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Pensions Bill

My Lords, I can only say that that work will continue; we will have to see where it leads and over what time-scale. The noble Lords, Lord Skelmersdale and Lord Blackwell, and the noble Baroness, Lady Noakes, raised the issue of the funding of the scheme. Our shared aim is for personal accounts to deliver low charges and to be self-financing in the long term. Any funding arrangements should not unfairly advantage the scheme; we are very clear about that. We will not know the costs of delivery until PADA has completed the design and begun to engage with private sector suppliers. It is vital that we do not rule out at this stage any options that may later prove to be in members’ interests. Obviously, due to commercial sensitivities, we are currently unable to make public much of this work. A number of noble Lords raised the issue of uprating the basic state pension. I say to my noble friend Lady Turner that there is no get-out in the Government’s position. Earnings uprating will happen; it is enshrined in law. We did that last year. We will do this in the next Parliament. Our aim is re-link the 2012 sum to affordability and the fiscal position. The noble Lord, Lord Oakeshott, proposed that we should double the basic state pension. The annual cost of that would be something like £150 billion per year in real terms in 2050, the equivalent of 15 pence on the basic rate of tax. Citizens’ pensions now would cost something like £10 billion to £20 billion per year, if that were brought in immediately. It is almost impossible for Governments to eliminate means-testing without huge cost; even doubling the level of the basic state pension from 2012 would leave one-quarter of pensioner households entitled to an income-related benefit by 2015. It is simply not that straightforward. The noble Lord, Lord Oakeshott, said that he would test amendments according to whether they over-complicate personal accounts or make them more expensive. That is a good yardstick; I think that was the sentiment expressed by the noble Baroness, Lady Noakes. The noble Lord made reference to the scale of means-testing and yesterday’s DWP release. He also said that people need to be helped to buy the most suitable type of annuity. We agree that it is important for people to have the information they need to make an informed decision on annuity purchase. That was a key feature of the Government’s review of the open-market option for buying annuities, on which we reported last autumn. A number of noble Lords raised issues around generic advice, individual choices to save and the need for good-quality advice. We recognise that individuals who are auto-enrolled will need access to relevant and accurate information, but we do not believe that they will routinely need extensive advice, particularly because of the employer contribution. There is no requirement now that people who join a pension scheme should receive advice. Auto-enrolment, as it exists at the moment, does not introduce any new factors into the decision. As for the Thoresen review on money guidance, the national money guidance service recommended by the review and the Government’s action plan on financial capability will also assess the need to add to the services on offer, as well as those referred to by other noble Lords. Savings incentives, raised by the noble Lord, Lord Oakeshott, and my noble friend Lady Turner, are not a new issue. A new issue is not created by this Bill. We need to keep this issue in perspective. Under reasonable assumptions, the majority of those who are enrolled can expect to benefit from having saved. Our reforms will significantly reduce the level of means-testing, and the basic state pension will be worth more than double what it otherwise would be, ensuring a solid platform for saving. Measures in the Bill will further improve incentives to save. Existing policies ensure that those who save can benefit. The savings credit permits pound-for-pound claw-back. Twenty-five per cent of the pension pot can be taken as a tax-free lump sum. Those with very small pots may be able to take the whole of their pot as a lump sum. I am conscious of issues raised by my noble friend and others about perhaps changing or improving those rules. My noble friend Lady Hollis, as ever, raised many challenging issues. I look forward to our debates on them in Committee, but I shall respond to one or two points straightaway. She asked whether personal account schemes should allow for some pre-retirement liquidity. The personal account scheme will be a tax-registered pension scheme. Pension saving in the UK is privileged through the tax system. The Treasury rules are quite clear: tax relief on pension saving is not provided to support pre-retirement income, asset accumulation or inheritance. The expansion of access to pre-retirement pension saving would need to be across all UK pension schemes and products and not just personal accounts to avoid severe market distortion. We are aware of little evidence that such allowance would support increased engagement in pension saving. My noble friend asked whether women will be able to transfer in small pots. When reforms are introduced, there will be a ban on transfers in and out of personal accounts and a contribution cap. These measures are designed to protect the existing pensions industry. However, there will be a review of them in 2017 when the reforms have bedded in. It is clear that the desire of some individuals to consolidate their pension saving will be an important consideration in that review. My noble friend further asked whether we would allow a lifetime sum so that women can top up their saving. We have not put the amount of the contribution limit in the Bill, because we want to allow the annual contribution limit to operate flexibly. The wide enabling powers will allow for the higher contribution limit in the first year of the scheme’s operation and for a lifetime lump-sum contribution to run alongside the annual contribution limit. We need to consider whether to introduce this additional complexity when the scheme is introduced or wait for the review of the contribution limit in 2017. The noble Baroness, Lady Greengross, touched on voluntary national insurance contributions, but also asked, as did the noble Baroness, Lady Howe, how carers can access the scheme. Anyone who joins the personal accounts scheme will be able to continue to save in their personal account even after they leave the workplace or move to an employer that does not offer personal accounts. With the passage of time, job churn, especially among women and carers with fragmented working lives, will mean that a growing proportion of the working-age population will have personal accounts. My noble friend Lady Turner spoke about the need for a strong consensus and to take a long-term view, which was a very important point. She asked whether the term ““job-holder”” would include agency workers. I am pleased to say that it does: there is specific provision in the Bill for that. My noble friend asked about a range of issues around trustees and governance. Like any other trust-based scheme, the personal accounts scheme will be run by a trustee body with an overriding duty to act in the best interests of scheme members. Trustees will be appointed by open