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Pensions Bill

I do not know whether we will be able to debate that new clause, given the issues before us, but I assure my hon. Friend that I am very conscious of the concerns that he expresses about people who find that they have a terminal illness and are unable to make a claim on the Pension Protection Fund if their pension scheme has failed and they are under the prescribed age. I propose to suggest an amendment in due course, to be tabled in another place, in order to ensure that those who are affected in that way can get some sort of help. The aim would be that provided they could show that they meet certain conditions, they would get some significant payment to help them through the difficulties that they faced. We all want to achieve the aim of getting more people saving, but we need to address the issues arising from the combination of individual inertia and commercial viability, which have resulted in large numbers of moderate to low earners currently not saving enough for their retirement. The Bill provides for the establishment of what has been described as a budget airline type of pension scheme. I am not sure whether I want to follow that analogy too far—[Interruption.] The hon. Member for Hemel Hempstead (Mike Penning) suggests that all the budget airlines have been successful, but Freddie Laker might have disagreed. We want to provide a basic scheme that will be of sufficient quality to enable people to save for their future and provide them with a reasonable income. The key problem is what happens in relation to the current better employers' schemes—not all of them are better—where the employer may be making a bigger contribution and may find that with personal accounts, the minimum contribution will cost him less. The employee may even be making a bigger contribution to an existing scheme and may find a smaller contribution to a personal account temporarily advantageous to him and his family. How are we to prevent levelling down? The straight answer is that we cannot prevent it. We can reduce the likelihood that it will happen and take reasonable steps to mitigate the factors that might cause it. We have already discussed one of the ways of doing that: restricting transfers in and out of personal accounts. Someone with a current pension scheme will not be able to transfer in at the start of personal accounts in order to level down. Also, we are not looking to have people transferring out of personal accounts. Preventing people messing about and transferring in and out is a mechanism to reduce the likelihood of levelling down. Also, there is a maximum contribution annually that people can make—£3,600. Many people will want to make a higher contribution, but we have indicated that on 2005 figures that is the level of annual contribution that we want. We have carried out surveys of employers to ask what they are likely to do if they have the option of continuing with their current scheme or moving to personal accounts. Surveys suggest that most employers would stick with what they have. No doubt some employers will see an advantage in levelling down, and I cannot give the guarantee that the hon. Member for Weston-super-Mare (John Penrose) seeks from me, that it will not happen. However, the scheme designs that we have put in place will reduce the likelihood of its happening and hopefully mitigate the possibility of its doing so on a significant scale. The other way in which we have tried deal with the matter is keeping the scheme simple. The hon. Member for Weston-super-Mare said that it was important to keep these things simple, and I agree entirely. So does Paul Myners, the chairman of the Personal Accounts Delivery Authority. In his evidence to the Committee, he said:"““Keeping it simple is critical to the successful delivery of personal accounts. Every further bell or whistle that is added to the scheme will have to be paid out of people's retirement income.””––[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 8, Q33.]" That is exactly right. It is a view that is broadly shared. It is also one of the ways in which we can reduce levelling down. People have requirements from their pension scheme. If the scheme on offer is kept simple, and if it will provide some of the bells and whistles with a higher contribution, we envisage that they are likely to stay with it. The hon. Member for Weston-super-Mare asked how we would measure an acceptable outcome. We want to ensure that we get considerably more people saving. The aim—we need to look at the ambitious end—is to have up to 9 million more people saving, and up to £10 billion more saved. If, as the hon. Member for Eastbourne (Mr. Waterson) has suggested, more people were saving but no more was being saved, it would not be a successful outcome. We need more to be saved, and we need more people saving. We need outcomes where pensioners are basically better off, which is why we are all involved. The Bill makes it clear that PADA is primarily tasked with setting up the scheme. The principles provide the operational framework within which it will carry out that task, and they are fundamental to how it will design the scheme. The hon. Member for Eastbourne has acknowledged in the drafting of new clause 6 that the authority cannot be tasked with achieving each principle in absolute terms. The principles are there to guide it in setting up the scheme. The combined effect of the principles and the package of proposals elsewhere in the Bill is to focus personal