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Pensions Bill

My Lords, I agree with the noble Baroness, Lady Thomas, that we have had a high-quality debate this afternoon. That is our custom when this elite band of noble Lords who have an interest in pensions matters gathers together for yet another Pensions Bill. My noble friend Lord Skelmersdale rightly reminded us that it has been on this Government’s watch that defined benefit provision has been decimated, and the Bill does nothing about that. Instead, it deals with the different, but important, issue of those with no or inadequate pensions savings and paves the way for the new system of personal accounts. My noble friend’s tour d’horizon included our concerns about aspects of the Bill that reinforce incentives for employers to level down. I know that when faced with the prospect of rewriting existing schemes and payroll programs to comply with the hurdles set out in the Bill, finance directors will be all too ready to lead their businesses towards the easy life of the Government’s personal accounts scheme with its relatively low employer contribution of 3 per cent. We will press the Minister very hard on removing those aspects of the Bill that positively encourage levelling down. Running through the Bill is a lack of clarity about the important issues that will arise as automatic enrolment and the personal accounts system are rolled out. There is a broad consensus behind the ideas that underpin the scheme put forward in the Bill, but I say to the noble Lord, Lord Lea of Crondall, that it may not be robust in the face of the details because, as ever, the devil is in the detail. My noble friend Lord Skelmersdale has already indicated our position on that. During the passage of the Bill, we shall try to get as much detail as possible from the Government, preferably put on the face of the Bill, but there is a balance to be achieved between the concerns of employers and the aspirations of other interest groups. While there is a broad consensus on the underlying concepts, there is no consensus on the details of implementation, and we should not pretend otherwise because we will be fooling ourselves. As is common with pensions legislation, much detail is left to later rafts of regulations. If we give the Government the huge powers that the Bill creates—and that is a big ““if””—we shall want to see the powers counterbalanced by further parliamentary involvement. In this context, I welcome what the Minister said about accepting the recommendations of the Delegated Powers Committee. Let me outline some of the lack of clarity in the Bill that concerns us. We do not know what the Bill will cost. We know little about the costs of PADA and even less about the costs of the new personal accounts pension scheme and the compliance regime. We do not know how the costs will be recovered and what costs the Government intend to subsidise. The Minister will be aware of the strong opposition from the pensions industry to the unlevel playing field that soft loans or grants for personal accounts would entail. We do not know whether the personal accounts scheme will be up and running in 2012. We all hope so, but Mr Tim Jones, the chief executive of PADA, has conspicuously failed to commit to delivery by 2012. If there is any possibility of personal accounts being delayed, we shall want to look at the options for encouraging pensions saving in the interim. Similarly, we are in the dark about the commencement of earnings uprating of state pensions in line with last year’s Pensions Act, the earliest date for which is 2012. We will need to look at how the Bill can be strengthened on this, but I fear that we shall disappoint the noble Lord, Lord Oakeshott, on whether that should be accelerated to 2010. We do not know how the Government intend to avoid future mis-selling problems due, inter alia, to the impact of means-testing, which has grown massively in scale and complexity in the past 10 years. Most noble Lords have raised this issue today. My noble friend Lord Blackwell asked the Minister some pertinent questions on this area, and I hope he will be equipped by his officials to answer those questions when he winds up. The Government have set up a review—at long last—and have invited the various lobby groups inside that tent, which seems to have bought them off pro tem, but there is no certainty that the review will produce anything other than words. We cannot allow the Bill to go forward unless it reflects that auto-enrolment should not proceed if the pay-to-save issue is not resolved. An obvious link to that is advice for employees on opting-out, on which a number of noble Lords have spoken. We should be clear that the Thoresen Review of Generic Financial Advice and its pilot schemes do not deal with the decisions that this Bill will introduce; Mr Thoresen himself does not claim that. I am not clear whether the giving of generic advice in any form will ever deal satisfactorily with the issues raised, or whether the noble Baroness’s traffic lights via the Pensions Advisory Service would be acceptable. We are in something of an evidence-free zone here. If the Government are not worried about that then we certainly are, and want to look further at it. Perhaps the biggest unknown is the economic environment that will surround personal accounts when they are eventually introduced, as the noble Baroness, Lady Thomas, has pointed out. Will employers be under extreme cost pressures as the result of high inflation and low or even, possibly, negative growth? That