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Pensions Bill

moved Amendment No. 112ZD: 112ZD: After Clause 66, insert the following new Clause— ““Principles (1) In carrying out its functions under section 66 in relation to a scheme established under section 58, the trustee corporation must have regard to the principles in subsection (2). (2) The principles are that— (a) participation in the scheme should be encouraged and facilitated; (b) the burdens imposed on employers by the scheme should be minimised; (c) any adverse effects on other qualifying pension schemes, and on members and future members of those schemes, should be minimised; (d) the cost of membership of the scheme should be minimised; (e) the returns to members on retirement should be maximised; (f) the preferences of members and future members should, so far as is practicable, be taken into account in making any provision about investment choice in the scheme; (g) diversity among members and future members of such a scheme should be respected.”” The noble Lord said: With this rather drawn-out Committee stage, we tend to forget that Clauses 65 and 66, which in continuous terms we have just finished debating, set up the all-important trustee corporation and give it a very broad remit of functions—so broad, indeed, that, apart from running the pension scheme that the Secretary of State is to set up under Clause 58, its only function is set out in Clause 66(l)(b), which refers to, "““any other functions it is given by or under an enactment in connection with the scheme””." This, I assume, means yet more pensions Bills are in the pipeline—or is it there because of the Minister’s favourite word, ““flexibility””? We know already that the scheme itself will be prepared by the Personal Accounts Delivery Authority and handed to the trustee corporation on a plate, as it were. Shortly after that—we still do not know how shortly and I suppose that yet again the Minister will say that he does not know—PADA will leave the scene and become otiose. We on these Benches find it mysterious that, while both PADA and the trustee corporation are given functions, only PADA, under Clause 70, on which we will have a large group of questions, is given principles. I do not want to anticipate those debates now, because it is obvious that the trustee corporation needs to have rather different ones from those of PADA. This brings me to the amendment, which is almost self-explanatory. The seven principles that we have identified most definitely apply to the organisation, the trustee body, which is to run personal accounts for as long as they exist—well into the next century, one hopes, when PADA is long dead and buried. Paragraph (a) of proposed subsection (2) says that it should be the job of the trustees to continue to encourage and facilitate jobholders in the relevant income bracket to first join and then continue with their personal account until retirement. It goes on to say that the trustee corporation should make every effort to minimise the burdens that it will inevitably place on employers, among whom will be new employers in the years to come. It will be up to the trustees, not anyone else, to keep them informed, but not—or it should not be— to harry them. If this is really necessary, it should be role of the Pensions Regulator. Proposed subsection (2)(c) underlines the fact that the trustees are running a default pensions scheme. In no way should they see it as their role to poach members from other schemes, especially direct contribution ones, but that thought applies equally to hybrid and final salary schemes, with which they may be seen to be competing. Again, I remind the Committee that I am thinking in particular of life after PADA and the vast amounts of money that the trustees will very quickly end up handling. This thought continues through into the next principle: continuing to keep down costs. Just because PADA hands on a scheme that was originally going to be paid for by charging the members 0.3 per cent of their pension investment a year, that does not mean that the figure of 0.3 per cent will continue to be possible in, say, 2020 or 2080. Nobody knows what is round the corner as far as the cost of personal accounts is concerned. The ink had hardly dried on the masses of reports and government statements that have surrounded personal accounts before I heard almost everywhere that the 0.3 per cent that the Pensions Commission regarded as ideal would much more likely be 0.5 per cent. I have even heard 0.7 per cent mentioned. Whatever this final figure is, though, care should be taken to keep it to that, and even to reduce it, when the trustees start to handle very large amounts of money. Next, it seems to be a sine qua non that, unless the jobholders’ investments are seen to be having a reasonable return compared to other investments—ISAs maybe, even direct investment in the stock exchange, or in the currently somewhat unlikely event that lifetime savings accounts come on to the investment scene—jobholders will opt out. I am sure that the Minister will tell me that, because of the employer putting 4 per cent into personal accounts, other investments cannot possibly do better. However, you have only to look at the comparison tables in the weekend papers to see that that ain’t necessarily so. He might also tell me that ISAs are different because they are bought out of taxed income and are tax free only when they are released. That is, of course, correct. However, overall, if they are kept long enough, they can produce a perfectly reasonable return, especially if the full amount allowed is invested. This, of course, is more than twice the maximum allowed under PAs. I believe that even though the Government expect that the trustees will start with a number of funds—we are currently told between five and l0—they might well decide that more or perhaps fewer are appropriate. Again, we will be discussing that shortly. It should be their job to take the jobholders’ wishes into account. Muslims, for example, are barred by their religion from receiving interest and might refuse to put money into an interest-only fund. Indeed, such a fund would not normally produce a particularly good return anyway. What types of funds are currently envisaged? Clearly there will be a Sharia fund and a default fund, as well as perhaps a stock exchange tracker fund, as the noble Lord, Lord Oakeshott, suggested last week. There may be an ethical fund, which we will debate shortly, and surely there will be others. As the member ages, it might well be sensible for him to move from one fund into another—possibly from a medium-risk one into something safer. Will transfers between funds be possible or even suggested by the trustees? Up to now, we have been thinking only of the beginning of the personal accounts scheme. What about the end? We assume that, under the current arrangements, when the jobholder retires he will be bought an annuity. As we know, annuities are a gamble; the value depends on the rate on offer when you retire. That can make a difference of hundreds of pounds, especially if you are a smoker or live in an unhealthy part of the United Kingdom, or even have held a personal account from the age of 22. A better rate can often be achieved by group purchases, as the Financial Assistance Scheme has discovered, and would usually result in a better return for the retired PA investor. Will group annuities be the norm? Will they even be contemplated? We do not know and I am sure that the Minister is not in a position to tell me. That brings me, finally, to diversity, which, as proposed subsection (2)(g) says, the trustees should respect. I would expect that a jobholder in 2040 would have considerably better financial knowledge than one in 2012. One hopes that, with all the information, including money and savings lessons in school, tomorrow’s pensioners will be much more savvy and will be able to understand all the freely available advice. Different groups of investors will have different needs and therefore different requests, not only as to which fund to invest in. For example, they may well realise that fund A is not going nearly as well as fund C. That may be because of the performance of the fund managers or there may be other factors, such as how the fund was set up in the first place. Others may be quite satisfied, especially if they get an annual return showing that their fund has done better than the investment would have earned at interest. There is also the matter of what goes into the annual return and whether there is enough information therein to be really informative. Yet others will doubtless feel the need to opt out for a period, maybe several periods. Yes, there will certainly be different groups. The trustees need to keep all these things—maximising participation, having minimum burdens on employers, competition with other pension schemes, the cheapness of management charges, the maximisation of returns to members and their preferences, and differences between members’ wants and needs—in the forefront of their minds. To keep these principles there, they should be in the text of the Bill. I beg to move.