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Pensions Bill

I want to join the consensus among Members on both sides of the House about the critical importance of preventing levelling down, and therefore of accepting new clause 6 and its associated amendments. It is worth pausing for a second to understand precisely what we mean by levelling down, as we have been using the term to cover a variety of things. It is worth remembering that, for several years, employer contributions to pension schemes have fallen, not because of the Government's plans for personal accounts, but because of other external factors, partly economic and partly to do with changes in pensions and tax laws. As a result, occupational schemes are already suffering from a degree of levelling down. It is crucial that we do not accelerate the decline and push contributions even further down to the residual, basic level that will be established by the personal accounts. It is crucial that the issue is not left to chance, and that we do not just trust to hope on that point. Let us imagine the scene in any company's boardroom when the topic of the establishment of personal accounts arises. Companies with occupational schemes could do one of four things in the face of the personal accounts legislation. They could decide not only to make their existing occupational scheme available to everybody in the firm, as the rules require them to do, but to increase the contributions for each of those people. That would be a marvellous solution; I sincerely doubt that many people will opt to do that, but it is a theoretical possibility. Companies could also opt to keep contributions at the same level, but to broaden coverage to everybody in the firm. That would obviously increase the total cost of the company's pensions contribution, potentially very substantially. I do not know whether that would count as remaining the same; I suspect that we should count it as levelling up, because it would extend existing high-quality coverage to more people. I suspect that everyone, in all parts of the House, would welcome that outcome hugely. As a third option, a company could decide to maintain its overall pension contribution at current levels, in pound terms, while spreading that benefit among a wider range of people—that is, while extending the scheme to cover everybody in the firm. That would not reduce the total pension contribution made by the company, but it would reduce the amount received by each employee. I do not know whether we are counting that as levelling down. Clearly, on a macro-economic scale, it is not levelling down, but would be maintaining pension contributions at existing levels. I suspect that many of us would not regard that as a bad result; it would extend the coverage of occupational pensions significantly, while keeping them at a high level of quality. The fourth option is the one that we are all worried about: a company may decide not to keep its existing level of contributions constant, but absolutely to reduce its contributions, while extending the coverage of the scheme to all employees. We need to be clear that that is the worst possible scenario. I suggest to the Minister—I shall be interested to hear his views—that any of the other three options would be at least acceptable, if not an outright victory, and would allow us to consider that we had avoided levelling down. I hope that he will oblige us by explaining precisely what he would, and would not, regard as acceptable. There is an argument that the design of personal accounts is, in itself, a good weapon against levelling down. Personal accounts are the budget airline solution to pension coverage; the legislation deliberately sets out to create an ultra-simple, ultra-cheap, no-bells-and-whistles, no-frills product that is not terribly flexible—a good, basic, plain vanilla product that will suit a large number of people who are not currently covered. It can be argued that that in itself will distinguish personal accounts from existing occupational schemes, because those occupational schemes tend to be higher-cost, to require higher contributions and to be a great deal more flexible. They also have a fair number of additional features that personal accounts will not have.