I share the concern of the right hon. Member for Birkenhead that we could stare further failure on pensions firmly in the face, not now, but in a generation's time.