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Pensions Bill

There will be an overlap. There will not be a sudden cut-off of PADA and then creation of the Personal Accounts Board. There will be a period when the board runs alongside PADA in a shadow process. When PADA goes live—when it starts taking in money and building up a pension scheme—that is when we will know that the handover has in effect taken place. PADA may have to continue to exist for a short period thereafter before being wound up, so that we can ensure that the processes are properly carried out; there may be some advice given to it, and there may be services that it is providing. However, it is envisaged that PADA will start to wind up around 2012. I do not have an end date for it, but it will not go on long after that. It will then hand over completely to the Personal Accounts Board and the trustee corporation, which will run the pension scheme. Let me deal with some of the issues in relation to funding. The unique nature of personal accounts will present a challenge in developing a funding strategy. Before any decisions can be taken, the authority must first complete the design of the scheme and commercial negotiations with private contractors. It cannot do this until after Royal Assent. The measures in the Bill provide it with a degree of flexibility in developing funding options. That is vital in ensuring that we do not rule out options that could later prove to be in the best interests of members. However, we have been absolutely clear that any funding strategy must meet a core set of aims. We have always said that we would bring employers into the reforms in stages and that we will phase in the rate of contribution that they are required to make. We will need to get those aspects of implementation right, as well as ensure that the right employers have the appropriate information. That is the basis on which we are proceeding, and we intend to ensure that that is how we deliver. The unique nature of personal accounts is the key. We want to ensure that the strategy delivers low charges to members, and that it is based on our intention that the scheme will be self-financing and delivered at no cost to the taxpayer in the long run. We want to ensure that the scheme is commercially viable, consistent with European law and not unfairly advantaged. The hon. Member for Eastbourne tabled a series of amendments that seek assurances and answers to specific questions about funding. As I have explained and for the reasons that I have given, the authority is not yet in a position to provide all the detailed answers. Our intention is that the costs of setting up and operating the scheme would ultimately be recouped from revenues from membership charges. However, during the period of set-up and in the early years of operation, membership charges will not cover all costs. The Bill therefore contains provisions to allow the authority and trustee corporation to bridge the gap through borrowing, and for the Secretary of State to provide financial assistance through grants, loans, guarantees or indemnities. This does not mean that any of these specific provisions will be used, but it does mean that the authority's ability to maximise value in its commercial negotiations will be strengthened. Borrowing from the private or the public sector could be one option to achieve our intention for the scheme to be self-financing. However, that would be prevented by amendment No. 15, which is why I cannot accept it. New clause 5 and amendments Nos. 11 and 28 would require any loans from the Government to the authority or the trustee corporation to be made on a commercial basis. If there is any funding from the public sector, it is intended that that would not provide an unfair advantage and would comply fully with European state aid rules. This is a guiding principle of the funding strategy. Amendment No. 16 appears to be designed to ensure that the independence of the trustee corporation—the Personal Accounts Board—is not compromised by the requirement to gain the Secretary of State's consent for any borrowing or investment. The Bill clearly establishes the trustee corporation as independent of Government. However, as a non-departmental public body, the trustee corporation's financial arrangements would be taken into account in the Department's budget. It is therefore right that this should be subject to scrutiny by the Secretary of State to ensure that the wider interests of the taxpayer are taken into account. The hon. Member for Rochdale had a brief exchange with me on the subject of grants. There are some areas of the authority's work that he is right to say envisage giving advice to Government and others, and providing services which, because of the sheer scale of the undertaking, would be unlike those that other commercial bodies have to operate. Grants from Government to the trustee corporation may be necessary in the future—for example, if the Government asked the trustee corporation to provide advice or information to help them and Parliament to assess the success of our overall public policy ambitions. As this would not directly benefit scheme members, it would be unfair to expect them to meet the cost. I therefore cannot accept amendments Nos. 27, 10 or 12. At this point I would like to reassure Members that the costs that the regulator incurs in establishing the compliance regime will be borne by the Government. That will be done through existing powers, achieving the same aim as new clause 3. I have made it clear that low charges will be at the heart of the personal accounts scheme. However, difficult trade-offs will need to be made between the initial level and structure of charges and how quickly the scheme becomes self-financing. That is one of the issues that PADA is exploring in its public consultation on the best charging structure for the personal accounts scheme. New clause 4 and amendments Nos. 13 and 14 demonstrate why we should wait for PADA's advice before taking decisions in this area. New Clause 4 and amendment No. 14 would require the scheme to repay the costs of establishing the personal accounts scheme within five years. That would be likely to lead to unreasonably high charges for the first cohort of members, impacting adversely on their savings and potentially leading to high levels of opt-out at the time when we most need to establish the confidence of savers. I am not saying that it is a wrecking amendment, but it is not far off it. Amendment No. 13 would initially cap charges at an annual management charge of 0.3 per cent. It therefore pre-empts PADA's charges consultation and risks inappropriately extending the time that it will take for the scheme to become self-financing. I am not prepared to pre-empt decisions on the funding strategy in this way and therefore cannot accept the amendment. Finally, the hon. Member for Rochdale asked for various reports. Amendment No. 9 would require the authority to report on the financial management of the scheme within 12 months of Royal Assent. The financial position of PADA and the corporate trustee as non-departmental public bodies will be reported to Parliament on an annual basis. Further, as a trust-based pension scheme, the trustee corporation will be required to provide annual statements to its members. I see no reason to add to those reporting requirements, which would involve additional bureaucracy. I reassure hon. Members that the authority will continue analysing the assumptions and risks around take-up, persistency and contributions as part of its work to develop the funding strategy. However, I will not commit the authority to making public its latest assumptions on funding when it is likely to be in the midst of sensitive commercial negotiations. Developing the funding strategy for personal accounts is already a complex and challenging piece of work. I welcome the support expressed by Opposition Members for the project, but I cannot provide them with the guarantees that they want in relation to 2012. I have always said that we envisage that the scheme will start to deliver in 2012, but this is a big project and I cannot guarantee that it will happen. There are tight time scales, and some of the things are not in the control of either the Government or PADA, so we must be realistic. We have employed a high quality chief executive and a high quality chairman, who can deliver in the commercial sector. They have both shown that they have the skills, and they are recruiting good quality staff; we need to let them get on with the job. They have given us their proposals to deliver in the broad terms of the Government's policy on 2012, which is what I want to allow them to do. I have acknowledged that they may have to take all sorts of issues into account, if certain matters do not work out precisely as envisaged in the plans, which is always the case with a project on this scale. We have got a policy aim—there is nothing dubious about describing it as a policy aim—and we have got a plan for delivering it in 2012. The plans are tight, but they are deliverable. We should let PADA get on and deliver the project. If the hon. Gentleman wants to discuss how that will be done—the costings and so forth—I have already offered the facility of meeting Tim Jones in order to do so.