will of course increase the pressures for levelling down. Will employees be able to afford to pay 4 per cent of their wages into a pension scheme, or will they just opt out? I think I can tell the Minister with some confidence that if personal accounts were introduced this year on top of the 10p tax debacle, the opt-out rate would be high. Lower-paid workers simply could not afford it on top of rising tax burdens and rising inflation. When mentioning lower-paid workers I should flag an issue that I have discussed with the Minister’s officials. The personal accounts scheme has been sold on the basis of 8 per cent going into those accounts—that is, 3 per cent from employers, 4 per cent from employees and 1 per cent from the taxman. In fact it is not that simple as, while the scheme appears to have a nice symmetry at the point where the basic rate of tax kicks in, some groups of low-paid workers have additional tax reliefs. In addition, those who work for less than a complete tax year, which is probably most likely to affect women coming in and out of employment, will need a special arrangement if they are to avoid paying 5 per cent and missing out on that 1 per cent tax relief. We will be probing that with the Minister in Committee. Returning to the economic environment, that is much less benign than when the noble Lord, Lord Turner, issued his Pensions Commission’s report, or when the Government issued their White Papers. The Minister is, doubtless, thinking that it will not be his problem in 2012: we certainly hope that the electorate will have passed their final verdict on the current Government by then. We will be subjecting this Bill to the most rigorous scrutiny to ensure that the best does not drive out the good. We must avoid gold-plating. It may be hard enough to get the personal accounts system to take off and to be well received in an economic environment that is not as fortunate as it has been in the past; we must not make that job harder when implementation dates arrive. The Government have recently increased their estimates of the year-one and ongoing costs to employers, especially those to micro-employers to whom these costs are a big concern, but they still look low. We will look critically at the many complexities in the Bill and ask whether they will really help the scheme succeed, or just add cost—especially for small businesses. The Bill paves the way for personal accounts to be introduced via a special pension scheme. We have concerns about the trustee corporation that will run that scheme, which will be a government quango—credible only if it is independent of the Government. We will need to probe whether the balance between independence and government interference is the right one. For us, the involvement of Parliament is more important than work opportunities for civil servants. There are other detailed aspects of the trustee corporation and the pension scheme that we will need to probe in Committee. We will also be looking at the changes being made to the Personal Accounts Delivery Authority. We welcome the addition of principles to which PADA must work and we shall work to improve them. We will also look at why similar principles are not also appropriate to the trustee corporation. A specific issue which we intend to pursue in Committee is that, as my noble friend Lord Skelmersdale reminded us, on this Government’s watch our pensions’ landscape has been transformed and defined benefit schemes outside the public sector are now open to relatively few employees. As has been pointed out, the figure is now around 900,000 as compared with 5 million in the mid-1990s. If defined benefit provision is to stabilise, the rules need to be more flexible. The Minister will be aware of the proposals put forward by the Association of Consulting Actuaries to tackle the rigidity of the current indexation requirements. The conditional indexation approach used in the Netherlands does not provide all the flexibility that would make employers—and in particular their finance directors—feel warm about defined benefit provision, but if conditional indexation helped just one defined benefit scheme to stay in existence, albeit on a modified basis, that would be worth while and we intend to table amendments to that effect. A dog which has not barked in the debate is compulsory annuitisation at 75. We will be returning to this issue in Committee. On annuities generally, the comments of the noble Lord, Lord Oakeshott, about choice at the time of annuitisation were interesting and we look forward to seeing whether robust amendments can, in practice, deal with this issue. A dog which has barked loud and clear today is the issue of women’s pensions. We on these Benches fully understand and sympathise with the issues that have been raised, most notably, of course, by the noble Baroness, Lady Hollis, who works so tirelessly in this area. But we have to bear in mind that many of the issues have cost tags attached to them. In addition, some of the amendments to the personal accounts scheme that people want will add complexity—and therefore costs—to that scheme. These are difficult areas but we look forward to returning to them in Committee with an open mind. We support the aim of greater workplace pension provision that the Government are seeking to achieve but, as I have said, that support is not unconditional as to the detail. The Minister should by now be on notice that we on these Benches look forward to a detailed and comprehensive scrutiny of the Bill when the Committee of the Whole House commences.