competition, in line with the arrangements for any other public appointments. There will also be a members’ panel to represent members’ views and interests, which will, among broader duties, support the nomination of member-nominated trustees, who will make up at least one-third of the members of the trust. The noble Lord, Lord Blackwell, challenged me with a range of very interesting but pertinent points, with some of which I shall try to deal now. He asked about the interaction between the savings gateway and personal accounts. The Government provide tax incentives for shorter-term savings such as through ISAs. The savings gateway is a cash-saving account for those on lower incomes. Following the success of the pilots in promoting saving and financial inclusion, it was announced in this year’s Budget that the savings gateway will be introduced nationally. Savings gateway and the personal account scheme provide complementary vehicles for shorter- and longer-term savings. The noble Lord asked about qualifying earnings. We will allow annual calculation of contributions. We accept that existing schemes use different definitions. However, it is the amount saved into pensions that counts, not the method of calculation. Employers, payroll providers and scheme representatives recognise that the calculation and checking of contributions will be automated in the vast majority of cases. However, we recognise the concern in this area and we are committed to working with stakeholders to ensure that the duties are communicated to employers as simply as possible. The noble Lord also asked whether Clause 61 introduces a limit on the amount that can be saved in a personal account. The answer is yes, we will introduce a contribution limit of £3,600 a year with the scheme, uprated by earnings—that is at 2005 prices. He asked whether government subsidies will be limited to start-up costs. The Government have made clear that there will be no unfair subsidy for the personal accounts scheme. Our intention is that all costs, including start-up costs, will be met from members’ charges over the long term. The noble Lord also asked whether compliance notices could be used to encourage employers to comply. There will be a graduated approach to enforcement, from initial reminders to notices and penalties, and there will be opportunities to appeal against the imposition of any financial penalty. I hope that the noble Lord will forgive me if I do not respond in detail to his other points now. I am sure that we will have another chance to discuss them in Committee. My noble friend Lady Dean spoke with huge commitment on the issue of lower paid workers and asked whether those with multiple part-time jobs would be disadvantaged. We recognise the issue of individuals with multiple jobs but the solutions most frequently suggested by stakeholders—for example, the aggregation of earnings—would have to be compulsory for everyone. That could have perverse consequences in increasing costs for all employers for the benefit of a few people. It is not immediately obvious how the employer contribution could be calculated easily—no mechanism currently exists. Would multi-employers share the cost of the employer contribution? How would that be done? Which employer would take responsibility for contributing to the pension scheme? I hope that my noble friend will see some of the complexities. We know that there are around 400,000 individuals with multiple jobs providing a combined income of more than £5,000 who are not currently contributing to a private pension scheme. Of these 400,000 people, around 300,000 earn more than £5,000 year from at least one of their jobs. Around 60,000 people earn more than £5,000 a year from each of their jobs. Around 30,000 individuals aged between 22 and 64 earn less than £5,000 a year from each job and women hold 80 per cent of those jobs. The noble Baroness, Lady Howe, spoke about equal treatment in pension annuities. I am sure that we will debate this matter again in Committee, but I cannot promise a different government view to last time. She asked whether a carer could opt in to the personal allowance scheme as a self-employed worker. It is difficult to see how a carer in these circumstances would be treated as self-employed. However, any carer with a personal account could continue to save in it, even when they were no longer in work. My noble friend Lord Lea spoke strongly in support of the Bill, and I appreciate that. He stressed the importance of the long term in trying to seek consensus, and the importance of the employment protections in the Bill, to which we will add by way of amendment. The noble Baroness, Lady Thomas, gave a broad welcome to the Bill, but with some challenges. I appreciate her strong support for auto-enrolment, which is a fundamental part of the Bill. She asked about costs for small employers. We have sought to help by phasing in contributions. I was interested in her vision of telephony. On the subject of deficiency notices and Mr Steve Webb, the DWP ran a special exercise and we contacted more than 400,000 people, at a cost of £33 million. In the light of discussions with Steve Webb, we are taking another look at a further 73,000 women whom we did not previously contact but who could benefit for a period before they became entitled to a married woman’s pension. The noble Baroness, Lady Noakes, said that she would try to get as much detail into the Bill as possible. I understand the thrust of that remark, but I am sure she will appreciate that much of the detail has yet to be worked out and, indeed, cannot be worked out, until we pass this Bill and give PADA the authority and powers that we want it to have. The Government review around Pays to Save is not buying off people; it is there for a proper purpose, and I am sure that it will deliver. The noble Baroness raised some challenging points about lower paid workers and how the tax system would work. I think that we might leave that to Committee, as it will be an interesting debate. On risk-sharing, we want good employer pension provision to continue and we want to explore all means of achieving that. However, we do not think that there is a magic bullet and we need to balance the benefits to employers with protection for employees. My honourable friend Mike O’Brien announced during Committee in the Commons that we will issue a consultation paper on risk-sharing in June and consult through a 12-week period. The Bill addresses the real issues that this country faces, including major demographic change and lack of saving to pay for it; confidence in the pension system; the move away from final salary schemes; and pensioner poverty. We recognise those problems and are making one of the biggest changes on pensions in 100 years. We are reforming for the long term. We have an opportunity for a new confidence in UK pensions and there is no better time than now. If we can achieve these measures by 2015 we will see a step-change in saving, with up to 9 million people saving more or for the first time, with total pension contributions increasing by up to £10 billion. This is a multi-billion pound opportunity for the pensions industry and a massive opportunity to transform the savings habits among millions of people in this country. On Question, Bill read a second time, and committed to a Committee of the Whole House.