accounts on the target group I mentioned and to provide safeguards in scheme design that will minimise adverse effects on existing good-quality provision. In setting out those principles, we are asking the authority to consider the effect on future members of the personal accounts scheme, the overall additional burdens on employers and the impact on the broader pension industry, including members and prospective members of qualifying pension schemes. We must be realistic. Inevitably, there will be competing priorities, and the authority will need to make judgments about the suite of principles that it needs to deal with to provide the best solution in the circumstances, which is why we have used the phrase ““have regard to””. For example, the authority will need to evaluate the various options for investment fund choices in the light of members' preferences for fund choices and membership costs. It will need to consider the options carefully, so that the provision of investment choices does not get in the way of our aspirations for a low-cost scheme. Clearly, we cannot predict precisely how individuals, employers and industry will respond to the introduction of those reforms. We are seeking to ensure, in so far as it is possible, that we get the best impact out of personal accounts without experiencing the problem of levelling down. It is an important issue, which is why we have always made it clear that personal accounts are being introduced to complement, rather than replace or undermine, other good-quality pension provision. The Bill will introduce an additional pension product. This is the core of our ambitions, so the principles require the authority to have regard to encouraging and facilitating participation across the qualifying schemes. When Tim Jones gave evidence to the Pensions Bill Committee, he discussed the gap in the current pensions market, stating that"““the market correctly recognises that it is a very difficult sector to address because of the very large number of small employers and the costs of approaching it””." He made clear the authority's role, saying"““It is our job to address that target market””.––[Official Report, Pensions Public Bill Committee, 15 January 2008; c. 17, Q21.]" We are focusing on the target market. However, other individuals who are not quite in the target market, such as the self-employed, may find in particular circumstances that they want to contribute as both an employer and an employee and build up a pension pot and personal accounts. We are happy for the self-employed to do that. There is an issue about people who are not employed. At the moment, they would not be able to use personal accounts. We want to see whether we can get a situation where we can prevent levelling down and make sure that we keep the current provisions for employers, so pension schemes continue. There is an element of employer inertia as well as employee inertia—we expect most people who are in pension schemes to stay in them. Employer inertia means that if an employer has got a pension scheme, we expect them by and large to stick to it. On workplace personal pensions, amendment No. 29 relates to the treatment of insurance-based products. I want to make it clear that that is an issue for Ministers and Parliament to decide and does not relate to PADA principles. Workplace pensions are an important and growing part of the pensions market. As the hon. Member for Eastbourne has said, membership of workplace personal pension scheme forms around 47 per cent. of current private sector pension membership, which represents around 3.3 million employees involving a total contribution of around £6.7 billion each year. There are 2.1 million members of workplace pension schemes with an employer contribution of 3 per cent. or more. We are currently in the process of seeking clarification from the European Commission that from 2012 automatic enrolment into workplace personal pensions is compatible with European consumer protection legislation. We continue to support the Pensions Commission's aim of automatic enrolment across all employers and all workers, and we hope that the work that we are doing with the European Commission will allow us to maintain that position. However, it is difficult to be precise about the timetable for resolving this issue with the European Commission. It is therefore essential that we retain flexibility within the discussions with the Commission. That is why we have a provision in the Bill to enable us to create an exemption, as the hon. Member for Eastbourne has indicated, from the employer duty automatically to enrol employees using workplace personal pension plans. If activated, that exemption would provide employers who meet the prescribed requirements and offer their jobholders membership of a qualifying workplace personal pension with relief from the duty automatically to enrol, providing that they use an enrolment process prescribed in the regulations. The issue is difficult, and I am grateful for the way in which the hon. Members for Eastbourne and for Rochdale (Paul Rowen) have approached it—I have briefed them privately on the situation in more detail. I am also grateful for the contributions from a range of stakeholders outside government, including the Association of British Insurers, the National Association of Pension Funds, the CBI and the People's Pensions Coalition—we all share the same aim. There is, as the hon. Member for Eastbourne put it, a plan B, but I would rather stick with plan A and see whether we can deliver it.