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Pensions Bill

There is an understandable interest in the way in which the personal accounts scheme will be financed and that it should not be given a competitive advantage over other qualifying schemes. Before turning to the specific points raised by these arrangements, I think it will be helpful if I explain how the scheme’s funding strategy will be developed and the principles it will need to meet. The Government are clear in their intent that the scheme should be self-financing in the long run. That means its set-up and operational costs being recouped from members’ charges. However, in the scheme’s early years, there will be a gap between its costs and revenues. The delivery authority is currently developing a strategy to bridge that gap. I am sure noble Lords will agree that we should not underestimate the complexity of this task. The personal accounts scheme will be unlike any other scheme. It will be the largest occupational scheme in the UK, with possibly 4 million to 7 million active members; it will interact with nearly 1 million employers; it will be specifically targeted on a part of the market which existing providers find uneconomic to serve; and it will be required to admit anyone eligible to join, irrespective of whether the revenue they might bring will cover the cost of their account. The scheme’s funding strategy will need to reflect these unique features, as well meeting the guiding principles which the Government have set out. These principles are that the strategy should deliver low charges for members, be based on our intention that the scheme is self-financing in the long run and delivered at nil cost to taxpayers, be commercially viable, not provide the scheme with an unfair advantage, and comply with European rules on state aid. I hope this brief overview of how the scheme’s funding strategy will be developed and the principles it will be based on has been useful. I will now move on to the amendments. Given the size and complexity of the task that PADA faces, it is important that legislation should enable the authority to carry out its work and explore all options available. We must avoid ruling out options at this stage that could later prove to be in the best interests of members. These amendments would limit the options by requiring that financial assistance to both the authority and the trustee corporation should, in the first instance, be on commercial terms. I should make it clear that, in resisting this amendment, we are in no way setting our face against commercial funding of the scheme. Funding from commercial providers or from Government on commercial terms are options under consideration. Legislation should not, however, make commercial terms the overriding objective of the funding solution. As I have said, the scheme’s funding strategy will need to balance a range of factors. It should also be remembered that the authority will continue to incur costs in relation to activities, such as providing advice to the Secretary of State, that it is not appropriate to pass on to scheme members through charges or to expect to be funded commercially. Indeed, Amendments Nos. 112V and 113P appear to recognise that there are circumstances where commercial funding would not be appropriate, but require a detailed report to the other place before other funding can be put in place. Transparency is a key issue. I agree that there is a need for transparency once decisions have been taken and hope to reassure the noble Baroness that such transparency will exist. As non-departmental public bodies, the authority and the trustee corporation will have to publish annual reports and accounts that will be placed before Parliament. The receipt of funding, from whichever sources and on whatever terms, will be made clear in these documents, subject to the need to protect any commercial negotiations occurring at the time. In addition, my department will provide information on funding within supply estimates, which are laid before Parliament each year for approval. As noble Lords will be aware, supply estimates are the means by which the Government seek authority from Parliament for their own spending each year. They reflect resource and capital spending plan provisions for the financial year to which they relate, as well as showing the total net resource figures for the two prior financial years. Government funding will be reflected in the Department for Work and Pensions estimates; grant in aid funding is included within the sub-headline catching all DWP grant in aid payments to its non-departmental public bodies. The actual figure for grant in aid to PADA is shown separately under notes to the estimate, and if a loan is provided by the DWP it will be shown separately from grant in aid—in the same sub-headline, but as capital rather than resource. Figures presented in the main estimates at the beginning of the year are, of course, subject to changes as plans develop; those changes would be reflected in subsequent supplementary estimates. The authority’s annual accounts will provide information on each year’s funding sources and the expenditure incurred against that funding. The financial statements within those accounts will comply with the accounting and disclosure requirements detailed in the Government’s financial reporting manual and any accounts direction issued by the department. The trustee corporation will also have to comply with these requirements inasmuch as it comes within the classification of bodies to which the manual applies. Details on the layout of the accounts are still under discussion, but we expect that funding from grant in aid and loans from whatever source will be separately visible within the accounts. Additionally, within PADA’s operating cost statement we would expect expenditure to be recovered from future scheme charges, which will be reported separately from expenditure that will not be recovered. I hope that this explanation will reassure the noble Baroness both that the Government have no intention of unfairly advantaging the scheme through the funding approach—and of the importance of retaining flexibility at this stage—and that the basis for funding the scheme will be made clear to Parliament through existing reporting arrangements; I suggest that those would be pretty robust. The noble Baroness says that accounts sometimes take a little while to be produced and signed off but, notwithstanding that, I suggest that the detail that will be within them and in the department’s estimates—showing what it is funding, and how—is a robust series of indicators on how the scheme is being funded. That should satisfy her on transparency.